Technical Analysis Basics

Reading Candlestick Charts

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).

**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

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 wicks often signal potential reversals. A long lower wick after a downtrend suggests buyers are stepping in.

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

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

Single candle patterns are more reliable when confirmed by the next candle or supported by volume.

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