Before you can read a trading signal, identify a pattern, or draw a support level, you need to understand the fundamental unit of every chart — the candlestick. A candlestick is not just a visual element. It is a compressed record of every buy and sell decision made by every participant during a specific time period. Reading candlesticks correctly means reading the psychology of the market — who was in control, who lost control, and what the balance of power looks like at the close of each period.
Why Candlestick Charts?
Three chart types are commonly used in forex: line charts, bar charts, and candlestick charts. Line charts plot only the closing price — they lose the open, high, and low, which are essential for understanding how price behaved during the period. Bar charts (also called OHLC charts) show all four price points but are harder to read at speed. Candlestick charts show all four price points in a visually intuitive format that makes patterns immediately recognisable.
Candlestick charts were developed by Japanese rice traders in the 18th century — centuries before Western technical analysis existed. They became the global standard for technical traders because they communicate price information faster than any other chart type.
Anatomy of a Candlestick
Every candlestick has four data points: open, high, low, and close — often abbreviated as OHLC. These four prices tell you everything that happened during that candle's time period.
Open: The price at the start of the period. High: The highest price reached during the period. Low: The lowest price reached during the period. Close: The price at the end of the period. The body = distance between open and close. The upper wick = distance from body top to high. The lower wick = distance from body bottom to low.
The body of the candle is the rectangular portion — the range between the open and close. The wicks (also called shadows) are the thin lines extending above and below the body — representing the high and low prices reached during the period but not sustained at the close.
Bullish vs Bearish Candles
A bullish candle closes higher than it opens — price rose during the period. On most charting platforms, bullish candles are displayed in green or white. A bearish candle closes lower than it opens — price fell during the period. Bearish candles are typically displayed in red or black.
Open: 1.0820 High: 1.0880 Low: 1.0810 Close: 1.0865 Body size: 45 pips (close − open) Upper wick: 15 pips (high − close) Lower wick: 10 pips (open − low) Interpretation: Buyers were in control. Price dipped briefly then pushed higher. Strong close near the high — bullish.
What the Wicks Tell You
The wicks of a candlestick are often more informative than the body itself. They reveal price territory that was tested and rejected. A long upper wick means price pushed significantly higher during the period but sellers forced it back down before the close — indicating selling pressure at higher levels. A long lower wick means price pushed significantly lower but buyers stepped in and drove it back up — indicating buying pressure at lower levels.
A candle with a very small body and long wicks in both directions is called a doji — it signals indecision, where neither buyers nor sellers won clear control during the period. Doji candles are particularly significant when they appear at key support or resistance levels and after a sustained trend.
Reading Multiple Candles Together
A single candle tells you what happened in one period. A sequence of candles tells you a story. Ten consecutive bullish candles with small wicks and large bodies tell you buyers are firmly in control and momentum is strong. Three large bullish candles followed by a doji at resistance tells you momentum may be exhausting and a reversal is possible.
This is the foundation of all candlestick pattern analysis — which you will study in detail in the next two lessons. The key practice at this stage is to look at any chart and immediately read the story the recent candles are telling. Who was in control? Where did the wicks form? Is the body getting larger or smaller? Is the close near the high or near the low? These questions, answered consistently, give you a real-time read on market sentiment before you apply any indicator or pattern.