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How to Read a Candlestick Chart: A Beginner’s Guide

Master the basics of candlestick patterns and start decoding market movement today.

How to Read a Candlestick Chart: A Beginner’s Guide

What Are Candlesticks and How Are They Formed?

A candlestick represents price movement over a specific time period—this could be one minute, one hour, one day, or any other time frame you set on your chart.

Each candlestick tells a story of four price points:

Open – The price when the period began
Close – The price when the period ended
High – The highest price during the period
Low – The lowest price during the period

Candlesticks show not just what price did—but how the market felt during that time.

Anatomy of a Candlestick: Body and Wicks

A single candlestick is made up of:

The Body – This is the thick part of the candle. It shows the range between the opening and closing prices.
The Wick (or Shadow) – These are the thin lines above and below the body, representing the highest and lowest prices.
Color – Most charts use green (or white) for bullish candles (close > open) and red (or black) for bearish candles (close < open).

Quick Tip:

A long body = strong momentum.
A long wick = market tested levels but reversed.
A short body = indecision.

Basic Candlestick Patterns Every Beginner Should Know

Here are a few simple yet powerful candlestick formations that appear across all financial markets:

1. Doji

A Doji forms when the open and close are nearly equal. It indicates market indecision.

📌 What it means: Buyers and sellers are in a standoff—could signal a potential reversal.

Types of Doji Candles and Their Meanings

Each variation of a Doji gives different clues depending on the position of the wick(s) and where it appears relative to the trend.

1. Standard Doji (or Neutral Doji)

Visual: Small body with roughly equal upper and lower wicks
Meaning: Pure indecision. Neither bulls nor bears have momentum.
Where it appears: Often during consolidation or before major news.

2. Long-Legged Doji

Visual: Small or no body, with long upper and lower wicks
Meaning: Strong back-and-forth price action; market tested both directions.
Potential signal: Volatility and uncertainty, may precede a breakout.
Pro Tip: Watch for confirmation in the next candle.

3. Dragonfly Doji

Visual: Open, close, and high are nearly equal; long lower wick
Meaning: Price was pushed down significantly but buyers drove it back up.
Signal: Bullish reversal, especially after a downtrend
Best used with: Support levels or confirmation candles

4. Gravestone Doji

Visual: Open, close, and low are nearly equal; long upper wick
Meaning: Buyers drove price up, but sellers took over before close.
Signal: Bearish reversal, especially after an uptrend
Often seen at: Resistance zones or tops of bullish moves

5. Four Price Doji (Rare)

Visual: No wicks at all — open = close = high = low
Meaning: Absolute indecision, zero volatility
Usefulness: Not very actionable on its own, but interesting to note.

2. Hammer

The hammer has a small body and a long lower wick. It typically appears after a downtrend.

📌 What it means: Strong rejection of lower prices; can indicate a bullish reversal.

Hammer vs. Hanging Man

The Hammer and Hanging Man look almost identical—but their context is different:

Pattern	Appears After	Possible Signal
Hammer	Downtrend	Bullish Reversal
Hanging Man	Uptrend	Bearish Reversal

3. Engulfing

Bullish Engulfing: A small red candle followed by a large green candle that completely "engulfs" the previous one.
Bearish Engulfing: The opposite—bullish candle engulfed by a larger bearish candle.

📌 What it means: Momentum is shifting. This pattern often appears at turning points.

Bullish vs. Bearish Candlestick Signals

Understanding the directional signals in candlestick patterns can give you a strong edge.

Type	Visual Clues	What It May Signal
Bullish	Long lower wick, green body, hammer	Reversal or trend continuation upward
Bearish	Long upper wick, red body, shooting star	Weakness or downward pressure
Neutral	Small body, equal wicks (Doji)	Indecision or consolidation

Pro Tip:

Always read candlesticks in context. A single candle can mean little—patterns are stronger when they appear near support/resistance levels or within trends.