Candlestick chart

A candlestick chart packs what price did over a period into one shape. Each candle is one timeframe period: on a 15-minute chart a candle covers 15 minutes, on a daily chart one day. Four prices are read from it: the open, the high, the low and the close.

The thick part is the body, spanning open to close. The thin lines above and below are the wicks, marking the extremes price reached but could not hold. If the close is above the open, it is a rising candle, usually drawn green or white. If the close is below the open, it is a falling candle, usually red or black.

They come from Japan, hence the name Japanese candlesticks. A line chart only joins the closes; a candle also shows what happened between buyers and sellers during the period.

Take an example. A 1-hour EUR/USD candle opens at 1.0850, trades up to 1.0872, down to 1.0841 and closes at 1.0866. The body runs from 1.0850 to 1.0866, 16 pips, and it is green. The upper wick is 6 pips, from 1.0866 to 1.0872; the lower wick is 9 pips, from 1.0850 to 1.0841.

The story: at some point in that hour sellers pushed price 9 pips lower, buyers absorbed it and carried price 16 pips above the open. Some selling came in near the top, but the close still sat near the upper end. The hour went to the buyers. The candle does not show which came first, the low or the high; for that you drop to a smaller timeframe.

Ask three questions. Is the body large or small? A large body shows one side in control, a small one shows balance. Where are the wicks and how long are they? A long wick says price was pushed back at that end. Where is the close within the candle? Near the high favours buyers, near the low favours sellers.

Then read the candle inside its sequence. One candle is a sentence; the meaning comes from the paragraph. Several upper wicks in a row under resistance mean price gets pushed back each time it arrives. The same candles in the middle of the chart, touching no level, say much less.

Deciding by colour. Seeing three green candles and expecting a rally, or two red ones and expecting a drop, is counting, not reading. A red candle with a long lower wick that closed well off its low can show buyers stepping in. A green candle may have hit resistance and left an upper wick twice the size of its body.

Memorising patterns. Knowing names like hammer, doji and engulfing helps, but opening a trade because you spotted one does not. The same hammer means one thing at support and another in the middle of a downtrend. A candle's meaning is where it stands.

Deciding before the candle closes. A live candle keeps changing shape, and a long wick in the first ten minutes of an hourly candle can turn into body by the close. Decide on closed candles.

A candle reduces everything in its period to four prices. You can't see whether price hit the low twice, or whether the move took one minute or the whole hour. For detail you go to a smaller timeframe, where the noise also grows.

Candles differ slightly between platforms. Forex has no central exchange; each broker has its own price feed and server time. When the daily close falls at a different hour, the daily candle changes shape, and some platforms even draw a small separate candle for Sunday. Don't expect a candle to match pip for pip elsewhere.

In quiet hours and thin markets candles say little. A handful of orders overnight can print a long wick, and on news candles stretch both ways at once. Knowing the words is not enough; you also look at who is speaking, where and when.