How to Read Candlestick Charts

Updated October 23, 2026

Candlestick charts show what price did within each time period: where it opened, where it closed, and how far it travelled in between. Learning to read them is the first practical skill in technical analysis. Updated September 2026.

Candlestick patterns

What a candlestick chart is

A candlestick chart displays price action using candles instead of a single line. The technique originated in 18th-century Japan and was not adopted by Western markets until much later.

The Doji candle does not have a body but usually has an upper and lower wick

Candlestick Charts

Each candle has a body and wicks. On a daily chart, the body spans the range between the opening and closing price. The upper wick marks the highest price reached during the period, the lower wick the lowest.

Colour indicates direction: a green or white body means the close was above the open, red or black means it closed below. Some candles have no body at all, and others lack one or both wicks. Each of those shapes carries its own meaning.

Reading a single candle

Three outcomes are possible in any period. Buyers dominated, sellers dominated, or neither did. A large body with small wicks indicates a decisive move. A small body with long wicks indicates indecision.

The second factor is volume, shown in the column chart below the price. A large green candle on high volume carries far more weight than the same candle on thin volume, because it reflects genuine participation rather than a quiet drift.

The four Doji patterns

A Doji forms when the open and close are effectively equal, leaving little or no body. It signals indecision rather than direction.

• Neutral Doji: a simple cross. It indicates a ranging market and gives very little information about what comes next on its own

• Dragonfly Doji: long lower wick, no upper wick. Sellers pushed price down but buyers reclaimed the entire move, which can mark a potential entry or exit point

• Gravestone Doji: long upper wick, no lower wick. The mirror image, showing buyers failed to hold an advance

• Long-legged Doji: long wicks on both sides with open and close near the middle, indicating heavy two-way activity with no resolution

No Doji is a trade signal by itself. What matters is where it forms: at a support or resistance level, after an extended trend, or in the middle of a range. The same shape means different things in each case.

Single candle patterns

• Hammer: forms at the bottom of a downtrend with a long lower wick and small body, acting as a bullish reversal. The surrounding candles should not overlap the lower wick

• Failed Hammer: the same shape in a downtrend, but buyers fail to follow through and the trend continues rather than reversing

• Inverted Hammer: a reversed Hammer with an upper wick at least twice the body. Buying pressure appeared, then selling pressure that was not strong enough to break the market lower

• Hanging Man: a bearish reversal signal appearing after an advance, used to open shorts or exit longs

• Shooting Star: identical in shape to an Inverted Hammer, but distinguished by where it forms. It appears at the top of an uptrend, with the long upper wick piercing resistance

• Marubozu: a long body with no wicks at either end, showing one side dominated the entire period. It acts as a continuation pattern, not a reversal

The Hammer and Inverted Hammer, and the Hanging Man and Shooting Star, are pairs distinguished only by context. The shape alone tells you nothing, the preceding trend tells you everything.

One common error is confusing a Marubozu with a random wickless candle in a range-bound market. A Marubozu is meaningful because it extends an existing trend.

Two-candle patterns

• Bullish Engulfing: a small red body completely engulfed by a large green body, signalling a reversal upward

• Bearish Engulfing: the inverse, forming at market tops and indicating momentum shifting to the downside

• Bullish Piercing Line: a two-candle bullish reversal where the second candle closes above the midpoint of the first. Essentially a half-formed Bullish Engulfing with correspondingly lower reliability

• Dark Cloud Cover: the bearish equivalent, suggesting a bullish trend may be turning

• Bullish Harami: a small green candle forming inside the body of a larger red one, showing buyers entering and momentum slowing

• Bearish Harami: the opposite formation, with a close below the low of the preceding candle confirming it

• Tweezer Top and Bottom: two candles with almost identical highs or lows, signalling exhaustion of the prevailing move

Engulfing patterns often show a gap between the first candle's close and the second candle's open. This exhaustion gap strengthens the pattern, but it is rare in markets that trade continuously, such as forex, where gaps typically only appear over a weekend.

Three-candle patterns

• Morning Star: a bullish reversal in a downtrend. A large bearish candle, then a small indecisive candle, then a bullish candle closing at least halfway into the first. A gap down before the middle candle strengthens the signal

• Evening Star: the bearish mirror image, forming at the top of an advance

• Three White Soldiers: three consecutive strong bullish candles. It works both as a reversal at the end of a downtrend and as a continuation signal mid-trend

• Three Black Crows: three consecutive bearish candles indicating sustained selling pressure, with buyers unable to hold price near previous closes

Five-candle patterns

• Rising Three Methods: a large bullish candle, three small bearish candles that fail to erase it, then a fifth bullish candle closing above the first. Selling pressure appeared but buyers retained control

• Falling Three Methods: the inverse, with a large bearish candle, a failed minor rally, and a fifth candle closing below the first

In both cases, waiting for the fifth candle to close beyond the first confirms the pattern. Entering before that close means acting on an incomplete formation.

Why confirmation matters

Patterns forming at significant levels, such as established support and resistance, are considerably more reliable than the same patterns appearing mid-range.

No candlestick pattern predicts price. Each one describes what has already happened and suggests what is more likely next. Combining a pattern with volume, with the surrounding trend, and with at least one other technical tool is what turns an observation into a usable signal.

Practise reading patterns on historical charts before risking money, and test them on a demo account. Our trading guides cover related techniques, and broker reviews compare platforms with the charting tools you will need.

Candlestick charts: frequently asked questions

What does a candlestick show?

The opening price, closing price, high and low for a given period. The body spans open to close, the wicks mark the extremes.

What does a Doji mean?

Open and close were effectively equal, indicating indecision. On its own it gives little information, its meaning depends on where it forms.

Small candles with small wicks

Large candles with small wicks

Larg bodies

4 Main Types of Doji Candlestick

What is the difference between a Hammer and a Hanging Man?

Shape is the same, context differs. A Hammer forms at the bottom of a downtrend as a bullish reversal, a Hanging Man forms after an advance as a bearish signal.

Are candlestick patterns reliable?

They describe past price action and suggest probability, not certainty. Reliability improves substantially when patterns form at support or resistance and are confirmed by volume.

Why does volume matter?

A large candle on high volume reflects genuine participation. The same candle on thin volume may just be a quiet drift with no conviction behind it.

Which patterns should a beginner learn first?

Start with Doji types, the Hammer and Shooting Star, and the two Engulfing patterns. They are common, easy to spot, and cover both reversal directions.

How Does The Candlestick Chart Pattern Work?

How Does The Candlestick Chart Pattern Work?

Three Black Crows

Three White Soldiers

Evening Star

Morning Star

Tweezer Top/Bottom

Bearish Harami

Bullish Harami

Dark cloud cover

Bullish Piercing Line

Bearish Engulfing

Bullish Engulfing

How Does The Candlestick Chart Pattern Work?

Shooting Star

Hanging Man

Inverted Hammer

Failed Hammer

The taller the lower wick is the more valid the pattern gets