Session 05 · 4 min read
Candlestick Fundamentals
Reading a single candle — its parts, its wicks, and its three outcomes — plus four reversal shapes and why the level they appear at decides their value.
Every candle answers four questions about one period of trading: where it opened, where it closed, how high it got, how low it got. That is the entire contents. The shape just lets you read all four without looking up numbers.
Most beginners memorise candle names before they can read a candle. Do it the other way round — every named pattern in trading is assembled from the anatomy below.
How to read one candle
The open is the first price traded in the period, the close is the last. The thick rectangle between them is the body. The thin lines above and below are the wicks, marking the high and low the period reached even briefly.
Colour only encodes which of open and close came out ahead: one colour when the close is higher, the opposite when it is lower. It is a shortcut, nothing more — the information is in the four prices.
Why wicks matter
A wick is a price the market tried and could not hold. A long lower wick says sellers dragged price down, buyers arrived in size, and the close recovered most of the drop. A long upper wick says the reverse.
The longer the wick relative to the body, the more decisively that attempt failed inside the period. A big body with stub wicks is the opposite report: one side set the price all period and was never seriously argued with.
Bullish, bearish, and doji
A bullish candle closes above its open — buyers took the period. A bearish candle closes below its open — sellers took it. A doji closes at or near where it opened, leaving a body so thin it is almost a line: neither side finished the period with anything to show for it.
On its own, none of the three forecasts anything. A doji after a strong run might be a pause before continuation or the first sign of exhaustion, and only the following candles settle it. A candle describes what already happened in one period.
Four reversal shapes
These four are the most widely watched reversal shapes, and each is assembled from the anatomy above. Every one needs a prior move to reverse and a level worth reversing at. None of them is a trade signal alone.
Hammer
- Entry
- After a decline, a candle whose lower wick runs roughly twice the body or more — sellers pressed, buyers took it all back before the close. Treat it as live once the next candle closes above the hammer’s body.
- Invalidation
- The next candle prints a fresh low and closes under the hammer’s low. Sellers never lost control.
- Target
- Set by context — the nearest structural level.
Shooting Star
- Entry
- After an advance, a candle whose upper wick runs roughly twice the body or more — buyers pressed, sellers took it all back before the close. Treat it as live once the next candle closes below the star’s body.
- Invalidation
- The next candle prints a fresh high and closes above the star’s high. Buyers never lost control.
- Target
- Set by context — the nearest structural level.
Bullish Engulfing
- Entry
- A bullish body that completely covers the previous bearish body — control changed hands inside a single period. Continued strength on the following candle is the confirmation.
- Invalidation
- Price closes back under the engulfing candle’s low, which means the handover did not stick.
- Target
- Set by context — the nearest structural level.
Bearish Engulfing
- Entry
- A bearish body that completely covers the previous bullish body — the same handover, running the other way. Continued weakness on the following candle is the confirmation.
- Invalidation
- Price closes back above the engulfing candle’s high, which means the handover did not stick.
- Target
- Set by context — the nearest structural level.
Context is everything
A hammer halfway up a range is a shrug. The identical hammer printed where the last three pullbacks ended, or on the edge of a gap the market has been defending for weeks, is worth stopping for. The candle did not change — the address did.
Confluence is several independent signals landing on the same price: a reversal candle, a structural level, and supporting volume all agreeing. It guarantees nothing, but it means you are no longer relying on one shape in isolation.
Core principle
A candle is a question the chart is asking. The level it forms at, and the volume behind it, are what tell you how seriously to take the answer.
Put it into practice
Reading builds knowledge; journaling builds skill. Track your trades and see your own patterns.
Start your free monthThis content is for educational purposes only and is not financial advice. Trading involves substantial risk of loss. See our risk disclosure for details.