What are Candlesticks? Understanding Candlestick Charts and Patterns in Trading

What is candlestick?

Okay, let’s clear this up first—we’re not talking about the candles you put on a birthday cake. No wax, no fire, no melting.

If not, then what???

We’re talking about candlesticks in trading!

Candlesticks are a simple way to see how price moves over time. They show you if the price went up or down, how high or low it moved, and who was in control — buyers or sellers.

In price action trading, candlesticks show how price moves over a certain period. It gives you a visual way to see price movement, making it easier to understand what’s happening in the market.

A candlestick shows a stock's price movement, such as the open, close, high, and low prices, very clearly on the chart based on a certain time period.

It’s like a quick snapshot of the market’s mood.

Understanding candlestick components

Every candlestick has four key parts, and each one tells traders something about the battle between buyers and sellers.

The body is the thick part of the candlestick, showing the difference between the opening price and closing price.

If the closing price is higher than the opening price, the candle is usually green or white, meaning buyers (bulls) were stronger and pushed the price up.

If the closing price is lower than the opening price, the candle is usually red or black, meaning sellers (bears) had control and drove the price down.

Open price – The price at the beginning of the time period.

Close price – The price at the end of the time period.

If the price closes higher than it opened, buyers are stronger. If the price closes lower, sellers have control.

Wicks (Shadows) – The Market’s Highs and Lows

The thin lines above and below the body are called wicks (or shadows). They show how high or low prices moved before closing.

Top wick – The highest price reached. If it’s long, the price tried to go higher but got pushed back down by sellers.

Bottom wick – The lowest price reached. A long bottom wick means the price dropped but bounced back up as buyers stepped in.

A bullish candlestick forms when the price closes higher than it opened. This shows buyers were in control and pushed prices up. It’s usually green or white.

A bearish candlestick forms when the price closes lower than it opened. This means sellers took control and pushed the price down. It’s usually red or black.

Candlestick Breakdown

Candlesticks show how a stock’s price moves within a certain time period. This can be a minute, an hour, a day, or any other timeframe.

Each candlestick tells four important things: where the price opened, closed, reached its highest, and dropped to its lowest during that period.

The green candle represents a bullish move, meaning the price went up during that timeframe. In this case, the stock opened at $11, dropped to $10 at its lowest, but then climbed to $16 at its highest before closing at $15. Since the closing price was higher than where it opened, buyers were in control, pushing the price up.

The red candle represents a bearish move, meaning the price dropped during that timeframe. Here, the stock opened at $15, briefly went up to $16, but then fell to $10 at its lowest before closing at $11. Since the closing price was lower than the opening price, sellers were in control, causing the price to fall.

Element of candlesticks

There are four different elements of candlesticks that help traders determine who is in control — the buyers, the sellers, or if neither side has control.

Size of the body – strength of the move

The body of a candlestick shows the difference between where the price started (opened) and where it ended (closed) during that time period. The size of the body helps us see how strong the price move was.

Length of the wicks – Price rejections and volatility

The thin lines above and below the body, called wicks (or shadows), show the highest and lowest prices reached during the period. The size of these wicks shows how much price was rejected at certain levels.

Ratio between wicks and body – Momentum vs. indecision

The ratio between wicks and candle bodies showcases us what's happening between bulls and bears.

Position of the body – Who had control at the close?

The position of the candlestick body is very important because it shows who had control when the candle closed — buyers or sellers. This helps traders understand the strength of the move.

Candlestick timeframes (periods)

Candlesticks can represent different periods, depending on how much price movement you want to see.

You can choose the timeframe for the candles you want to see on your chart. It can be seconds, minutes, hours, days, weeks, or even months — depending on how much price movement you want to look at in a single candle.

If you select a one-minute candlestick, each candle will show the open, close, high, and low prices for just one minute of trading. Once that minute ends, a new candle forms.

A five-minute candlestick does the same, but instead of one minute, it captures five minutes of price action before a new candle appears.

A one-hour candlestick shows the price movement for one hour, including where the price started and ended and the highest and lowest points during that hour.

A daily candlestick represents an entire trading day, showing the opening price, closing price, highest point, and lowest point for the full day.

Let's look at how 1 min and 5 min candles will look on the chart

This chart compares 1-minute candlesticks with a 5-minute candlestick to show how different timeframes display price movement.

A 5-minute candlestick, on the other hand, combines the price action of five 1-minute candles into a single candle. It still shows the opening price, closing price, and highest and lowest points within that 5-minute period, but it simplifies the view by reducing the number of candles on the chart.

The main difference is that shorter timeframes show more details of small price changes, while longer timeframes give a broader view of price trends.

Now you have an understanding of what candlesticks are, let's dive into candlestick patterns.

Candlestick patterns

A single candlestick can reveal a lot about market activity, but when multiple candlesticks form patterns, they can give you even stronger clues about what price might do next.

Candlestick patterns help you decide if the price might keep going in the same direction or reverse. But remember — no pattern works 100% of the time! It’s always smart to combine candlestick analysis with other tools like trends, support, and resistance levels.

Next, we’ll dive into the most commonly used candlestick patterns

Doji:

Doji forms when the price opens and closes at nearly the same level, meaning neither buyers nor sellers can take control. This creates a thin or non-existent body with long wicks on both sides, showing that the price moved up and down but ended right where it started.

A Doji doesn’t tell you which direction the price will move next, but it signals uncertainty in the market. Traders watch what happens after a Doji to see if buyers or sellers take control.

There are different types of Doji patterns, each showing a slightly different battle between buyers and sellers:

Long-legged doji

A Doji with long upper and lower wicks. This means the price swung in both directions, but in the end, neither side won. It was a strong fight, but there was no clear winner.

Gravestone doji

The price opened and moved up, but then sellers pushed it all the way back down to where it started. The long upper wick shows that buyers tried to take control, but sellers completely rejected the move. This often signals that sellers are gaining strength.

Dragonfly doji

The price opened and moved down, but buyers stepped in and pushed it back up to the opening price. The opposite of a Gravestone Doji. The price opened and moved down, but buyers stepped in and pushed it back up to the opening price. The long lower wick shows that sellers tried to take control, but buyers overpowered them, signaling potential bullish strength.

Spinning top

A Spinning Top is a candlestick pattern that signals market indecision. It has a small body in the center with long wicks on both sides, showing that buyers and sellers both made strong moves, but neither gained full control.

Whether the candle is red or green doesn’t matter — the real message is that the market doesn’t have a clear direction yet. Traders wait for the next candle to see which side wins the battle.

Pin bar

A Pin Bar is a candlestick pattern that shows a strong rejection of a price level. It has a small body at one end of the candlestick and a long wick on the other side.

The long wick represents a price movement in one direction before getting forcefully rejected.

Bullish pin bar – The long wick points down, showing that sellers tried to push the price lower, but buyers took over and pushed it back up. This suggests that the price might move higher.

Bearish pin bar – The long wick points up, meaning buyers attempted to push the price higher, but sellers stepped in and reversed it. This signals that the price might drop.

Pin bars are stronger signals when they appear at key support or resistance levels, but they should always be used alongside other confirmations.

Outside bar

An Outside Bar, also called an Engulfing Pattern, consists of two candles where the second candle completely covers the range of the first candle.

How it works:

The first candle is smaller and within the range of the second candle.

The second candle is larger, engulfing the first candle’s high and low, showing a clear shift in market control.

This pattern signals strong momentum in one direction:

Bullish outside bar – The second candle is green, meaning buyers took control, and the price might continue rising.

Bearish outside bar – The second candle is red, meaning sellers dominated, and the price could drop further.

This pattern is often found near support or resistance levels, where traders watch for breakouts or reversals.

Piercing pattern

The Piercing Pattern is a bullish reversal pattern that usually appears during a downtrend, signaling that buyers are stepping in.

It consists of two candles:

First candle – A bearish (red) candle, showing that sellers were in control.

Second candle – A bullish (green) candle that opens below the first candle’s low but closes above the midpoint of the first candle’s body.

The second candle shows strong buying pressure, meaning buyers have pushed prices up from the lows and could take control.

If the second candle gaps up, meaning it opens higher than the previous close, it makes the pattern even stronger. However, traders always look for additional confirmation before assuming the trend will reverse.

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