Candlestick
Also called Candle, Japanese candlestick, Candlestick chart
A candlestick is one bar on a price chart that shows four prices for a set period: the open, high, low and close. A thick body spans the open and close, and thin wicks reach the high and low.
Each candle is a small record of what buyers and sellers did during that period. Read it well and its high and low give you a logical place for your stop, which sets how big your trade can be. Read it badly and you may act on a signal that disappears before the candle closes.
What the four prices inside a candlestick tell you
The body is the part between the open and the close. If price closed higher than it opened, the candle is bullish and usually drawn green or hollow. If it closed lower, it is bearish and usually drawn red or filled.
The wicks (also called shadows) are the thin lines above and below the body. The top of the upper wick is the highest price in the period. The bottom of the lower wick is the lowest. The drawing below labels both candle types.
A candlestick pattern is one or more candles whose shapes, taken together, hint at what buyers and sellers might do next. Examples are a long lower wick at a support level, or a large candle whose body covers the one before it. Patterns are built from the four prices above. If you cannot read a single candle, the patterns will not help you.
How one candlestick sets your stop and position size
Here is an illustrative example with round numbers. A 1-hour EUR/USD candle opens at 1.1000, rises to 1.1040, dips to 1.0985 and closes at 1.1030.
The body is 30 pips (1.1030 − 1.1000). The upper wick is 10 pips (1.1040 − 1.1030). The lower wick is 15 pips (1.1000 − 1.0985). The full range is 55 pips. The drawing below shows those measurements and the stop used next.
Say you buy at the close and put your stop 5 pips below the candle's low, at 1.0980. Sellers tried to push price that low during the hour and failed. If price trades below that level, your reason for buying no longer holds. With a $10,000 account and 1% risk, the maths below gives your order size. One standard lot (100,000 units) of EUR/USD is worth $10 per pip.
A bigger candle means a wider stop, so you trade a smaller size for the same dollar risk. If the stop had to sit 100 pips away instead of 50, the same $100 risk buys 0.10 lots: half the size.
Reading wicks and bodies without fooling yourself
| What you see | What it usually means | Decision rule |
|---|---|---|
| Large body, small wicks | One side controlled the whole period | Treat it as real pressure, but check where it closed against nearby levels |
| Long lower wick, small body | Price fell, then buyers pushed it back up | Only matters at a level you already marked, not in mid-range |
| Long upper wick, small body | Price rose, then sellers pushed it back down | Same: matters only at a level you marked |
| Tiny body, wicks both ways | Neither side won | Wait: act only if the next candle closes beyond this candle's high or low |
The most common misread is acting on a candle that has not closed yet. A hammer (small body near the top, long lower wick) at minute 40 of a 1-hour candle can be a large red body by minute 60. Your rule: if the candle is still open, its shape is not a signal yet. The chart below shows the same 1-hour candle twice: as a hammer at minute 40, and as a large red candle at its close.
The second misread is mixing timeframes. In forex, one daily candle holds about 24 one-hour candles. A bullish daily candle can hide a sharp sell-off in the last few hours, so check the shorter timeframe before you trust the shape.
On your trading platform, read each candle's open, high, low and close as numbers and measure wicks in pips, not by eye.
Checks before you trade off a candlestick
- How many pips is its range? Does a stop beyond it still fit your risk at a sensible size?
- Does the next higher timeframe agree with the direction?
- Did a news release form this candle? Spikes on news often leave wicks that mean little later.
FAQ
Do candlesticks work the same way in crypto and stocks as in forex?
Yes, the four prices and the drawing are identical. Crypto trades all week, so its daily candles have no weekend gap. Stocks often open with gaps between one day's close and the next day's open.
Why does the daily candle look different at two brokers?
A daily candle starts and ends at the broker's server time. If two brokers close their day at different hours, their daily highs, lows and closes differ, and so can the patterns.
What timeframe candles should a day trader watch?
Many day traders take entries on 5-minute to 15-minute candles and read direction from 1-hour or 4-hour candles. Shorter candles have smaller ranges but more noise, so a single wick means less.