How to read a candlestick
Each candle encodes four numbers for a time window (1 minute, 1 hour, 1 day, etc.):
- Open — price at the start of the window.
- Close — price at the end.
- High — highest price reached during the window (the top of the upper wick).
- Low — lowest price (the bottom of the lower wick).
The body’s color signals direction: green/white means close > open (buyers won); red/black means close < open (sellers won). The body’s length signals conviction of the move; the wick lengths signal failed attempts in the opposite direction.
Patterns traders watch
Candlestick patterns are visual shorthand for specific order-flow dynamics:
- Doji — open and close are nearly equal. Signals indecision; often appears at reversal points.
- Hammer / shooting star — small body with a long wick on one side. Suggests rejection of the price level the wick reached.
- Engulfing — a single candle whose body completely covers the prior candle’s body. Bullish engulfing at a low or bearish engulfing at a high are common trend-change signals.
- Three white soldiers / three black crows — three consecutive candles in the same direction with minimal wicks. Signals strong momentum.
Risks and considerations
Candlestick patterns are probabilistic, not deterministic. Back-tested studies of classic patterns show modest edges (55-60% win rates on some); none are reliable enough to trade blindly. Two common misreadings: (1) using candles from low-liquidity venues where a single market order can paint a misleading wick, and (2) extrapolating daily-chart patterns to 1-minute charts, where noise dominates signal. Candlestick analysis works best as a framework for reading momentum and failed moves, not a prediction engine. Combine with volume, order-book depth, and larger-timeframe context before acting on a single pattern.