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Reading Candlestick Charts
Candlestick charts are one of the most common ways traders view market price movement. Each candle summarizes what happened during a specific period of time and helps traders understand price direction, volatility and market behaviour.
What Is a Candlestick?
A candlestick represents price movement during a selected period of time. Depending on the chart, one candle could represent one minute, one hour, one day or another timeframe.
Each candle contains four important prices:
Open
The price at the beginning of the candle’s time period.
High
The highest price reached during that period.
Low
The lowest price reached during that period.
Close
The price at the end of the candle’s time period.
The Candle Body and Wicks
A candlestick is made up of a body and usually one or two thin lines called wicks or shadows.
The body shows the distance between the opening and closing price.
The wicks show how high and low the price travelled during that period.
Bullish and Bearish Candles
Bullish Candle
A bullish candle means the closing price is higher than the opening price.
Bearish Candle
A bearish candle means the closing price is lower than the opening price.
Chart platforms may use different colours for bullish and bearish candles. The important information is the relationship between the open and close, not the specific colour being used.
What Can Candle Size Tell You?
The size of a candle can give information about how strongly price moved during that period.
Large Body
A large candle body can indicate stronger movement between the open and close.
Small Body
A small body can indicate less movement or temporary indecision.
Long Wick
A long wick shows that price moved significantly away from the candle body before returning.
Short Wick
A short wick means price stayed relatively close to the opening and closing area.
Understanding Timeframes
Every candlestick belongs to a timeframe.
For example:
- A 1-minute candle represents one minute of price activity.
- A 15-minute candle represents fifteen minutes.
- A 1-hour candle represents one hour.
- A daily candle represents one full trading day.
The same market may look very different depending on the timeframe being viewed.
One Candle Is Not a Trading Signal
Beginners sometimes make the mistake of looking at one candle and assuming it predicts what will happen next.
A candlestick should be understood in the context of the wider chart, market trend, support and resistance, volatility and other information.
Why Traders Use Candlestick Charts
Candlestick charts make it easier to see how price behaved during each period.
- They show opening and closing prices.
- They show the highest and lowest prices.
- They help visualise buying and selling pressure.
- They make trends easier to recognise.
- They can help identify important price areas.
Key Takeaways
- Each candlestick represents a period of price movement.
- A candle contains an open, high, low and close.
- The candle body represents the open-to-close movement.
- Wicks show the highest and lowest prices reached.
- Bullish candles close above their opening price.
- Bearish candles close below their opening price.
- Candlesticks should always be viewed in wider market context.
DADA Trading Academy materials are provided for general educational purposes only and do not constitute personalized financial, investment or trading advice. Trading involves risk and losses are possible.