Glossary
Candlestick
A price bar that shows the open, high, low and close for a period, with a filled or hollow body between open and close.
A candlestick is one bar on a price chart that summarizes four prices for a period: the open, the high, the low and the close (OHLC). Its rectangular body spans the open and close, and thin lines called wicks or shadows reach up to the high and down to the low. Candlestick charts trace back to Japanese rice traders and were popularized in the West by Steve Nison around 1990. They are now the default chart style on most trading platforms.
How to read one
- Color. If the close is above the open, the candle is bullish, usually drawn green or hollow. If it closes below the open, it is bearish, usually red or filled.
- Body length shows how far price traveled from open to close.
- Upper shadow: the distance from the top of the body to the high.
- Lower shadow: the distance from the bottom of the body to the low.
One candle can represent any timeframe: a minute, an hour, a day or a week. Its shape changes with the timeframe, so a long red daily candle may contain several green hourly ones.
Patterns and their limits
Traders give names to particular shapes and sequences, such as the doji (open and close almost equal), the hammer (a small body with a long lower shadow) and multi-candle patterns like the engulfing pattern or the morning star. These describe the balance between buyers and sellers in a period. On their own, most have shown weak or inconsistent predictive power in tests; context such as the prior trend, nearby support or resistance, and volume matter as much as the shape.