What is a Candlestick?

Candlesticks represent the price movement of a security over a specific period of time, displaying four key data points: open, high, low, and close prices. Understanding how to read candlestick charts is one of the most fundamental skills in technical analysis, as they provide insight into market sentiment and price action.

Candlestick charts originated in 17th-century Japan, where rice traders developed them to track market prices. Today, they are widely used by traders across all financial markets.

Anatomy of a Candlestick

Each candlestick consists of two main parts:

• The Body – Represents the difference between the opening and closing prices.
  • A green (or white) body means the price closed higher than it opened (bullish).
  • A red (or black) body means the price closed lower than it opened (bearish).
• The Wick (or Shadow) – The thin lines extending from the body indicate the highest and lowest prices reached during the time period.

Understanding wicks is crucial for momentum trading. If the price wicks above or below a key level but does not close beyond it, this suggests hesitation or rejection rather than confirmation of a breakout.

Example: How a Candlestick Forms

If you are viewing a 15-minute chart, each candlestick represents:

1. Opening price at the start of the 15-minute period.
2. Highest price reached during that period.
3. Lowest price reached during that period.
4. Closing price at the end of the 15-minute period.

Candlestick charts can be analyzed across multiple timeframes, from one-minute charts for short-term trading to monthly charts for long-term trends. Higher timeframes provide a broad market view, while lower timeframes allow traders to zoom in and see price movements in detail.

Key Candlestick Patterns

Candlestick patterns help traders identify potential market reversals, breakouts, or continuations. However, they should never be used in isolation—always confirm with additional technical analysis tools.

1. Engulfing Candles