Understanding How to Read Candlesticks: The Language of Price Action
When you open a trading chart, you see red and green bars moving up and down. For most beginners, it looks like chaos—random movements with no clear pattern. So they guess direction, hope for the best, and wonder why their trades keep losing.
The problem isn't the market. It's that you haven't learned to read what's right in front of you. Every candlestick on your chart is communicating something—who's winning between buyers and sellers, whether momentum is building or fading, and when reversals are likely to happen.
Professional traders don't rely solely on indicators to tell them what to do. They read price directly through candlesticks, interpreting the psychology and momentum embedded in each formation. Once you understand this language, charts transform from confusing noise into clear narratives.
Here's everything you need to know about reading candlesticks and using them to make better trading decisions.
What a Candlestick Actually Shows You
A candlestick represents price movement during a specific time period—one minute, five minutes, one hour, one day, whatever timeframe you're trading. Each candle displays four critical pieces of information:
Open: Where price started when the period beganClose: Where price ended when the period closedHigh: The highest point price reached during that periodLow: The lowest point price dropped to during that period
Every candle has two main parts:
The Body: The thick rectangular section between the open and close. A green (or white) body means the close was higher than the open—buyers won that period. A red (or black) body means the close was lower than the open—sellers won that period.
The Wicks (or Shadows): The thin lines extending above and below the body. The upper wick shows how high price reached before getting pushed back down. The lower wick shows how low price dropped before getting pushed back up.
These simple components tell you everything about the battle between buyers and sellers during that timeframe.
Bullish vs. Bearish Candles: Reading Market Sentiment
Bullish Candle (Green/White):The close is higher than the open, meaning buyers controlled the period. If the candle closed near its high with minimal upper wick, buyers dominated from start to finish. This shows strong upward momentum.
Bearish Candle (Red/Black):The close is lower than the open, meaning sellers controlled the period. If the candle closed near its low with minimal lower wick, sellers dominated from start to finish. This shows strong downward momentum.
The size of the body matters. A long body indicates strong conviction—one side completely overpowered the other. A small body suggests weak conviction—neither buyers nor sellers could establish clear dominance.
Why the Wicks Matter More Than You Think
Wicks reveal rejection. They show you where one side tried to push price but ultimately failed and got pushed back.
Long Upper Wick:Buyers attempted to drive price higher, but sellers stepped in aggressively and pushed it back down. This represents rejection at higher levels. When you see this at resistance, it's warning you that buyers are losing control.
Long Lower Wick:Sellers attempted to drive price lower, but buyers stepped in aggressively and pushed it back up. This represents rejection at lower levels. When you see this at support, it signals that buyers are defending that price zone.
No Wicks (Full Body Candle):One side completely dominated with no contest. These candles show pure momentum and often appear during breakouts or strong trending moves.
Long Wicks on Both Sides (Small Body in the Middle):Complete indecision. Both buyers and sellers fought hard, but nobody could win. Price moved up, got rejected. Moved down, got rejected. Ended near where it started. This uncertainty often precedes significant moves in either direction.
The wicks tell you where the real battle happened. Pay attention to them.
Candle Size: Understanding Momentum and Exhaustion
Large Candles:These show strong momentum and conviction. Large green candles in an uptrend mean buyers are aggressive and confident. Large red candles in a downtrend mean sellers are aggressive and confident. Size indicates strength.
Small Candles (Doji, Spinning Tops):These show indecision and uncertainty. Neither buyers nor sellers could establish control. Price moved around but ended close to where it started. Small-bodied candles with wicks on both sides mean the market doesn't have clear direction yet.
Shrinking Candles After a Strong Trend:This signals exhaustion. When you've been in a powerful uptrend and the green candles start getting smaller, buyers are running out of energy. The same applies to downtrends—shrinking red candles after a big drop mean sellers are losing conviction. Reversals often follow this exhaustion pattern.
The progression from large to small candles tells you when momentum is fading.
The Most Important Single-Candle Patterns
Some individual candles are significant enough to signal potential reversals or continuations on their own. These are the ones you need to know.
Doji
What It Looks Like: Almost no body—the open and close are nearly identical. Usually has wicks on both sides.
What It Means: Complete indecision. Buyers and sellers fought to a stalemate with neither side winning.
When It Matters: After a strong trend. When a doji appears following a sustained uptrend or downtrend, it signals that momentum is stalling. The trend may be about to reverse. If you're already in a trade, consider tightening your stop loss.
Hammer (Bullish Reversal)
What It Looks Like: Small body at the top of the candle with a long lower wick (at least twice the body size). Little to no upper wick. Typically appears at the bottom of a downtrend.
What It Means: Sellers pushed price significantly lower, but buyers came in strong and drove it back up, closing near the high. This is a clear rejection of lower prices.
When It Matters: At support levels or after a downtrend. It signals that sellers tried to keep pushing lower but couldn't maintain control. Buyers are stepping in. Wait for confirmation with the next candle closing higher before entering.
Shooting Star (Bearish Reversal)
What It Looks Like: Small body at the bottom of the candle with a long upper wick (at least twice the body size). Little to no lower wick. Typically appears at the top of an uptrend.
What It Means: Buyers pushed price significantly higher, but sellers came in strong and drove it back down, closing near the low. This is a clear rejection of higher prices.
When It Matters: At resistance levels or after an uptrend. It signals that buyers tried to keep pushing higher but couldn't maintain control. Sellers are stepping in. Wait for confirmation with the next candle closing lower before entering.
Engulfing Candles
Bullish Engulfing:A large green candle that completely engulfs the previous red candle. The body of the green candle is larger than the entire previous candle.
What It Means: Sellers were in control during the previous candle, but buyers came in with overwhelming force and reversed everything. This shows strong bullish momentum taking over.
When It Matters: At support, at the end of a downtrend, or during a pullback in an uptrend. This pattern offers high-probability long entries.
Bearish Engulfing:A large red candle that completely engulfs the previous green candle.
What It Means: Buyers were in control during the previous candle, but sellers came in with overwhelming force and reversed everything. This shows strong bearish momentum taking over.
When It Matters: At resistance, at the end of an uptrend, or during a rally in a downtrend. This pattern offers high-probability short entries.
Pin Bar
What It Looks Like: One very long wick (at least two-thirds of the total candle range) with a small body and a short or nonexistent wick on the opposite side.
What It Means: Massive rejection. Price tried to move in one direction, failed dramatically, and closed on the opposite end. This shows a failed attempt and often signals an upcoming reversal.
Bullish Pin Bar: Long lower wick with a small body near the top. Sellers tried to push lower but failed completely. Buyers are taking control.
Bearish Pin Bar: Long upper wick with a small body near the bottom. Buyers tried to push higher but failed completely. Sellers are taking control.
When It Matters: At key support or resistance levels. These are particularly strong reversal signals when they appear at important structural points.
Multi-Candle Patterns: Reading the Bigger Story
While single candles provide valuable information, sequences of candles give you even more context. Here are the patterns that consistently matter.
Morning Star (Bullish Reversal)
Three-Candle Pattern:
- Large red candle (downtrend firmly in control)
- Small candle showing indecision (can be red or green, often a doji)
- Large green candle closing well into the first red candle's body
What It Means: The downtrend was strong, then momentum stalled as indecision set in, and finally buyers took over with force. This confirms a reversal.
When It Matters: At the bottom of a downtrend or at major support. This pattern signals a high-probability opportunity to enter long positions.
Evening Star (Bearish Reversal)
Three-Candle Pattern:
- Large green candle (uptrend firmly in control)
- Small candle showing indecision (can be red or green, often a doji)
- Large red candle closing well into the first green candle's body
What It Means: The uptrend was strong, then momentum stalled as indecision set in, and finally sellers took over with force. This confirms a reversal.
When It Matters: At the top of an uptrend or at major resistance. This pattern signals a high-probability opportunity to enter short positions.
Three White Soldiers (Bullish Continuation)
Three consecutive large green candles, each closing higher than the last with small or no wicks. Each candle typically opens within the body of the previous candle.
What It Means: Buyers are showing relentless strength with sustained buying pressure. Momentum is building steadily to the upside.
When It Matters: After a consolidation period or at the beginning of a new uptrend. This signals continuation, meaning you should stay long or look for entries if you missed the initial move.
Three Black Crows (Bearish Continuation)
Three consecutive large red candles, each closing lower than the last with small or no wicks. Each candle typically opens within the body of the previous candle.
What It Means: Sellers are showing relentless strength with sustained selling pressure. Momentum is building steadily to the downside.
When It Matters: After a consolidation period or at the beginning of a new downtrend. This signals continuation, meaning you should stay short or look for entries if you missed the initial move.
How to Use Candlesticks in Your Trading
Understanding candlestick patterns is only valuable if you know how to apply them. Here's a practical framework.
Step 1: Identify Market Structure FirstNever look at candles in isolation. Always know whether the market is trending up, trending down, or ranging. Candlestick patterns become significantly more powerful when they align with market structure. A bullish engulfing candle at support in an uptrend? High probability. The same pattern at resistance in a downtrend? Much lower probability.
Step 2: Wait for Candles at Key LevelsCandlestick patterns matter most when they appear at support, resistance, trendlines, or psychological levels (round numbers like 1.2000 or 100.00). A hammer appearing randomly in the middle of a trend doesn't mean much. A hammer at major support after a downtrend? That's actionable information.
Step 3: Always Look for ConfirmationDon't trade based on a single candle alone. Wait for the next candle to confirm the pattern. If you see a bullish pin bar at support, wait for the next candle to close higher. If you see a bearish engulfing at resistance, wait for the next candle to close lower. Confirmation significantly reduces false signals.
Step 4: Enter with Defined RiskUse the candlestick pattern itself to set your stop loss. For bullish reversal patterns (hammer, pin bar, engulfing), place your stop just below the low of the pattern candle. For bearish reversal patterns, place your stop just above the high. If price invalidates the pattern by taking out that level, you exit—no questions asked.
Step 5: Consider VolumeLarge candles with high volume show real conviction. Large candles with low volume should make you cautious. If you see a massive green engulfing candle but volume is unusually weak, the move may not have the participation needed to sustain itself.
Common Mistakes to Avoid
Memorizing Patterns Without Understanding ContextCandlestick patterns aren't magic formulas. A doji isn't automatically a reversal signal—it's simply indecision. Where it appears and what follows determines whether it's worth trading.
Ignoring the WicksMany traders focus only on the body and ignore the wicks. The wicks often contain the most important information, showing you where price was rejected and where the real battle between buyers and sellers occurred.
Trading Every Pattern You SeeNot every hammer is a buy signal. Not every shooting star is a sell signal. You need confluence: proper market structure, support or resistance levels, volume confirmation, and ideally confirmation from the next candle.
Using Candlesticks on Very Small TimeframesCandlesticks on a 1-minute chart are mostly noise. The 15-minute chart is somewhat better. But the real, actionable information comes from 1-hour, 4-hour, and daily charts. Higher timeframes produce more reliable signals.
Forgetting That Candlesticks Show the PastCandlesticks tell you what just happened—they don't predict the future with certainty. They show you probabilities based on repeated patterns of market behavior. Trade the probabilities with proper risk management, not with the expectation of certainty.
Your Candlestick Reading Checklist
Before entering a trade based on a candlestick pattern, run through this checklist:
☐ Where in the market structure is this pattern appearing? (Support, resistance, trendline, mid-range?)☐ What's the overall trend direction? (Am I trading with the trend or against it?)☐ Does this candle show clear rejection? (Long wicks indicate rejection, short wicks indicate conviction)☐ What does the body size tell me? (Large body = strong momentum, small body = indecision)☐ Do I have confirmation from the next candle?☐ Is volume supporting this move or contradicting it?☐ Where will I place my stop loss? (Just beyond the high or low of the pattern candle)
If you can't confidently answer these questions, it's better to wait for a clearer setup.
The Bottom Line
Candlesticks are the market's language. Every candle is communicating information about momentum, sentiment, rejection, and potential reversals. Your job is to learn how to read this language fluently.
Stop relying entirely on lagging indicators that tell you what happened several bars ago. Start reading price directly. Understand what a long lower wick at support means. Recognize when candles are shrinking after a strong trend. Spot engulfing patterns at key levels and know how to act on them with proper confirmation.
This is the foundation of price action trading. Master it, and you'll develop the ability to read market intention before most other traders even realize what's happening. Ignore it, and you'll continue relying on guesswork and hope.
Read the candles with context. Respect the patterns. Wait for confirmation. And always know your exit point before you enter.
