A Beginner’s Guide to Reading Candlestick Charts
If you have opened a trading platform before, you would have come across the red and green bars that are present on the chart. These are referred to as candlesticks. Candlesticks are one of the most effective tools at the disposal of traders to get insight into price action.
Viewing candlestick charts can be bit of a daunting task for the novice trader – however, once you interpret candlestick charts, they can provide valuable insight into market psychology, trends, and opportunity.
This guide will provide you with the basics of interpreting candlestick charts step by step.
What is a Candlestick Chart?
A candlestick chart is a particular kind of financial chart that displays how the price of a security (or any asset) fluctuates over a given time frame. Each “candlestick” represents a single time unit – such as 1-minute, 5-minutes, 1-day, or 1-week. A candlestick has four main parts: Open – The price at the start of the time frame. Close – The price at the end of the time frame. High – The highest price for the time frame. Low – The lowest price for the time frame.
Structure of a Candlestick
Each candlestick has two main parts:
The Body
The Body The large rectangle in between the opening and closing prices. Green (or white): When the close is above the open → bullish candle. Red (or black): When the close is below the open → bearish candle.
The Wick (or Shadow)
The thin lines that extend above and below the body. The wicks indicate the highest price and the lowest price that was achieved If you think of the body as the “battle zone” between buyers and sellers, then the wick shows the highest and lowest extremes of that battle.
Why Candlestick Charts Are Important
- Candle charts supply significantly more information than a simple line chart because they provide traders: Market direction (uptrends, downtrends, or sideways).
- Market reversals (when buyers take over from selling or vice versa).
- Market psychology (fear, greed, hesitation).
- All of this helps traders identify better entry and exit points.
Common Candlestick Patterns Every Beginner Should Know
Here are some popular candlestick patterns you’ll often see: