Open a chart. Those colorful bars aren't just decoration - they're telling you a story about every battle between buyers and sellers.
Understanding candlesticks is step one of reading any chart. Here's everything you need to know - and nothing you don't.
Anatomy of a Candlestick
Each candlestick represents one period of time - one minute, one hour, one day, whatever your chart is set to. It shows four pieces of information:
- Open: Where price started when the period began
- High: The highest price reached during the period
- Low: The lowest price reached during the period
- Close: Where price ended when the period closed
The thick part is called the body. It shows the range between open and close.
The thin lines above and below are called wicks (or shadows). They show the full range from high to low.
Green/white candles: Close is higher than open. Buyers won this period.
Red/black candles: Close is lower than open. Sellers won this period.
What the Body Tells You
The body shows conviction. A large body means strong movement in one direction. A small body means indecision or balance between buyers and sellers.
Large green body: Strong buying pressure. Buyers controlled the entire period. Bullish.
Large red body: Strong selling pressure. Sellers controlled the entire period. Bearish.
Small body (either color): Neither side dominated. The market is undecided or balanced.
Doji (almost no body): Open and close are nearly identical. Maximum indecision. Often appears at turning points.
What the Wicks Tell You
Wicks show rejection. When price moves somewhere and then gets pushed back, you see a wick. The longer the wick, the stronger the rejection.
Long upper wick: Price tried to go higher but got pushed back down. Sellers are active at higher prices. Bearish signal.
Long lower wick: Price tried to go lower but got pushed back up. Buyers are active at lower prices. Bullish signal.
Wicks on both sides: Both buyers and sellers were active. Indecision or volatility.
No wicks: The open/close were the extreme prices. Very strong conviction in the body's direction.
Key Single-Candle Patterns
Forget memorizing 50 pattern names. These are the ones that actually matter:
Hammer / Hanging Man: Small body at top, long lower wick. Looks like a hammer. At the bottom of a downtrend, it's a "hammer" and suggests reversal up. At the top of an uptrend, it's a "hanging man" and suggests reversal down. Same shape, context determines meaning.
Inverted Hammer / Shooting Star: Small body at bottom, long upper wick. At the bottom of a downtrend, it's an "inverted hammer" (potential reversal up). At the top of an uptrend, it's a "shooting star" (potential reversal down).
Doji: Very small or no body. Indecision. Meaningful after a strong trend - suggests momentum is fading.
Marubozu: All body, no wicks. Maximum conviction. A green marubozu after a decline is very bullish. A red marubozu after a rally is very bearish.
Key Multi-Candle Patterns
Some patterns require two or three candles to identify:
Engulfing: A large candle that completely covers (engulfs) the previous candle's body. Bullish engulfing: green candle engulfs previous red candle. Bearish engulfing: red candle engulfs previous green candle. Strong reversal signal.
Inside Bar: A candle whose entire range (high to low) is within the previous candle's range. Represents consolidation. The breakout direction often continues.
Morning Star / Evening Star: Three-candle pattern. Big candle, small candle (the "star"), big candle in opposite direction. Morning star (at bottoms) and evening star (at tops) are reversal patterns.
Context Is Everything
Here's what most candlestick courses miss: the same pattern means different things in different contexts.
A hammer at the bottom of a long downtrend, at a major support level, with high volume - that's meaningful.
A hammer in the middle of a range, at no particular level, with average volume - that's noise.
Before trading any candle pattern, ask:
- Where is this in the trend? (Beginning, middle, end?)
- Is it at a significant price level? (Support, resistance, moving average?)
- Does volume confirm it? (High volume on reversal candles is better)
- What's the higher timeframe context? (A 5-minute hammer during a daily downtrend means little)
The Common Mistakes
Trading every pattern: Most candle patterns are noise. Only trade patterns at significant levels with confirming context.
Ignoring the close: A pattern isn't confirmed until the candle closes. A hammer looks like a hammer only at the close - during the period, it could turn into anything.
Forgetting the trend: Reversal patterns need a trend to reverse. A "bullish engulfing" in an uptrend isn't a reversal - it's just continuation.
No follow-through requirement: The best traders wait for confirmation. After a hammer, they want to see the next candle close green before entering.
The Bottom Line
Candlesticks are a language. The body tells you who won the battle. The wicks tell you who tried and failed. The context tells you whether any of it matters.
Learn the basics here, then focus on context. A simple pattern at the right place is worth more than a complex pattern in the wrong place.
That context can be systematized. Knowing the current cycle phase tells you whether a reversal pattern is likely to hold or fail. Volume regime detection reveals whether institutions are accumulating or distributing. A hammer at a cycle bottom during accumulation means something entirely different than the same hammer mid-trend during distribution.
A hammer at a cycle bottom during accumulation (tracked by Pentarch and Volume Oracle) means something entirely different than a hammer mid-trend. Context transforms candlestick noise into actionable structure.
See candlesticks in context →