How to Read a Candle

The short version

A candle is a summary of everything that happened to price during one period of time. On a 1-hour chart each candle is one hour. On a daily chart each candle is one day. Learn to read one candle and you can read any chart.

The four prices inside every candle

Every candle is built from four numbers:

• Open: the price when the period started.
• Close: the price when the period ended.
• High: the highest price reached during the period.
• Low: the lowest price reached during the period.

The thick part is the body. It runs from the open to the close. The thin lines above and below are the wicks (some people call them shadows). They show how far price travelled before it was pushed back.

Green or red

• If the close is above the open, buyers won the period. The candle is usually drawn green (or hollow).
• If the close is below the open, sellers won. The candle is usually drawn red (or filled).

Colours are a chart setting, not a rule. Always check which colour means up on the platform you use.

What the shape is telling you

One candle is a clue, not a signal. It becomes useful when you read it in context: where it formed, what came before it and what the next candle does.

Timeframes change the story

The same hour of trading looks like one candle on the 1-hour chart and four candles on the 15-minute chart. Before you judge a candle, always ask which timeframe you are looking at and whether the higher timeframe agrees.

Practice

1. Open any chart on the daily timeframe.
2. Pick the last 10 candles.
3. For each one, write down whether buyers or sellers won, and whether the wicks show a fight.
4. Look at what price did next. Patterns start to appear surprisingly fast.

Key terms

• Body: the range between open and close.
• Wick: the range outside the body, up to the high or down to the low.
• Timeframe: the length of time each candle represents.