Trading basicsUpdated 3 min readBy the FXNOD team
How to read candlestick charts
A candlestick shows four prices for one period of time: the open, the high, the low and the close. The thick body spans the open and the close. The thin wicks reach to the high and the low. A candle that closed above its open is bullish, usually green; one that closed below is bearish, usually red.
The parts of a candle
| Part | What it shows |
|---|---|
| Body | The range between the opening and closing price of the period |
| Upper wick | How far above the body the price reached before falling back |
| Lower wick | How far below the body the price reached before recovering |
| Colour | Direction: up if the close is above the open, down if it is below |
The timeframe
Each candle covers one period of the chart's timeframe. On a one-minute chart a candle is one minute of trading; on a daily chart, one day. The same market looks calm on a daily chart and violent on a one-minute chart. Always check the timeframe before reading anything else.
What the shape tells you
- A long body: one side was in control for the whole period.
- A short body: the open and close were close together, so neither side won.
- A long upper wick: the price was pushed up and rejected.
- A long lower wick: the price was pushed down and rejected.
- No wicks: the price opened at one extreme and closed at the other.
Common patterns
| Pattern | What it looks like | How it is usually read |
|---|---|---|
| Doji | Open and close almost equal, wicks on both sides | Indecision |
| Hammer | Small body at the top, long lower wick, after a fall | Selling was rejected; a possible turn up |
| Shooting star | Small body at the bottom, long upper wick, after a rise | Buying was rejected; a possible turn down |
| Bullish engulfing | An up candle whose body covers the previous down candle | Buyers took over |
| Bearish engulfing | A down candle whose body covers the previous up candle | Sellers took over |
How much weight to give a pattern
A pattern is a description of what just happened, not a forecast. Its meaning depends on where it appears: a hammer at a level the price has bounced from before says more than a hammer in the middle of nowhere. Single candles on very short timeframes are mostly noise. On synthetic indices, where each tick is generated at random, candle patterns describe the past accurately and carry no information about the next move.
Practise reading, not predicting
Open a chart and describe the last twenty candles aloud: who was in control, where the price was rejected, whether the bodies are growing or shrinking. In Trade Pilot you can switch chart types and timeframes on a live chart with a demo account while you practise.
Questions people ask
- What do the green and red candles mean?
- Green, or sometimes white, means the price closed higher than it opened in that period. Red, or black, means it closed lower. Colours can be changed in most charting tools.
- What is a wick on a candlestick?
- The thin line above or below the body. It marks the highest and lowest prices reached in the period, beyond the open and close.
- Are candlestick patterns reliable?
- They are useful descriptions and weak predictors. Used alone, most patterns are close to a coin flip. They gain value with context such as trend and support or resistance.
- Which is better, a candlestick chart or a line chart?
- A line chart shows only closing prices and is cleaner. A candlestick chart shows the range within each period, which is what most traders need to judge momentum and rejection.
Practise it with virtual funds
Trade Pilot gives you a live chart and Deriv's contracts on your demo account. There is nothing to install; check the required package in Discover.
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