Candlestick patterns: how to read a chart
Every candle summarises the battle between buyers and sellers over a period: open, high, low and close. Reading them is the foundation of any technical analysis.
Anatomy of a candle
- Body: the distance between open and close. Green if it closes above the open, red if it closes below.
- Wicks: the extremes reached. A long wick signals rejection of that price.
Key patterns
- Hammer: small body and long lower wick after a decline; possible rejection of the lows.
- Shooting star: the bearish mirror of the hammer, after a rally.
- Engulfing: a candle whose body fully covers the previous one; a sign of a change in control.
- Doji: open and close almost equal; indecision.
Context is everything
A hammer in the middle of nowhere means nothing. The same hammer on support, in the direction of the higher-timeframe trend and during the London session is a far more reliable signal. Candlestick patterns confirm ideas; they do not replace them.
Frequently asked questions
What timeframe is best for candlestick patterns?
Patterns are more reliable on 15-minute charts and above; the 1-minute chart is very noisy.
Do candlestick patterns work on their own?
Rarely. They work best combined with levels, trend and time of day.