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Candlestick charts for newbies: what is it, how to read it, types of candlesticks

how to read candlestick charts

The best candlestick pattern to trade for beginners is the one that’s the easiest to identify… and that’s Doji. Hammers can be both red and green, but the latter represents even stronger buying pressure.

  • Candlestick charts have become the standard choice for technical traders today for a good reason.
  • You don’t have to have huge amounts of money to be a financial markets trader, especially if you want to trade forex since many online brokers only require modest margin deposits.
  • For example, while the wicks of a candlestick do tell us the high and low of the period, they can’t tell us which one happened first.
  • It shows that sellers are back in control and that the price could head lower.

This considers the size of a candle’s body and length of its wicks, which may suggest a reversal in price direction. They look the same, and they can signal an imminent price upturn or downturn, respectively, based on the context of adjacent candles. The depiction below shows two basic candlesticks, with the candle colored green to denote a bullish move , and red candle for a bearish one . The thin lines above and below the candles—the wicks—show the intra-period high and low for the time frame being examined. The volume and liquidity of an asset influence the choice of time increments for charting. For example, stock and ETF traders might use 15-minute or hourly intervals to find any developing trends or signs of a price reversal, in one or more trading days. Currency traders, on the other hand, might use the shortest time increments, such as one or five minutes.


Candlestick charts can be used to analyze any information on financial markets, the stock market, and, of course, the crypto market, too. They are one of the best tools for predicting future short-term price movements of assets. These charts are a few of the most common and reliable bullish two-day trend reversal patterns in an uptrend. According to Steve Nison, candlestick charting first appeared sometime after 1850. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata. It is likely that his original ideas were modified and refined over many years of trading, eventually resulting in the system of candlestick charting that we use today.

how to read candlestick charts

Dragonfly doji is a significant bullish reversal pattern that mainly occurs at the end of downtrends. On this chart, a single candlestick shows the dynamics of a price during a particular period. Candlesticks give traders an idea of immediate sentiment among traders—the balance of buyers and sellers and whether that balance is shifting. Candlestick charts show incremental movements in the price of an asset for a given period of time, they may help investors identify very short-term trading opportunities. For your information, resistance levels are where buyers might see that prices are getting too high and where sellers see a good opportunity to exit. When this behavior happens, a token will of course meet pressure as its price rises and gets near a predicted resistance level. The candlestick shadows are depicted as thin lines on the top and bottom of the body of a candlestick.

Closing thoughts

The information provided by, Inc. is not investment advice. Candlesticks still offer valuable information on the relative positions of the open, high, low and close. However, the trading activity that forms a particular candlestick can vary. Small candlesticks indicate that neither team could move the ball and prices finished about where they started. The length of the wick is a good visual indicator of volatility. Long wicks mean the price went much higher or lower than the opening and closing prices. If the candle is green, the closing price is higher than the opening price.

Candlesticks with long shadows show that prices extended well past the open and close. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced how to read candlestick charts significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture.

An example of a candlestick chart in action

It means the sellers no longer have any influence on the price movement of a stock. A data set including Open, Close, High, and Low values for each time period you want to plot is used to create the Candlestick chart. Upper and Lower Shadow, respectively, refer to the lines that are above and below the Body.

What do the wicks on candlestick charts mean?

As shown in the graphic below, the top wick of a candlestick indicates the highest price reached during the time period (eg, a day). The bottom wick shows the lowest price. The “candle” part of the chart shows the opening and closing prices for the time period.

How you trade a doji depends on what’s happened before it appears. After a long downtrend, for instance, a dragonfly doji may mean that buyers are entering the market, so the downward move might be about to reverse.

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