Introduction to Candlesticks

Japanese candlesticks are the most popular tool for viewing price movements in financial markets. Each candlestick shows four price points during a specific time period: open, close, high, and low.

Structure of a Candlestick

A candlestick has two main parts:

Body: the rectangular area between the open and close prices. If close > open, the body is typically green (bullish). If close < open, the body is typically red (bearish).

Wick or Shadow: the thin lines extending above and below the body. The upper wick shows the highest price, the lower wick shows the lowest price.

Below is an illustration of basic candlesticks:

Basic Reading of Candlesticks

To read a candlestick chart, compare the close relative to the open:

Bullish candle: close > open, indicating strong buying pressure.

Bearish candle: close < open, indicating strong selling pressure.

Doji candle: open and close are nearly equal, the body is very small, signaling market indecision.

Real example: If you see a long bullish candle with a large body and short wicks, it means buyers dominated that session. Conversely, a long bearish candle with few wicks shows sellers were in control.

Common Mistakes in Reading Candles

Looking at a single candle alone: One candle is not enough to make a trading decision. Combine multiple candles and other indicators.

Confusing colors: On a white background, green candles mean up, but on a dark background, white candles mean up. Understand the meaning rather than absolute colors.

Ignoring the time frame: A 5-minute chart candle differs from a 1-hour chart candle. Always know your time frame.

Conclusion

Understanding candlestick anatomy is the first step in forex trading. Practice reading candle patterns on real charts to improve your skills.

Quiz

Answer the questions below to reinforce the lesson.

Content is for reference only, not investment advice. Forex trading carries high risk.

Candlestick Anatomy and Reading Basics