Candlestick charts look busy the first time you open one. Good news: every single candle is built from the same four numbers, and once you know them you can read any chart on any stock. Grab a coffee. This takes about ten minutes.
One candle, four numbers
Each candle summarizes what price did during one time period. On a daily chart that is one day. On a 5-minute chart it is five minutes. The four numbers are:
- Open: where price started the period.
- High: the highest price reached.
- Low: the lowest price reached.
- Close: where price finished the period.
The body and the wicks
The thick part of the candle is the body. It stretches between the open and the close. The thin lines sticking out above and below are the wicks (some people call them shadows or tails). The top of the upper wick is the high, and the bottom of the lower wick is the low.
Most platforms color a candle one way when the close is above the open (usually green) and another way when the close is below the open (usually red). Colors can be changed in settings, so always check what your own chart uses.
What the shapes are hinting at
A long body says one side, buyers or sellers, was in control for most of the period. A short body says it was a tug of war that ended close to where it started. Long wicks say price went somewhere and got pushed back. A long lower wick, for instance, means sellers pushed price down, but buyers stepped in and brought it back up before the period ended.
A few patterns worth knowing
- Doji: the open and close are almost the same, so the body is a thin line. It signals indecision, not a prediction.
- Hammer: a small body at the top with a long lower wick. It can show that sellers tried and failed to keep control.
- Shooting star: a small body at the bottom with a long upper wick. It can show that buyers tried and got rejected.
- Engulfing candle: a candle whose body fully covers the previous candle's body. It can show a shift in who is in control.
Zoom out before you zoom in
A candle on a 5-minute chart can look dramatic while being a small blip on the daily chart. Get in the habit of checking a bigger timeframe first, so you know whether the market has been climbing, falling or drifting sideways. Then drop to a smaller timeframe to look at the details.
A 10-minute practice drill
- Open a daily chart of any stock you know.
- Pick ten candles at random and say out loud: where did it open, where did it close, did anyone get rejected?
- Mark any candle with a long wick and ask what happened at that price.
- Repeat on a different stock tomorrow.
Reading candles is a language, and you get fluent by reading a little every day. You do not need to memorize fifty patterns. Understand the four numbers, and the rest will start to make sense.
