How to read a candlestick chart — the complete beginner's guide

Hi, I'm Michael from Olympia, and I'm about to explain candlesticks to you. Give me five minutes and you'll know everything you need to know. To most people, candlestick charts look like a secret code — walls of little red and green boxes with lines sticking out of them. Here's the truth: a candlestick is one of the simplest ideas in all of trading. It's a picture of a fight between buyers and sellers over one slice of time.

Where did candlesticks come from? It tells you what they're for. They were invented in 18th-century Japan by rice traders who weren't just tracking the price of rice — they were tracking momentum: who was winning, and how badly. Each candle packs an entire session into one shape: where price opened, where it closed, and every extreme in between. That's the edge over a plain line chart. A line only tells you where price ended up. A candle tells you the whole story of how it got there — the struggle, not just the finish line.

Let's take one candle apart. Every candle has two pieces. The thick middle part is the body — the distance between where price opened and where it closed. The thin lines poking out the top and bottom are the wicks (some people call them shadows), and they mark the highest and lowest prices touched during the session. Color tells you who won: green means price closed higher than it opened, so buyers won that round; red means it closed lower, so sellers won. Body, wick, green, red — that's the whole alphabet.

Hidden inside that one shape are four separate prices, which traders call OHLC. Open: where the session started. High: the tip of the upper wick, the highest price anyone was willing to pay. Low: the bottom of the lower wick, the lowest it traded all session. Close: where it finally settled when the time frame ended. Once those four click, you can read any candle on any time frame. A one-minute chart or a monthly one — it's exactly the same language.

Now the patterns that hint a trend is about to turn up. Three to know. First, the hammer: a small body with a long lower wick, at least twice the size of the body. That long tail means sellers shoved price way down and buyers slammed it right back up. Second, the bullish engulfing: two candles, where a big green body completely swallows the little red one before it — momentum flipping hard from sellers to buyers. Third, the morning star: three candles — a long red one, a small hesitant one, then a strong green one. A classic sign a bottom is forming.

Look at Salesforce down at its low: you can see the hammer, and then the engulfing, right at the bottom — and those bullish reversals fired right at the 155 level, a spot that mattered.

Now flip it over — the same ideas for the downside. First, the shooting star: a small body with a long wick on top. Buyers tried to push price up; sellers rejected it hard and drove it back down before the close. It's the hammer, upside down. Second, the bearish engulfing: a big red body that swallows the green one before it. Third, the evening star: a long green candle, a small indecisive one, then a deep red one — the top-of-the-market version of the morning star.

Look at FormFactor rolling over from its high, around $116. That's what distribution looks like. And notice: no bullish reversal ever held — no hammer at a level, nothing to stop the bleeding — so it kept going, all the way down to around 85. Same tools, opposite outcome. When the bearish pattern shows up and nothing steps in to defend a level, that red candle just keeps printing.

Not every candle is a winner or a loser. Some are stalemates, and those are worth knowing too. The doji: the open and close are almost exactly the same, so it looks like a little cross — a dead-even fight, nobody in control. The spinning top: a tiny body with long wicks on both sides — lots of arguing, no winner. On their own these don't mean much, but when one shows up after a long, hard run in one direction, that's the market catching its breath — and sometimes that's the last breath before it turns.

This is the most important part of the lesson: patterns don't work in a vacuum. Three rules. Rule one, location: a hammer in the middle of nowhere is noise; that exact same hammer sitting on a real level, like Salesforce at 155, is a signal. Rule two, volume: a reversal candle on high volume is real money confirming the move; on light volume it's usually a fakeout. Rule three, wait for the close: never trade a candle that's still forming, because the entire story can flip in the last few seconds before the time frame ends. Location, volume and patience — that's what separates people who use candlesticks from people who get chopped up by them.

So let's wrap up the fight. You know how to read the body and the wicks, the four prices in every candle, the bullish and bearish reversals, the indecision candles, and the one rule that ties it all together: context. It's not magic. It's just a picture of a fight — and now you can read it.