How to read a candlestick chart

Open almost any crypto chart and you’ll see rows of red and green bars. These are candlesticks, a charting style that dates back to Japanese rice traders in the 18th century. Each candle summarises what price did during one time period — one minute, one hour, one day, or whatever timeframe you choose.

Anatomy of a candle

Every candle shows four prices, often abbreviated as OHLC:

• Open — the price at the start of the period.
• High — the highest price reached.
• Low — the lowest price reached.
• Close — the price at the end of the period.

The thick part is the body, spanning the open and close. The thin lines above and below are the wicks (or shadows), reaching to the high and the low. A green (or hollow) candle closed higher than it opened; a red (or filled) candle closed lower.

What candles tell you

The shape of a candle hints at the balance between buyers and sellers:

• A long body with small wicks shows one side was in control for most of the period.
• A long upper wick means buyers pushed price up but sellers pushed it back down before the close.
• A long lower wick means sellers drove price down but buyers absorbed the selling.
• A tiny body (a doji) means open and close were almost the same — indecision.

A few common patterns

Hammer: a small body at the top of the range with a long lower wick, appearing after a decline. It shows sellers lost control during the period, and some traders read it as a possible reversal.

Shooting star: the mirror image — a small body near the bottom with a long upper wick after a rally.

Engulfing: a candle whose body completely covers the previous candle’s body in the opposite direction. A green candle engulfing a red one after a decline is called a bullish engulfing pattern.

Context beats patterns

A single candle is a small piece of information. A hammer in the middle of a sideways range means much less than one at a major support level on high volume. Traders usually combine candles with:

• Trend — is the market making higher highs or lower lows?
• Support and resistance — price levels where buying or selling has repeatedly appeared.
• Volume — moves on rising volume tend to carry more conviction.
• Timeframe — patterns on daily or weekly charts are generally more meaningful than on one-minute charts.