Reading Candlestick Charts
Decode price action with candlestick patterns and chart analysis
Candlestick charts are the most popular way to visualize price movements. Each candle tells a story about the battle between buyers and sellers during a specific time period.
Anatomy of a Candlestick
Each candlestick has four components: open, high, low, and close (OHLC). The body shows the range between open and close, while wicks show the high and low.
- Green/White candle: Price closed higher than it opened (bullish)
- Red/Black candle: Price closed lower than it opened (bearish)
- Body size indicates strength of movement
- Wick length shows price rejection
Common Candlestick Patterns
Certain patterns can signal potential reversals or continuations:
- Doji: Indecision, potential reversal
- Hammer: Bullish reversal after downtrend
- Shooting Star: Bearish reversal after uptrend
- Engulfing: Strong reversal signal
Reading Multiple Candles
Context matters when reading candlesticks. A single pattern is more meaningful when combined with support/resistance levels, trend direction, and volume.
Timeframes
Candlesticks can represent any timeframe from 1 minute to monthly. Higher timeframes generally provide more reliable signals but fewer trading opportunities.
Key Takeaways
- Each candle shows open, high, low, and close prices
- Color indicates bullish (green) or bearish (red) movement
- Patterns can signal reversals or continuations
- Always consider context and higher timeframes