How candlestick charts work and what timeframe to choose — Octa (2024)

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How candlestick charts work and what timeframe to choose— Octa (1)

In thisarticle you will learn:

  • What the most common types of charts are
  • How to reada Japanese Candlestickchart
  • What timeframe to choose to understand market movements better andmake more realistic forecasts.

Types of charts

There are two basic types of charts available in Forex:Line and Japanese Candlestick. Let’s look closer at both of them.

Line charts

Line Charts are the simplest, as they only connect closing prices over a given time periodand depict the general price trend.

You can use this type of chart as an overlay or for comparing charts when performing an inter-market analysis.

For example, you might compare the prices of the Australian dollar and gold using a line chart.

Candle charts

Japanese Candlesticks offer the most popular form of charting.

The candle chart bears much more information than the line chart and it is represented in an easy-to-grasp visual form.

The real body marks the area between the open and the close price. If price closes above the open, the body is hollow. If the price ends up closing lower, the body is solid.

The hollow candle is referred to as white, and the solid candle is called black, though, in reality, the chart can be shown in any color.

The narrow line - called a shadow - shows the price range for the set time period.

One Japanese candlestick is basically a linear chart representing a price for a selected timeframe but shown in a more compact form.

Take a look at how a linear chart that represents a growing price converts into a white Japanese five-minute candle.

Now, this is how a linear chart that represents a falling price converts into a black Japanese five-minute candle:

What timeframe to choose for the chart

Traders use monthly, weekly, daily, 4-hour, hourly, 15-minute and even 1-minute timeframes.

Ideally, traders pick the main timeframe they are interested in and then choose a longer and a shorter timeframe to complement the main one.

The longer timeframes typically contain fewer and more reliable signals. The shorter timeframes usually contain more signals with less accuracy.

There are several types of traders, and they have different trading styles.

Swing or position traders prefer holding trades for days or weeks.

They mainly focus on the daily charts for their trades. They can also make use of a weekly chart when defining the long-term trend, as you can see on the example. And track a 4-hour chart when defining the immediate short-term trend.

Intraday traders, who enter and exit the market the same day, pay more attention to shorter timeframes such as the hourly and 4-hour charts for entry signals, and the daily chart for the broader trend.

How candlestick charts work and what timeframe to choose— Octa (2)


  • You can use the line chart to make an intermarket analysis, but to analyze the price of the symbol you’re trading you should use the candle chart.
  • The candles can be in two colors: white (bullish) where the closing price is higher than the opening price, and black (bearish) where the closing price is lower than the opening price.
  • Use bigger timeframes to find strong support and resistance lines or a trend and smaller ones to make your final decision.
How candlestick charts work and what timeframe to choose — Octa (2024)


What is the best time frame for candlestick charts? ›

If we talk about the best candlestick time frame for day trading, the most commonly used time frame charts for intraday trading time are the 5-minute candlestick chart and the 15-minute candlestick chart. The candlesticks have four points that are commonly called OHLC (open high low close).

What is the 3 candle rule? ›

The three inside up pattern is a bullish reversal pattern composed of a large down candle, a smaller up candle contained within the prior candle, and then another up candle that closes above the close of the second candle.

Which timeframe is best for trading? ›

Trading at the Opening of the Market

Hence, this makes the time frame between 9:30 am to 10:30 am the ideal time to make trades. Intraday trading in the first few hours of the market opening has many benefits: – The first hour is usually the most volatile, providing ample opportunity to make the best trades of the day.

What is the most successful candlestick pattern? ›

Top 5 Most Powerful Candlestick Patterns for Intraday Trading
  • Three Line Strike: The bullish three-line strike reversal pattern carves out three black candles within a downtrend. ...
  • Two Black Gapping: ...
  • Three Black Crows: ...
  • Evening Star: ...
  • Abandoned Baby:
Apr 17, 2024

Which time candlestick pattern is most reliable? ›

Engulfing patterns are widely considered to be one of the more accurate candlestick patterns.

What is the best candle length for day trading? ›


What is the 8 10 rule for candles? ›

The 8-10 Rule: Place one 8 ounce candle for every 10 feet radius of room. It's a good rule of thumb to follow the 8-10 rule to ensure your candle scent permeates the entire room equally.

How to master a candlestick chart? ›

A short upper wick on a red candle suggests the stock opened near its daily high. Conversely, a short upper wick on a green candle suggests the stock closed near its daily high. In summary, a candlestick graph presents the relationship between a stock's high, low, opening, and closing prices.

What are the secrets of candles in trading? ›

White candle means buying and Red candle means selling. White candle having no wick at the bottom means strong buying strength. Red candle having no wick at the top means strong selling strength. White and Red candles having wicks in both top and bottom means reversal of trend.

What is the 10 am rule in stock trading? ›

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

What timeframe do professional traders use? ›

Most traders will start by choosing one longer timeframe and another shorter timeframe. As a general rule, traders use a ratio of 1:4 or 1:6 when performing multiple timeframe analysis, where a four- or six-hour chart is used as the longer timeframe, and a one-hour chart is used as the lower timeframe.

What is the simplest most profitable trading strategy? ›

One of the simplest and most widely known fundamental strategies is value investing. This strategy involves identifying undervalued assets based on their intrinsic value and holding onto them until the market recognizes their true worth.

Which candlestick pattern is most accurate? ›

The hammer pattern is often considered one of the most reliable candlestick patterns because it indicates a reversal in price action, particularly in downtrends, as the bulls regain control.

Which is the best time frame for candlesticks? ›

The best time frame for candlesticks is daily bars and relatively short holding periods from 1 to ten days. Thus, candlesticks are most useful for short-term trading. We backtested different time frames from 15-minute bars to monthly bars.

What is the rarest candlestick pattern? ›

The rarest candlestick pattern is often considered the "Abandoned Baby." This pattern is a reversal indicator characterized by a gap followed by a Doji, which is a candle with a small body, and then another gap in the opposite direction.

What is the best time frame for a chart? ›

It is an easier strategy to manage risk while it is a good thing to identify trends. Therefore, for scalpers, we recommend that you use extremely short timeframes like 1-minute, 5-minute, and 10-minute. For regular day traders, the best time frames are 5-minute, 15-minute, and 30-minute charts.

Which time frame is best for inside candle trading? ›

Because there are too many inside bars in the smaller time frames, many of them are worthless, and they will generate false breakouts, inside bar candles perform best on the daily chart time frame.

Do professional traders use candlestick charts? ›

Traders use candlestick charts to determine possible price movement based on past patterns.

What time frame for swing trading candles? ›

The time frame refers to the interval of data that each candlestick or bar represents, such as one hour, one day, or one week. The time frame you choose can have a significant impact on your swing trading results, as different time frames can show different patterns, signals, and levels of volatility.

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