How to Read Candlestick Charts

Thu Apr 2, 2020, 06:41 pm | by Delaney | No comments

Candlestick charts are commonly used in trading because they pack a lot of information in a easy-to-read design. They tell you more information than line charts, and with a single candlestick, you can see the opening, closing, session high and session low price. Continue reading to learn how to read them, and see a few bullish and bearish chart patterns.

What are Candlestick Charts? 

Candlestick charts are a simple way to convey stock’s open, close, high and low price for the specific time frame chosen. Also known as Japanese candlesticks, they originated in the 1700s to display the emotion of traders. Today, traders use candlestick charts to see price movement,  find patterns and determine what price a stock may be headed toward. 

Candlestick Breakdown 

Candlesticks have two main parts: the real body and the wick/shadow. This helps traders see the most information, rather than a single plot point. The time frame depends on the time frame you select. For example, if you choose a 1-minute chart, a new candle will generate every minute. The open and close prices the candle shows are for the time period you select, not the overall session. 

Candlestick Breakdown.

The Real Body 

The real body is the wider portion of the candlestick, showing the range between the opening and closing price of the session.

The open and close place will be the top or bottom of the real body, depending on if the stock moves higher or lower in the selected time period. A small real body means that the price change was minimal, while a large real body means significant price change happened. 

A filled-in candlestick (usually red or black) means the closing price was lower than the opening price. An unfilled candlestick (or filled in white or green), means the closing price was higher than the opening price. 

A white, unfilled or green candle shows that the price closed higher than the open at the end of the session, making it a bullish candle. A black, filled, or red candle shows that the price closed lower than the open, making it a bearish candle. 

Wicks/Shadows

The thin line above and below the real body are known as the shadow or wick. This line represents the high and low of the day. 

If there is no line above or below the real body, it means the high or low was the same price as the open or close. 

Candlestick Chart Patterns 

There are a ton of candlestick chart patterns, but we’ll go over just a few to get you started.

Single Candlestick Patterns 

Doji

Doji candlesticks are a single candle pattern. Dojis occur when the price closes at the price it opened at for the time period. It doesn’t have a real body, and the candle is not bullish nor bearish. 

Doji candlesticks may be an indicator of a price reversal. 

Doji Candlestick Examples
Doji Candlestick Variations

Spinning Top 

Spinning tops are symmetrical single candle patterns where the wicks/shadows are in, or close to, equal size and a small real body with only a small price difference. This pattern shows indecisiveness between bull and bear traders of the stock. The open and close prices are very similar. Spinning tops may signal trend changes. 

Spinning Tops
Spinning Tops

Hammer 

Hammer candles are a single candlestick pattern. Hammer candles one long wick and a small real body at the other end. Hammers may also signal a price reversal. 

A Hammer candlestick usually appears during bearish trends. 

Hammer and Reverse Hammer Candlesticks
Hammers and Reverse Hammers

Multiple Candlestick Patterns 

Bullish Engulfing 

Bullish engulfing patterns are a two candle pattern that occurs when the bulls outbuy the bears. This could signal an increase in a price change. 

Bullish Engulfing Candlestick Chart Pattern
Bullish Engulfing Candlestick Chart Pattern

Bearish Engulfing 

Bearish engulfing patterns are a two candle pattern that occurs when the bears outsell the bulls. This could signal a decrease in a price change. 

Bearish Engulfing Candlestick Chart Pattern
Bearish Engulfing Candlestick Chart Pattern

Three White Soldiers 

This three candle pattern consists of three long white candles and usually appears after a downtrend. Three white soldiers consecutively open higher than the previous open. 

Three White Soldiers Candlestick Chart Pattern
Three White Soldiers Candlestick Chart Pattern

Three Black Crows 

This bearish pattern occurs when three black candles appear consecutively. The candles close lower than the previous period’s candle and usually signifies a reversal.  

Three Black Crows Candlestick Chart Pattern
Three Black Crows Candlestick Chart Pattern

Morning Star 

This three candle pattern consists of a long black candle followed by a short real-body candle and a long white candle. This may indicate an increase in price. 

Morning Star Candlestick Chart Pattern
Morning Star Candlestick Chart Pattern

Evening Star

These three candle patterns typically indicate a trend reversal. Evening stars consist of a large white candlestick followed by a small real-body candle and long black candle. 

Evening Star Candlestick Chart Pattern
Evening Star Candlestick Chart Pattern

Final Thoughts About Candlestick Charts

Candlestick charts are a great way to easily get an idea of a stock price and its current trend. You can determine what time period you want your chart to be in, and can easily the high, low, open and close price for the given session.

Candlestick charts can also be used in pattern analysis, and there are a ton of different chart patterns that can indicate where a stock price might be heading next.

If you’re looking to get access to real-time candlestick charts, Benzinga Pro just launched real-time charts powered by TradingView. Get access to real-time candlestick charts, stock market news, Screener and more. Start a free trial here.

Disclaimer: Benzinga is a news organization and does not provide financial advice and does not issue stock recommendations or offers to buy stock or sell any security. Benzinga Pro is for informational purposes and should not be viewed as recommendations. Benzinga Pro will never tell you whether to buy or sell a stock. It will only inform your trading decisions. You can find our full disclaimer located here.