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Oct 17, 2017
How to Read Candlestick Charts Like a Pro
Japanese candlestick charts are a common and very popular technical analysis tool for finding reversal patterns and improving your price action analysis.

When used for its intended purpose, you will get great results out of trading.

The candlestick chart will show you the current activity in the market giving you an idea of what actions you need to take to profit.

However, using candlestick patterns in trading can be difficult especially when you don’t have any idea of how to read the charts. 
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When you’re just starting to learn, all the patterns and definitions can be really confusing.

So let's cover the basics.
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Candlestick charting is an ancient Japanese method of technical analysis, used to trade rice from 1600’s onwards.

Candlestick graphs not only display the absolute values of the open, high, low, and closing price for a given period. But they can also indicate trend continuation and trend reversal very clearly if you know how to read them.

Whether that trend reversal will take place on the next day, next month or even in the next years to come, it’s essential you're prepared for those reversals by reading the chart properly.

Candlesticks consist of a ‘body’ made of a colored rectangle and two ‘tails’, one above and one below the candle body.
Japanese Candlestick Charting for Beginners
How to Read Candlesticks

The highest point of the upper tail represents the highest traded price for that time period. 

The lowest point of the lower tail represents the lowest traded price for that time period.

Each session’s opening and closing prices are found at the horizontal borders of the rectangular box for the session.

The opening price is at the bottom of a green candlestick or at the top of a red candlestick. The closing price is at the top of a green candlestick or at the bottom of a red candlestick. The rectangular box is called the real body.

If the market closes higher than the opening, the body is white or green, with the bottom of the rectangle representing opening price and top of the rectangle representing closing price. 
 
Japanese Candlestick Charting for Beginners
 White or Green Bullish Candlestick
If the market closes lower than the opening, the body is black or red, with the top of the rectangle representing opening price and bottom of the rectangle representing closing price.
 
Japanese Candlestick Charting for Beginners
 Red or Black Bearish Candlestick
The full trading range for each session is represented by the upper and lower extensions from the real body. These are called the upper tail and lower tail (also called shadows or wicks).

The complete lack of tail has significance in many candlestick patterns.

An exceptionally long tail also reveals failed momentum by buyers (long upper tail) or sellers (long lower tail), signaling a potential reversal of the existing trend.

When the open and the close are at the extreme high or low of the price movement for that time period, then there will not be any tails.

When the opening and closing price are identical or very close, the real body is replaced by a horizontal line, forming a doji candlestick.
 
Doji Candlestick
Doji Candlestick
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Candlestick trading work because they provide you clear information about each trading period in a visual format that is easy to interpret, allowing you to compare the behavior of price action in different time periods with a quick glance at your trading charts.

A long candle’s body with no tails indicates a definitive shift in the struggle for power, whereas a candle with a long upper tail beyond its body indicates a more uncertain period with an effort by bulls to push price higher that was pushed back by pressure from bears before the close of the candle.

Each candlestick can be read as a meaningful part of predicting the next price move and market behavior.

So are candlestick charts better than bar charts and line charts?

In the charts below, you can see the visual advantage candlestick charts have compared to the line and bar charts.
Line Chart
Line Chart
Bar Chart
Bar Chart
Bar Chart
Candlestick Chart
One of the most powerful visual attributes of candlestick charting is the ability to immediately see the overall price action.

While line charts and bar charts reveal direction but not so much more, the candlestick short-term trend is easily spotted by analysis of each candle.
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A simple way to read a candlestick chart is to look at the size of the candle body and the length and position of the tails.

If price action show you long bullish candlesticks with no lower tails you can assume the bullish trend is strong.
Bar Chart
Bullish Trend
With candles, you can spot trends more quickly by looking if the candles. If price action show you long bearish candlesticks with no upper tails you can assume the bearish trend is strong.
Bar Chart
Bearish Trend
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Most important, candles are vital for spotting reversals; these reversals are usually short-term, and sometimes long-term. 

When traditional technical analysis talks about reversals, they are referring to formations that occur over long periods of time.

Candlesticks, however, are able to accurately pick up on the changes in a trend which occurs at the end of each short-term swing in the market.

Pay meticulous attention to them, they often warn you of trend changes.
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Doji Reversal Candlestick
Doji Reversal Candlestick
Hammer Reversal Candlestick
Hammer Reversal Candlestick
In this example you can see the hammer candlestick that is one of our favorites patterns, closing price is higher than the opening price for that time period. The upper tail is small or missing and the lower tail is twice the length of the body.
Spinning Top Reversal Candlestick
Spinning Top Reversal Candlestick
Shooting Star / Doji / Inverted Hammer Reversal Candlestick
Shooting Star / Doji / Inverted Hammer Reversal Candlestick
Doji Candle Reversal
Doji Candle Reversal
Doji Reversal Candlestick
Doji Reversal / Evening Star Candlestick Pattern
Hanging Man Candlestick
Hanging Man Candlestick
Morning Star Reversal Pattern
Morning Star Reversal Pattern
Bullish Engulfing Candlestick Pattern
Bullish Engulfing Candlestick Pattern
The engulfing patterns is a very reliable pattern. Explained by the opening price for that time period is below or at previous time period’s close and the closing price is above the previous time period’s open. Green or white candle body with very short upper and lower tails engulf the red or black candle.
Bearish Engulfing Candlestick Pattern
Bearish Engulfing Candlestick Pattern
Candles offers so many unique benefits that it’s honestly a bad move if you don't use this charting technique.

You shouldn’t put all of your focus into candles, but I think you should implement it into your current trading and analysis.
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He has a masters degree in risk management and has worked as a financial advisor and analyst before he decided to trade full time and help people learn to trade.
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