How to Read Candlestick Charts, Step by Step

A candlestick chart is the most common way to show price on a trading screen. At first, it can look like a row of colourful boxes and lines. But each candle tells a short story about what happened to the price during a period of time. Once you can read that story, the chart becomes much easier to understand.

This guide explains the parts of a candle, how timeframes change what you see, and three basic patterns: the doji, the hammer and the engulfing pattern. It also explains why these patterns are not a guarantee, and how candles compare with bars and Heikin Ashi charts.

What a candlestick shows

Each candle shows four prices for one period of time:

• Open: the price at the start of the period.
• High: the highest price during the period.
• Low: the lowest price during the period.
• Close: the price at the end of the period.

Traders often call this "OHLC", from the first letters of the four words.

The body

The body is the thick part of the candle. It shows the distance between the open and the close. On most charts:

• A green (or white) body means the close was higher than the open. The price went up during the period.
• A red (or black) body means the close was lower than the open. The price went down.

Colours can be changed in many platforms, so always check your chart settings. A long body shows a strong move in one direction. A short body shows a small difference between open and close.

The wicks

The thin lines above and below the body are called wicks or shadows. The top of the upper wick is the high. The bottom of the lower wick is the low. Wicks show prices that were reached but not kept. A long upper wick means the price went up, but sellers pushed it back down before the close. A long lower wick means buyers pushed the price back up.

A simple example

Imagine a 1-minute candle on EUR/USD:

The close is higher than the open, so the candle is green. The body goes from 1.08500 to 1.08520. The upper wick goes up to 1.08530, and the lower wick goes down to 1.08480. In words: the price dropped a little, then rose, reached a high, and closed slightly below that high.

Timeframes: the same price, different pictures

Each candle represents a fixed period. This period is the timeframe. It can be a few seconds, 1 minute, 5 minutes, 1 hour or more. The same price movement looks very different on different timeframes.

For example, one 5-minute candle contains the same price action as five 1-minute candles. The 5-minute candle may be a calm green candle. But the five 1-minute candles inside it may show sharp moves up and down.

A practical habit is to look at two timeframes:

1. A larger timeframe to see the general direction, for example 15 minutes.
2. A smaller timeframe to time your entry, for example 1 minute.

Your timeframe should also make sense with your expiration time. A 1-hour chart says little about a 30-second trade. For more on this, read how to choose an expiration time.

Three basic candlestick patterns

Patterns are shapes that appear often on charts. They can suggest what buyers and sellers are doing. Here are three that every beginner should know.

Doji

A doji has a very small body or almost no body. The open and the close are almost the same. The wicks can be short or long.

A doji shows indecision. Buyers and sellers were in balance during that period. After a strong move up, a doji can be an early sign that buyers are getting weaker. In a quiet market with no clear direction, a doji means very little because many candles look like that.

Hammer

A hammer has a small body near the top of the candle and a long lower wick. The lower wick is usually at least two times the size of the body. There is little or no upper wick.

A hammer is most meaningful after a fall in price. It shows that sellers pushed the price down, but buyers pushed it back up before the close. Some traders see it as a possible sign that the fall may slow down or reverse. The opposite shape, with a long upper wick after a rise, is often called a shooting star.

Engulfing pattern

An engulfing pattern uses two candles. In a bullish engulfing pattern, a red candle is followed by a larger green candle. The green body completely covers the body of the red candle. It suggests that buyers have taken control.

A bearish engulfing pattern is the opposite. A green candle is followed by a larger red candle whose body covers the green body. It suggests that sellers have taken control.

Why patterns are not infallible

This point is very important: no candlestick pattern works every time. Patterns describe what happened. They do not promise what will happen next. If you are new to this type of trading, start with what Fixed Time Trading is and then return here. Many hammers are followed by more falling prices. Many engulfing patterns fail after one or two candles.

Here is how to use patterns in a more careful way:

• Check the context. A pattern is stronger at a clear support or resistance level, or after a clear move. In the middle of random price action, it means little.
• Wait for the candle to close. A candle can look like a hammer at 40 seconds and become a normal red candle at 60 seconds.
• Use confirmation. Some traders wait for the next candle to move in the expected direction. Others combine patterns with an indicator. See our guide to RSI, MACD and Bollinger Bands.
• Be careful on very short timeframes. On charts of a few seconds, many shapes appear by chance.
• Measure your results. Test each pattern in demo and write down every result. After many trades, you will know if the pattern helps you or not.

Candles, bars and Heikin Ashi at Bitvyl

Bitvyl charts offer four styles: Line, Candles, Bars and Heikin Ashi. You can change the style at any time.

• Line connects the closing prices. It is clean but hides the high, the low and the open.
• Candles show all four prices with a coloured body, as explained above.
• Bars show the same four prices. A vertical line goes from the low to the high. A small tick on the left shows the open, and a tick on the right shows the close. Some traders find bars less distracting.
• Heikin Ashi candles are calculated from averages of the price. The chart looks smoother, and trends are easier to see. But the open and close of a Heikin Ashi candle are not the real market prices.

That last point matters in Fixed Time Trading. Your result depends on the real opening and closing price of your trade. Heikin Ashi can help you see the direction, but switch back to normal candles when you need to see the exact price.

Key takeaways

• Each candle shows the open, high, low and close for one period.
• The body shows the move from open to close. The wicks show prices that were reached but not kept.
• Look at a larger timeframe for direction and a smaller one for timing.
• The doji shows indecision, the hammer can show buyers returning after a fall, and the engulfing pattern can show a change in control.
• No pattern is certain. Use context, wait for the close and measure your results.

Reading candles is a skill that improves with practice. Open your free demo account, choose one asset and one timeframe, and try to find each pattern on a live chart. Write down what happened after each one before you risk any real money.