How to read a candlestick.

Open almost any forex chart and you will see rows of small boxes with thin lines above and below. Each one is a candlestick, or candle, and it packs four prices from one stretch of time into a single shape.

A chart is a row of these candles, so reading one is the first step to reading the whole chart. The chart types lesson compares candles with line and bar charts.

What four prices does one candle show?

Say you watch EUR/USD for one hour. It starts the hour at 1.10200, climbs as high as 1.10350, dips as low as 1.10150 and ends the hour at 1.10300. These prices are illustrative.

Those four numbers are the open, the high, the low and the close, often written OHLC. A candlestick draws all four for one period, here one hour.

The body is the thick part. It runs from the open to the close, so this body spans 1.10200 to 1.10300.

The wicks, also called shadows, are the thin lines above and below the body. The upper wick reaches the high of the period and the lower wick reaches the low.

Every price the chart recorded in that hour sits between the two wick tips. On this chart, nothing printed above 1.10350 or below 1.10150 during the hour.

How does the colour show direction?

A body has two ends, and the colour tells you which one is the close. Without it you could not tell whether the hour finished higher or lower than it began.

A bullish candle closed higher than it opened. Most platforms draw it green, and some use white or a hollow body. Its open is at the bottom of the body and its close at the top.

A bearish candle closed lower than it opened. It is usually red, or black on some charts, and its open sits at the top of the body with the close at the bottom.

Colours are a display setting, and you can change them on most platforms. Check them on any chart you did not set up yourself.

When the close equals the open, the body shrinks to a flat line. That shape is a doji, and it has its own lesson.

How do you measure a candle in pips?

Measuring a candle in pips turns its shape into numbers you can compare. On EUR/USD a pip is 0.0001, so you subtract two prices and count the steps.

For the bullish EUR/USD candle above:

1. Range, high minus low: 1.10350 minus 1.10150 = 0.00200, which is 20 pips.
2. Body, close minus open: 1.10300 minus 1.10200 = 0.00100, which is 10 pips.
3. Upper wick, high minus close: 1.10350 minus 1.10300 = 0.00050, which is 5 pips.
4. Lower wick, open minus low: 1.10200 minus 1.10150 = 0.00050, which is 5 pips.

The parts add back to the whole: 5 + 10 + 5 = 20 pips.

Now take a bearish candle on USD/JPY, where a pip is 0.01. It opens at 150.40, rises to 150.55, falls to 149.90 and closes at 150.00, again with illustrative prices.

On a bearish candle the open is the top of the body. So the upper wick is high minus open, and the lower wick is close minus low.

1. Range: 150.55 minus 149.90 = 0.65, which is 65 pips.
2. Body: 150.40 minus 150.00 = 0.40, which is 40 pips.
3. Upper wick: 150.55 minus 150.40 = 0.15, which is 15 pips.
4. Lower wick: 150.00 minus 149.90 = 0.10, which is 10 pips.

Again the parts add up: 15 + 40 + 10 = 65 pips.

The USD/JPY body fills 40 of its 65 pips, about 62% of the range. The EUR/USD body fills 10 of 20 pips, or 50%. The next lesson explains what those proportions suggest.

What does the timeframe change?

Every candle covers one fixed period, and you pick the period. On a 15-minute chart each candle holds 15 minutes of trading, and on a daily chart each candle holds one day.

Short candles build into longer ones. These four 15-minute EUR/USD candles make up the same hour as the first example:

The 1-hour candle takes the open of candle 1, 1.10200, and the close of candle 4, 1.10300. Its high is the highest high, 1.10350 from candle 3, and its low is the lowest low, 1.10150 from candle 1.

Candle 3 was bearish, yet the hour as a whole was bullish. The same market can look different on different timeframes, which is why choosing your timeframes gets a lesson of its own.

The newest candle on a chart is still forming. Its close is just the latest price, and its body and wicks can keep changing until the period ends.

Daily candles also depend on when your broker's day starts. Two brokers whose server clocks differ cut the day at different hours, so the same day can produce different daily candles.

What can one candle tell you, and what can it not?

A candle shows where price started and finished, and how far it reached each way. A long upper wick, for example, means price rose during the period and fell back before the close.

The order of events is missing. A bullish candle with both wicks may have touched its low first or its high first, and the shape would be identical.

Path A below dips to the low first and rallies later, while Path B rallies to the high first and dips later. Both start at the same open and finish at the same close.

Suppose you bought at the open, 1.10200, with a stop loss at 1.10160 and a target at 1.10340. On Path A the dip hits your stop first. On Path B the rally hits your target first.

The candle looks the same in both cases. A backtest that only sees candles cannot tell which came first when a stop and a target both sit inside one candle.

A candle also leaves out why price moved, and spot forex has no central exchange reporting total volume. Platforms often show tick volume instead, a count of price changes, which is only a rough stand-in.

One candle on its own is a weak signal. The patterns later in this module read candles in small groups, usually near support and resistance, and any of them can fail, so weigh each one with other evidence.

Keep learning

Chapter 2What candle bodies and wicks tell you.02A candle's body shows the move from open to close, and its wicks show prices reached but not kept. A long body means price moved far and held it; a short body means open and close ended near each other. A long lower wick shows a drop bought back, and a long upper wick a rise sold off.Chapter 2Spinning tops and marubozu candles.03A spinning top is a candle with a small body and wicks on both sides longer than the body, showing that buyers and sellers ended the period roughly even. A marubozu is the opposite: a long body with little or no wick, showing one side controlled the period from open to close. Neither predicts the next move alone.Chapter 2Doji candles and what they signal.04A doji is a candle that opens and closes at almost the same price, so its body is a thin line. It shows buyers and sellers ended the period even. The four common types are standard, long-legged, dragonfly and gravestone. A doji alone is a weak signal; context and the next candle matter.Chapter 2Hammer and hanging man patterns.05A hammer and a hanging man are the same candle: a small body near the top and a lower wick at least twice as long. After a fall it is a hammer, a hint that selling may be fading. After a rise it is a hanging man, a warning that buying may be tiring. Each needs a confirming next candle.Chapter 2Inverted hammer and shooting star patterns.06An inverted hammer and a shooting star are the same candle: a small body near the low and a long upper wick, usually at least twice the body. After a fall it is an inverted hammer, a possible turn up. After a rise it is a shooting star, a possible turn down. Both need a confirming close.Chapter 2Bullish and bearish engulfing patterns.07An engulfing pattern is a two-candle reversal signal. A bullish engulfing forms after a decline, when a rising candle's body completely covers the previous falling candle's body. A bearish engulfing is the mirror image after a rise. It suggests control has switched sides, but it often fails in ranges and means more at a support or resistance level.Chapter 2Tweezer tops and bottoms.08A tweezer top is two candles, usually side by side, that reach almost the same high after a rise. A tweezer bottom is two candles with almost the same low after a fall. Both show a price the market rejected twice. They mean most at a known level and are weak signals on their own.Chapter 2Morning star and evening star patterns.09A morning star is a three-candle pattern at the end of a fall: a long bearish candle, a small-bodied star near the low, then a long bullish candle that closes above the first candle's midpoint. An evening star is the mirror image after a rise. Both suggest a possible reversal, and neither guarantees one.Chapter 2Three white soldiers and three black crows.10Three white soldiers is three bullish candles in a row after a decline, each closing higher and near its high. Three black crows is the bearish mirror after a rise. Both suggest one side has taken control, but they often appear after a large move, can fail, and are best read with the trend and a planned stop.Chapter 2Three inside up and three inside down.11Three inside up is a three-candle bullish reversal pattern: a long bearish candle, a small bullish candle whose body sits inside it, then a bullish candle that closes above the first candle's open. Three inside down is the mirror image after a rise. Both are a harami plus a confirming candle, and neither is a reliable signal on its own.Chapter 2Candlestick patterns cheat sheet.12A candlestick pattern is a shape made by one, two or three candles that hints at who controlled price. Single candles such as the doji, hammer and shooting star show rejection or indecision. Two- and three-candle patterns such as engulfing and morning star show a shift. None predicts price reliably on its own.