01How to Read Candlestick Charts: Real Bodies
Each candlestick is composed of a real body and a wick (or tail). The real body is the "fat" part of the candle. It reflects the difference between the open and close price for that period.
The open and close prices are the first and last transaction prices for that time period. When there is no real body, or the real body is very small, it means the open and close are almost (or are) the same.
Real bodies are colored. What color they are depends on the color scheme used by your charting platform, but typically candlesticks are colored white and black or green and red.
A white or green candle means the price finished higher over that time period. In other words, the closing price is above the open price. Therefore, the bottom of the real body is open, and the top of the real body is closed for that period.
A black or red candle means the price finished lower over that time period. Therefore, the top of the real body is the open price, and bottom of the real body is the closing price for that time period.
02How to Read Candlestick Charts: Wicks or Tails
The real body represents the difference between the open and closing price of a specific time period. The wicks or tails--the small thin lines above and below the real body--represent the high and low price for that period.
The wick on top of the real body shows the high for that period. If there is no upper wick, then the top of the real body was also the highest price during that period.
The wick on the bottom of the real body shows the low for that period. If there is no lower wick, then bottom of the real body was also the lowest price during that period.
03How to Use Candlestick Charts: Making Adjustments
Most charting platforms allow traders to make adjustments to their candlesticks charts, so they can set them up in a way that suits their trading and is visually appealing.
Alter the colors of the up or down candles to make the contrast between up and down movements more distinct.
Choose to fill the candle with color, or leave the candlesticks hollow (no color inside of candle, just the border is colored).
Base the colors on "open vs. close" or "net change." Open vs. Close only looks at the current candle, and colors it accordingly. If the open is above the close then the candle will be green (or whatever "up" color is chosen). If the open is below the close then the candle will be red (or whatever "down" color is chosen).
Net Change will color a candlestick based on whether it closes above or below the close of the prior candle.
As mentioned earlier, traders can choose to fill, or not to fill, candlesticks with a color. If opting to fill, the fill color can also be based on Open vs. Close or Net Change.
04How to Use Candlestick Charts: Candlestick Patterns
Due to the visual nature of candlesticks, traders have developed candlestick patterns which they watch for to indicate a continuation or reversal of the trend, or to highlight trading opportunities.
Candlestick patterns should be used in conjunction with trend analysis. There are loads of candlestick patterns, some which occur much more frequently than others.
Learn to Read and Use Candlestick Charts
Candlesticks are a highly visual chart type preferred by many traders
Candlesticks are an efficient way to view an asset's price chart. Candlesticks quickly show which way the price moved during a specific time period using colors, as well as how far the price moved during that period.
Candlesticks are popular because of their visual appeal, compared to bar or line charts. Each "candle" represents a certain amount of time, which is selected in the trading platform or in the chart settings. Popular candlestick time frames for day trading include tick charts, 1-minute, and 5-minute time frames.
If using a 5-minute time frame, each candle will show the high, low, open and closing price (discussed below) for that 5-minute period, as well as show the direction the price moved during that five minutes.
After five minutes a new candle will begin, showing the data for that five minute period. Candles can be created for any time frame, and any market you wish. Nearly every charting platform available today provides candlestick charts.