How to Read Candlestick Charts

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Table of contents

  1. Empty
  2. What Is a Candlestick Chart?
  3. How to Read Candlestick Charts
  4. Candlestick Chart Patterns
  5. Conclusion

Empty

{"blocks":[{"key":"65l3g","text":"Analyzing trading charts is part of having a good understanding of the stock market and making the right decisions. While there are many types of charts that you can use to gain information, most traders prefer candlestick charts. These charts tend to portray a more accurate visual representation of the market, which is why many traders find knowing how to read candlestick charts is essential. In this article, we explore what candlestick charts are as well as how to read them. ","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":481,"style":"color-rgb(0,0,0)"},{"offset":0,"length":481,"style":"bgcolor-transparent"},{"offset":0,"length":481,"style":"fontsize-11pt"},{"offset":0,"length":481,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}}],"entityMap":{}}

What Is a Candlestick Chart?

{"blocks":[{"key":"2kn28","text":"A candlestick chart is simply a chart made from candle-shaped symbols that display all the essential information about price fluctuations. It involves clearly showing the time frame of the opening, high, low, and closing prices.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":228,"style":"color-rgb(0,0,0)"},{"offset":0,"length":228,"style":"bgcolor-transparent"},{"offset":0,"length":228,"style":"fontsize-11pt"},{"offset":0,"length":228,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"9pr8e","text":"Traders often prefer candlestick charts to bar charts because the former is easier to deduce price action information from, especially when the chart forms candlestick patterns.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":177,"style":"color-rgb(0,0,0)"},{"offset":0,"length":177,"style":"bgcolor-transparent"},{"offset":0,"length":177,"style":"fontsize-11pt"},{"offset":0,"length":177,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"2f7u6","text":"Candlestick charts can be either made from:","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":43,"style":"color-rgb(0,0,0)"},{"offset":0,"length":43,"style":"bgcolor-transparent"},{"offset":0,"length":43,"style":"fontsize-11pt"},{"offset":0,"length":43,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"1f6o3","text":"Candlestick patterns that display trends or reversals","type":"unordered-list-item","depth":0,"inlineStyleRanges":[{"offset":0,"length":53,"style":"color-rgb(0,0,0)"},{"offset":0,"length":53,"style":"bgcolor-transparent"},{"offset":0,"length":53,"style":"fontsize-11pt"},{"offset":0,"length":53,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"ag5uh","text":"Individual candlestick formations that show the market’s buy and sell entries","type":"unordered-list-item","depth":0,"inlineStyleRanges":[{"offset":0,"length":77,"style":"color-rgb(0,0,0)"},{"offset":0,"length":77,"style":"bgcolor-transparent"},{"offset":0,"length":77,"style":"fontsize-11pt"},{"offset":0,"length":77,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"m44h","text":"Through these patterns, you can learn to deduce and analyze all the market clues as well as gauge the near-term direction of price.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":131,"style":"color-rgb(0,0,0)"},{"offset":0,"length":131,"style":"bgcolor-transparent"},{"offset":0,"length":131,"style":"fontsize-11pt"},{"offset":0,"length":131,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"bdv6b","text":"However, if you were to use a bar chart or any other chart, it won’t be as easy to interpret all the financial clues about trends and reversals.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":144,"style":"color-rgb(0,0,0)"},{"offset":0,"length":144,"style":"bgcolor-transparent"},{"offset":0,"length":144,"style":"fontsize-11pt"},{"offset":0,"length":144,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}}],"entityMap":{}}

How to Read Candlestick Charts

{"blocks":[{"key":"5mpva","text":"Once you become more familiar with the candlestick chart components, you should be able to navigate candlestick charts with more ease.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":134,"style":"color-rgb(0,0,0)"},{"offset":0,"length":134,"style":"bgcolor-transparent"},{"offset":0,"length":134,"style":"fontsize-11pt"},{"offset":0,"length":134,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"9r2vs","text":"Body","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":4,"style":"color-rgb(67,67,67)"},{"offset":0,"length":4,"style":"bgcolor-transparent"},{"offset":0,"length":4,"style":"fontsize-14pt"},{"offset":0,"length":4,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"7t6qq","text":"The body is the colored portion of the candlestick, and it indicates the opening price and closing price of a stock.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":116,"style":"color-rgb(0,0,0)"},{"offset":0,"length":116,"style":"bgcolor-transparent"},{"offset":0,"length":116,"style":"fontsize-11pt"},{"offset":0,"length":116,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"eklaa","text":"When a candlestick has a long body, it indicates that there’s a lot of trading going on as well as selling or buying pressure. A short body, on the other hand, indicates that trading is light in one direction and that there’s little selling or buying activity.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":260,"style":"color-rgb(0,0,0)"},{"offset":0,"length":260,"style":"bgcolor-transparent"},{"offset":0,"length":260,"style":"fontsize-11pt"},{"offset":0,"length":260,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"1bhop","text":"Body Color","type":"header-four","depth":0,"inlineStyleRanges":[{"offset":0,"length":10,"style":"color-rgb(102,102,102)"},{"offset":0,"length":10,"style":"bgcolor-transparent"},{"offset":0,"length":10,"style":"fontsize-12pt"},{"offset":0,"length":10,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"bs4b6","text":"The color of a candlestick body can tell you if the stock prices are rising or falling. Candlesticks can be green, white, red, or black.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":136,"style":"color-rgb(0,0,0)"},{"offset":0,"length":136,"style":"bgcolor-transparent"},{"offset":0,"length":136,"style":"fontsize-11pt"},{"offset":0,"length":136,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"d1vou","text":"In general, green or white candlesticks indicate that the stock closed higher than it opened. Red or black bodies, on the other hand, indicate that the stock closed lower than it opened.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":186,"style":"color-rgb(0,0,0)"},{"offset":0,"length":186,"style":"bgcolor-transparent"},{"offset":0,"length":186,"style":"fontsize-11pt"},{"offset":0,"length":186,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"aabmv","text":"Wick/Shadow","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":11,"style":"color-rgb(67,67,67)"},{"offset":0,"length":11,"style":"bgcolor-transparent"},{"offset":0,"length":11,"style":"fontsize-14pt"},{"offset":0,"length":11,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"5icvc","text":"Above and below the candlestick body are vertical lines called wicks or shadows. Wicks, or shadow, shows the price extremes during a trading period.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":148,"style":"color-rgb(0,0,0)"},{"offset":0,"length":148,"style":"bgcolor-transparent"},{"offset":0,"length":148,"style":"fontsize-11pt"},{"offset":0,"length":148,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"am0o2","text":"The highest point of the upper wick indicates the highest traded price during a specific time frame. On the other hand, the lowest price traded is at the lowest point of the lower wick.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":185,"style":"color-rgb(0,0,0)"},{"offset":0,"length":185,"style":"bgcolor-transparent"},{"offset":0,"length":185,"style":"fontsize-11pt"},{"offset":0,"length":185,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"d90cu","text":"What’s more, depending on the color of the candlestick’s body, a wick’s length can indicate different price fluctuations. A short upper wick on a green candle, for example, means that the stock closed near the day's high.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":221,"style":"color-rgb(0,0,0)"},{"offset":0,"length":221,"style":"bgcolor-transparent"},{"offset":0,"length":221,"style":"fontsize-11pt"},{"offset":0,"length":221,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"8qrgj","text":"Wicks are an essential component of candlestick charts because they can help traders stay informed of market momentum and keep them away from price extremes.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":157,"style":"color-rgb(0,0,0)"},{"offset":0,"length":157,"style":"bgcolor-transparent"},{"offset":0,"length":157,"style":"fontsize-11pt"},{"offset":0,"length":157,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"e5k65","text":"Open Price","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":10,"style":"color-rgb(67,67,67)"},{"offset":0,"length":10,"style":"bgcolor-transparent"},{"offset":0,"length":10,"style":"fontsize-14pt"},{"offset":0,"length":10,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"75k5g","text":"The open price indicated the first price traded during the formation of a new candlestick. It’s found at either the top or bottom of the body.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":142,"style":"color-rgb(0,0,0)"},{"offset":0,"length":142,"style":"bgcolor-transparent"},{"offset":0,"length":142,"style":"fontsize-11pt"},{"offset":0,"length":142,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"9hj6a","text":"If prices trend upwards, the candlestick body will turn green, white, or blue—depending on the chart settings. However, if the prices decline, the body will turn red or black.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":175,"style":"color-rgb(0,0,0)"},{"offset":0,"length":175,"style":"bgcolor-transparent"},{"offset":0,"length":175,"style":"fontsize-11pt"},{"offset":0,"length":175,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"a65fg","text":"High Price","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":10,"style":"color-rgb(67,67,67)"},{"offset":0,"length":10,"style":"bgcolor-transparent"},{"offset":0,"length":10,"style":"fontsize-14pt"},{"offset":0,"length":10,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"al4b4","text":"The high price is the highest price traded during a specific time period. It’s represented by the upper wick/shadow.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":116,"style":"color-rgb(0,0,0)"},{"offset":0,"length":116,"style":"bgcolor-transparent"},{"offset":0,"length":116,"style":"fontsize-11pt"},{"offset":0,"length":116,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"bpgvm","text":"In some cases, there might be no upper wick/shadow. It just means that the open price or the close price was the highest price traded.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":134,"style":"color-rgb(0,0,0)"},{"offset":0,"length":134,"style":"bgcolor-transparent"},{"offset":0,"length":134,"style":"fontsize-11pt"},{"offset":0,"length":134,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"80l99","text":"Low Price","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":9,"style":"color-rgb(67,67,67)"},{"offset":0,"length":9,"style":"bgcolor-transparent"},{"offset":0,"length":9,"style":"fontsize-14pt"},{"offset":0,"length":9,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"bkrq7","text":"The low price is the lowest price traded, and it’s the price found at the bottom of the lower wick/shadow.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":106,"style":"color-rgb(0,0,0)"},{"offset":0,"length":106,"style":"bgcolor-transparent"},{"offset":0,"length":106,"style":"fontsize-11pt"},{"offset":0,"length":106,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"9kv59","text":"If there’s no lower wick/shadow, the lowest price traded is the same as either the open price or close price.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":109,"style":"color-rgb(0,0,0)"},{"offset":0,"length":109,"style":"bgcolor-transparent"},{"offset":0,"length":109,"style":"fontsize-11pt"},{"offset":0,"length":109,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"ccmff","text":"Close Price","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":11,"style":"color-rgb(67,67,67)"},{"offset":0,"length":11,"style":"bgcolor-transparent"},{"offset":0,"length":11,"style":"fontsize-14pt"},{"offset":0,"length":11,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"esahl","text":"When a new trending period begins, a candle forms and changes throughout the time frame. It can switch from green to red and back again until the period ends with the close price.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":179,"style":"color-rgb(0,0,0)"},{"offset":0,"length":179,"style":"bgcolor-transparent"},{"offset":0,"length":179,"style":"fontsize-11pt"},{"offset":0,"length":179,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"4avje","text":"The close price is the last price or trade during the candle formation period. It’s signified on the candlestick by the body’s color.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":133,"style":"color-rgb(0,0,0)"},{"offset":0,"length":133,"style":"bgcolor-transparent"},{"offset":0,"length":133,"style":"fontsize-11pt"},{"offset":0,"length":133,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}}],"entityMap":{}}

Candlestick Chart Patterns

{"blocks":[{"key":"346vv","text":"Now that you have a basic understanding of how to read a candlestick chart, let’s take a look at the most common candle patterns to help you analyze candlestick charts better.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":175,"style":"color-rgb(0,0,0)"},{"offset":0,"length":175,"style":"bgcolor-transparent"},{"offset":0,"length":175,"style":"fontsize-11pt"},{"offset":0,"length":175,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"bi4ic","text":"First, you should remember that there’s a huge and diverse array of candlestick chart patterns. They all serve different purposes, and traders use them to gain insight into the future direction of the stock.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":207,"style":"color-rgb(0,0,0)"},{"offset":0,"length":207,"style":"bgcolor-transparent"},{"offset":0,"length":207,"style":"fontsize-11pt"},{"offset":0,"length":207,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"62v95","text":"Hammer Pattern","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":14,"style":"color-rgb(67,67,67)"},{"offset":0,"length":14,"style":"bgcolor-transparent"},{"offset":0,"length":14,"style":"fontsize-14pt"},{"offset":0,"length":14,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"5li9r","text":"The hammer pattern consists of a single candle with a short body and a long lower wick. If the body is green, the onset of a bull market is more likely than if the body is red.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":176,"style":"color-rgb(0,0,0)"},{"offset":0,"length":176,"style":"bgcolor-transparent"},{"offset":0,"length":176,"style":"fontsize-11pt"},{"offset":0,"length":176,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"b9bkd","text":"The hammer pattern also clearly indicates that a price reversal is imminent as a result of sellers giving up and buyers taking control.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":135,"style":"color-rgb(0,0,0)"},{"offset":0,"length":135,"style":"bgcolor-transparent"},{"offset":0,"length":135,"style":"fontsize-11pt"},{"offset":0,"length":135,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"4kkp1","text":"Bullish Engulfing Pattern","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":25,"style":"color-rgb(67,67,67)"},{"offset":0,"length":25,"style":"bgcolor-transparent"},{"offset":0,"length":25,"style":"fontsize-14pt"},{"offset":0,"length":25,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"764in","text":"The bullish engulfing is a double-candle pattern, and it appears during a bearish trend—which is a downward trajectory of prices. It consists of a short, red bearish candle engulfed by a large, green bullish candle.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":215,"style":"color-rgb(0,0,0)"},{"offset":0,"length":215,"style":"bgcolor-transparent"},{"offset":0,"length":215,"style":"fontsize-11pt"},{"offset":0,"length":215,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"f3q7v","text":"This pattern is the most popular and sought-after bullish candlestick pattern because it confirms that prices will rise. The bullish engulfing pattern is a visual representation of buyers' unrivaled control over the market, and it almost always results in higher trending prices.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":279,"style":"color-rgb(0,0,0)"},{"offset":0,"length":279,"style":"bgcolor-transparent"},{"offset":0,"length":279,"style":"fontsize-11pt"},{"offset":0,"length":279,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"43h6l","text":"Morning Star Pattern","type":"header-three","depth":0,"inlineStyleRanges":[{"offset":0,"length":20,"style":"color-rgb(67,67,67)"},{"offset":0,"length":20,"style":"bgcolor-transparent"},{"offset":0,"length":20,"style":"fontsize-14pt"},{"offset":0,"length":20,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"5b845","text":"The morning star is a triple-candle pattern that occurs during bearish trends and forecasts upside reversals.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":109,"style":"color-rgb(0,0,0)"},{"offset":0,"length":109,"style":"bgcolor-transparent"},{"offset":0,"length":109,"style":"fontsize-11pt"},{"offset":0,"length":109,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"f45er","text":"The pattern begins with a long, red bearish candle and is followed by a short, red bearish or bullish candle. The price then gaps up, forming a long, green bullish candle that’s at least half the size of the first candle.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":221,"style":"color-rgb(0,0,0)"},{"offset":0,"length":221,"style":"bgcolor-transparent"},{"offset":0,"length":221,"style":"fontsize-11pt"},{"offset":0,"length":221,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"elt3o","text":"When you identify a morning star pattern in a candlestick chart, it means that the selling pressure is easing and a bull market is on the way.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":142,"style":"color-rgb(0,0,0)"},{"offset":0,"length":142,"style":"bgcolor-transparent"},{"offset":0,"length":142,"style":"fontsize-11pt"},{"offset":0,"length":142,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}}],"entityMap":{}}

Conclusion

{"blocks":[{"key":"f1voj","text":"Candlestick charts are the standard choice for many traders looking to acquire accurate information about the market. These charts not only provide a wealth of information, but they’re also simple to comprehend.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":211,"style":"color-rgb(0,0,0)"},{"offset":0,"length":211,"style":"bgcolor-transparent"},{"offset":0,"length":211,"style":"fontsize-11pt"},{"offset":0,"length":211,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"ds96e","text":"Keep in mind that the purpose of this article is to provide you with a broad understanding of how to read candlestick charts.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":125,"style":"color-rgb(0,0,0)"},{"offset":0,"length":125,"style":"bgcolor-transparent"},{"offset":0,"length":125,"style":"fontsize-11pt"},{"offset":0,"length":125,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"4iuua","text":"However, reading and analyzing candlestick charts is a skill that requires much needed studying before you can become a pro.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":124,"style":"color-rgb(0,0,0)"},{"offset":0,"length":124,"style":"bgcolor-transparent"},{"offset":0,"length":124,"style":"fontsize-11pt"},{"offset":0,"length":124,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}},{"key":"9pj62","text":"That’s why if you want to gain a thorough understanding of how to analyze a candlestick chart, you’ll need to bust out the big books.","type":"unstyled","depth":0,"inlineStyleRanges":[{"offset":0,"length":133,"style":"color-rgb(0,0,0)"},{"offset":0,"length":133,"style":"bgcolor-transparent"},{"offset":0,"length":133,"style":"fontsize-11pt"},{"offset":0,"length":133,"style":"fontfamily-Arial"}],"entityRanges":[],"data":{}}],"entityMap":{}}