Learn -- lesson 1 of 10
How to read a candlestick chart
What you'll learn: how a single candle encodes open, high, low and close -- and what a string of them tells you that a line chart hides.
A candlestick is a small picture of price for one period of time -- a day, an hour, whatever the chart's timeframe happens to be. Each candle has a body and two thin lines called wicks (or shadows). The body marks the distance between the opening price and the closing price for that period. The wicks mark the highest and lowest prices reached during the period, even if price came back before the period ended.
The body's fill tells you direction. If the close was higher than the open, the candle is usually shown as green (or hollow) -- price rose over that stretch. If the close was lower than the open, it's usually red (or filled) -- price fell. The body's length tells you conviction: a long body means a decisive move; a tiny body means the period opened and closed near the same price, a tug of war with no clear winner.
A simple line chart only plots the closing price, connected dot to dot -- it throws away everything that happened in between. Candlesticks keep that information, which is why they show up on almost every serious price chart.
How to read it
- Long body, short wicks: price moved strongly in one direction and mostly stayed there.
- Long wick, small body: price pushed one way and then got pulled back -- a fight within the period.
- A run of same-colored candles: sustained pressure in one direction.
- A long upper wick means buyers pushed price up but sellers took it back; a long lower wick is the mirror image.
Common beginner mistakes
- Treating a single candle as a signal on its own. One candle is one period of noise -- the candles around it, and the broader trend, matter more than any one shape.
- Assuming green always means 'buy' and red always means 'sell'. Color only describes what already happened in that period, not what happens next.
- Ignoring the timeframe. A 'big' daily candle and a 'big' 1-minute candle mean very different things -- always check what period each candle represents.