Reading Candlestick Trading Charts (2024)

FAQs

How do you read a candlestick trading chart? ›

Candlestick Components

When the real body is filled in or black (also red), it means the close was lower than the open. If the real body is white (or green), it means the close was higher than the open. Traders can alter these colors in their trading platform.

So, if a candlestick chart for one month with each candle representing a day has more consecutive reds, then traders know that the price is falling. Above and below the body are vertical lines called wicks or shadows that show the lows and highs of the traded price of the stock.

It consists of three successive candlesticks – the first is long and bearish and is followed by a smaller bullish bar that is completely engulfed by the first one. The third candle is bullish and closes above the second candle's high, suggesting a potential shift from a downtrend to an uptrend.

Three Line Strike: The bullish three-line strike reversal pattern carves out three black candles within a downtrend. Each bar posts a lower low and closes near the intrabar low. The fourth bar opens even lower but reverses in a wide-range outside bar that closes above the high of the first candle in the series.

Each trading day is represented as a bar on the chart with the open, high, low and closing prices. The length of the bar shows the stock's price range for that day, with the top of the bar representing the highest price and the bottom the lowest price for the trading day.

A black or filled candlestick means the closing price for the period was less than the opening price; hence, it is bearish and indicates selling pressure. Meanwhile, a white or hollow candlestick means that the closing price was greater than the opening price. This is bullish and shows buying pressure.

The best way to learn to read candlestick patterns is to practise entering and exiting trades from the signals they give.

A candlestick chart is a graphical representation used in financial analysis to display the price movement of an asset. This may include a stock, currency, or commodity, over a specified period of time. It consists of individual "candlesticks," each representing a specific time frame (e.g., a day, hour, or minute).

What is the 3 wick rule? ›

We recommend using no more than 3 wicks in a jar that is 4 inches wide otherwise you risk crowding the jar and creating too much heat for your candles. We have also included a diagram for a 5-inch diameter container using 4 wicks but, you CAN use 3 wicks in this size jar if you wanted to.

The 8-10 Rule: Place one 8 ounce candle for every 10 feet radius of room.

The low of the candle is the lower shadow or tail, represented by a vertical line extending down from the body. If the close is higher than the open, then the body is colored green representing a net price gain. If the open is higher than the close, then the body is colored red as it represents a net price decline.

Candlestick Pattern Explained

Candlestick charts are a technical tool that packs data for multiple time frames into single price bars. This makes them more useful than traditional open, high, low, and close (OHLC) bars or simple lines that connect the dots of closing prices.