Reading Candlestick Charts
Lesson 2 of 88 min6 exercises
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The Anatomy of a Candlestick
Candlestick charts were invented by Japanese rice traders in the 1700s. Each "candle" shows four key prices for a time period: Open, High, Low, and Close (OHLC).
Example
**Green/White Candle (Bullish)** - Bottom of body = Open price - Top of body = Close price - Upper wick = Highest price reached - Lower wick = Lowest price reached **Red/Black Candle (Bearish)** - Top of body = Open price - Bottom of body = Close price
The body shows the difference between open and close
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What the Wicks Tell Us
Wicks (also called shadows) show the price extremes that were rejected:
- Long upper wick: Sellers pushed price down from highs (bearish pressure)
- Long lower wick: Buyers pushed price up from lows (bullish pressure)
- No wicks: Strong conviction in the direction of the candle
- Long upper wick: Sellers pushed price down from highs (bearish pressure)
- Long lower wick: Buyers pushed price up from lows (bullish pressure)
- No wicks: Strong conviction in the direction of the candle
Tip
Long wicks often signal potential reversals. A long lower wick after a downtrend suggests buyers are stepping in.
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Candle Body Size Matters
- Large body: Strong momentum and conviction
- Small body: Indecision between buyers and sellers
- No body (Doji): Perfect indecision - open equals close
- Small body: Indecision between buyers and sellers
- No body (Doji): Perfect indecision - open equals close
Common Single Candle Patterns
Hammer 🔨
- Small body at top, long lower wick
- Appears after downtrend
- Signal: Potential bullish reversal
Shooting Star ⭐
- Small body at bottom, long upper wick
- Appears after uptrend
- Signal: Potential bearish reversal
Doji ✚
- Open = Close (cross shape)
- Signal: Indecision, potential reversal
- Small body at top, long lower wick
- Appears after downtrend
- Signal: Potential bullish reversal
Shooting Star ⭐
- Small body at bottom, long upper wick
- Appears after uptrend
- Signal: Potential bearish reversal
Doji ✚
- Open = Close (cross shape)
- Signal: Indecision, potential reversal
Watch out
Single candle patterns are more reliable when confirmed by the next candle or supported by volume.
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Key takeaways
- Candlesticks show Open, High, Low, Close (OHLC) for each time period
- Green candles close higher than open; red candles close lower
- Long wicks show price rejection and potential reversals
- Body size indicates conviction strength
Next: 6 quick exercises. Miss one and it comes back at the end.