Introduction to Candlestick Charts

7 min read

A candlestick chart packs four pieces of information - the open, high, low and close for a given period - into a single visual shape, making it easier to read the balance between buyers and sellers at a glance than a simple line chart can.

This extra detail is why candlestick charts have become the default view for most traders, even though a line chart connecting closing prices remains simpler to read at a glance.

The anatomy of a candle

The thick 'body' of a candle shows the range between the opening and closing price, while the thin 'wicks' (or shadows) above and below show the full high-to-low range for that period. A candle is typically shaded one color when the close is higher than the open, and another when it's lower.

Understanding these four data points - open, high, low, close - is the foundation for reading everything else on a candlestick chart, from single-candle signals to multi-candle patterns.

• Body: The range between the opening and closing price for that period.
• Wick (shadow): The thin line showing the full high-to-low range beyond the body.
• Colour coding: Typically one colour for a higher close, another for a lower close.

What the body and wicks suggest

A long body suggests strong, decisive movement in one direction over that period, while a long wick suggests the price moved sharply one way before being pushed back, hinting at rejection at that level. Short bodies with small wicks generally reflect indecision or consolidation.

These are general tendencies rather than fixed rules - the same candle shape can mean something different depending on where it appears relative to the broader trend and nearby support or resistance.

• Long body: Suggests strong, decisive movement in one direction over the period.
• Long wick: Suggests price was rejected after moving sharply in one direction.
• Small body, small wicks: Generally reflects indecision or a period of consolidation.

Reading candles in context, not isolation

A single candle rarely tells the full story - it's most useful read alongside the candles around it and the broader trend. The same shape can suggest very different things depending on whether it appears after a long rally, a long decline, or a period of sideways movement.

This is a recurring theme across technical analysis - almost every tool, candlesticks included, is more reliable when read as part of the surrounding picture than as a standalone signal.

• Context matters: The same candle shape can mean different things depending on where it appears.
• Multi-candle reading: A candle is generally more informative alongside the ones around it.
• Trend placement: Whether a candle appears after a rally, decline or range changes its meaning.