How to Read Candlestick Charts: Four Prices in One Candle
A candlestick chart compresses price movement over a set period into a single bar. Understanding its structure makes charts much easier to read.
The Structure of a Candle: Open, High, Low, and Close
One candle contains four prices for a specified period: the open (the price when the period begins), close (the price when it ends), high (the highest price), and low (the lowest price). On a 1-hour chart, each candle represents 1 hour; on a daily chart, it represents one day.
The thick rectangle in the middle is the body, covering the range between the open and close. The thin lines extending above and below it are wicks, marking the high and low. A long body means price moved strongly in one direction during that period, while a long wick means it moved one way and then retraced.
Bullish and Bearish Candles
A close above the open produces a bullish candle; a close below the open produces a bearish candle. Korean and US charts usually display bullish candles in green or red, and bearish candles in red or blue. It is safer to judge the positions of the open and close than to rely on color.
Three Common Patterns
| Pattern | Shape | Common Interpretation |
|---|---|---|
| Hammer | Short body + long lower wick | Possible buying interest during a decline |
| Doji | Almost no body (open ≈ close) | Balanced buying and selling pressure; unclear direction |
| Engulfing | A large candle covers the previous candle's body | Often described as a trend reversal signal |
A hammer shows price being pushed far down before the close recovers. A doji forms a cross because its open and close are almost equal. An engulfing pattern has a larger candle of the opposite color surrounding the preceding candle. These patterns indicate tendencies, however, rather than certain signals.
Cautions When Interpreting Candles
- Do not trade on a pattern alone. Volume, support and resistance, and trend context improve reliability.
- Do not mix timeframes. A doji on a 5-minute chart and one on a daily chart carry different weight.
- The same shape has different meanings depending on its location. A hammer at a high and a hammer at a low are interpreted differently.
- It is safer to set your stop-loss criteria in advance in case price moves against your expectations. If you use leverage, remember that losses grow proportionally.
Candles record what happened in the past; they do not guarantee the future. Any pattern can only improve the odds slightly. Approach actual trading knowing that there is always a risk of loss.
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