How to read a candlestick chart
On a candlestick chart, each candle shows a single period, such as one hour or one day. A candle carries four prices at once: the open, the high, the low and the close. The body spans the open and the close; the wicks show the extreme prices reached during that period.
What is a candlestick chart?
A line chart joins one price per period, usually the close. A candlestick chart draws each period as a candle and shows at the same time where price started and ended in that period, and how far it moved up and down in between.
The length of time one candle covers is the chart's timeframe. On a 1H chart each candle covers one hour; on a 1D chart, one day. The shape of a candle does not change; what changes is how much time fits into a single candle.
The parts of a candle
- Open: the first traded price of the period.
- Close: the last traded price of the period. It keeps changing until the candle closes.
- High / low: the highest and lowest prices seen during the period.
- Body: the filled part between the open and the close. It shows the period's net move.
- Wick: the thin line above and below the body. It shows where price went and came back from.
Some sources call the wick a shadow. Both mean the same thing.
What the colour tells you
The colour depends on where the candle closes relative to its own open, not relative to the previous candle.
Rising candle (green)
The close is above the open. The bottom of the body is the open and the top is the close.
Falling candle (red)
The close is below the open. The top of the body is the open and the bottom is the close.
Very small body
The close is very near the open. Even if price moved during the period, the net result is close to zero.
Reading a candle step by step
- Check the timeframe. The same shape describes a few minutes on a 15m chart and a whole week on a 1W chart. How much weight the reading carries changes with it.
- Read the colour and the body length. A long body shows a clear move in one direction over the period; a short body shows the net move stayed small.
- Look at the wicks. A long upper wick shows price went higher but could not hold there; a long lower wick shows it went lower and recovered.
- Compare with the neighbouring candles. A single candle says little. It gains meaning when read together with the size, direction and closes of the candles before it.
What it shows, what it does not prove
What it shows
- The open, high, low and close of a period
- How far price went within the period and where it turned back
- Whether the period closed up or down on balance
What it does not prove
- The order in which prices were seen within the period; the high may have come before or after the low
- Which way the next candle will open or close
- A trend or a change of direction on its own
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How it relates to zones
When reading a candle next to a support or resistance zone, the real question is which part of the candle touched the zone. A wick entering the zone only shows that price visited it and came back. A body closing inside or beyond the zone says something different.
That is why reading the zone as a band rather than a single line works better with the parts of a candle. Whether the wick stayed inside the band, and where in the band the close came, helps tell how the zone was tested.
For general information only. Not investment advice.Last updated: