What a candlestick shows
Japanese candlesticks are the most common way to display price on a trading platform. Each candle covers one time period, for example one minute, one hour or one day, and contains four prices.
- Open: the first price of the period.
- High: the highest price reached.
- Low: the lowest price reached.
- Close: the last price of the period.
The thick part is the body, between open and close. The thin lines above and below are the wicks (also called shadows), showing the highest and lowest prices. By convention, a bullish candle closed above its open and is often drawn green or white, and a bearish candle closed below its open and is often drawn red or black. The colours can be changed in your platform settings.
How to read the body and wicks
Do not memorise dozens of names first. Learn to read three things.
- Body size. A long body means one side pushed price strongly in that period. A short body means a balance or hesitation.
- Wick length. A long upper wick means buyers pushed price up, but sellers brought it back down. A long lower wick means the opposite: sellers pushed down, buyers brought it back.
- Close position. Where the candle closed within its range. Closing near the high shows buying pressure; near the low shows selling pressure.
The same candle means different things at different places. A long lower wick near a clear support level is more interesting than the same wick in the middle of nowhere.
Single-candle patterns
Doji
A doji has almost no body: open and close are nearly equal. It shows indecision. A doji alone is not a signal to buy or sell. It matters after a strong move, where it may show that momentum is slowing.
Hammer and hanging man
Both have a small body at the top and a long lower wick, at least about twice the body. A hammer appears after a decline and suggests that sellers lost control during the period. The same shape after a rise is called a hanging man and is a warning of possible weakness. The shape is the same; the context is different.
Shooting star and inverted hammer
A small body at the bottom with a long upper wick. After a rise, the shooting star shows that buyers pushed up but could not hold the prices. After a decline, the same shape is called an inverted hammer and needs confirmation by the next candle.
Marubozu
A candle with a long body and almost no wicks. It shows one-sided pressure for the entire period. These candles often appear at news events or breakouts.
Two- and three-candle patterns
Bullish and bearish engulfing
A bullish engulfing pattern is a small bearish candle followed by a larger bullish candle whose body covers the previous body. It can show that buyers have taken over after a decline. A bearish engulfing is the mirror image after a rise.
Inside bar
An inside bar is a candle that stays fully within the range of the previous candle. It shows compression. Traders often watch for a break above or below the range, but a break can also fail.
Morning star and evening star
A morning star has three candles: a strong bearish candle, a small indecision candle, then a strong bullish candle closing well into the first candle. It is read as a possible turn upward. The evening star is the opposite and appears after a rise.
| Pattern | Candles | Typical reading (not a guarantee) |
|---|---|---|
| Doji | 1 | Indecision; slowing momentum |
| Hammer | 1 | Rejection of lower prices after a fall |
| Shooting star | 1 | Rejection of higher prices after a rise |
| Engulfing | 2 | Shift in control between buyers and sellers |
| Inside bar | 2 | Compression before a possible break |
| Morning / evening star | 3 | Possible turning point |
Why context matters more than the pattern
Beginners often search for patterns and trade every one. This does not work well. A pattern is more meaningful when several things line up.
- Location. It forms at a meaningful level, such as a previous swing high or low.
- Trend. It agrees with the direction of the higher timeframe, or it forms at the end of a strong stretch.
- Confirmation. The next candle continues in the expected direction before you act.
- Risk. A logical stop-loss exists close enough to make the trade worthwhile.
Studies of candlestick patterns have given mixed results, and a pattern that appears often does not mean it is profitable after spreads and swaps. Treat patterns as one input in your trading plan, and test them yourself on a demo account.
A worked example with made-up numbers
Imagine that on the one-hour chart of a currency pair, price falls to a level where it turned before and prints a candle with a small body and a long lower wick. The next candle closes higher. You decide to buy at the close of that confirmation candle, put the stop-loss just below the long wick and aim for the previous swing high.
Suppose the stop is 20 pips away and the target is 40 pips away. The reward is twice the risk. With a risk of 10 units of your account currency, the position size is set so that 20 pips equals 10, so each pip is worth 0.50. If the trade wins, you make about 20 units, and if it loses, you lose about 10, before costs. Over many trades, it can only work if the pattern wins often enough, and no one can promise that. Read risk management for beginners to see how stop distance and lot size relate, and lots, pips and leverage for the pip value calculation.
Timeframes and noise
Candles on a one-minute chart are mostly noise: spread, random movement and news spikes. Candles on daily and four-hour charts contain more information because many more transactions shape them. Beginners usually do better with higher timeframes because decisions are slower and costs are small compared to the stop-loss distance. Whatever the timeframe, look at the spread on your platform; see spread, commission and swap. Practise reading charts in the MetaTrader terminal described in our MT4 and MT5 guide.
Candles and trend: the bigger picture
A single candle tells you about one period. A series of candles tells you about the trend. In an uptrend you will see higher highs and higher lows, with most candles closing near their highs and pullbacks being shallow. In a downtrend the pattern is reversed. In a range, candles overlap, wicks are long on both sides and many bodies are small.
Before you search for a pattern, ask what the market is doing. A bullish pattern inside a strong downtrend is a low-quality idea unless it appears at a strong level. A bullish pattern inside an uptrend after a pullback to support agrees with the larger picture. This habit also protects you from the most common beginner error, which is to buy every hammer and sell every shooting star regardless of context.
Finally, remember that spreads widen at the rollover time and around news, so candles at those moments can show spikes that do not reflect where most trades took place. Treat unusual wicks at those times with care.
Common mistakes
- Trading a pattern in the middle of a range with no level nearby.
- Entering before the candle closes. A candle can change shape until the period ends.
- Ignoring the stop-loss because "the pattern is clear".
- Learning dozens of names instead of mastering four or five.
- Believing a book or video that says a pattern has an exact success rate. Results depend on market, timeframe and costs.
Open a demo account, mark ten past examples of each pattern you like and note what happened next. That simple exercise teaches more than a list of pattern names. If you are still new to the whole subject, begin with how to start forex trading.
Practise reading charts on an Exness demo
Risk warning
Forex and CFDs are complex products with a high risk of losing money quickly because of leverage. Many retail clients lose money, and candlestick patterns do not predict price reliably. Trade only with money you can afford to lose entirely. You must be 18 or older. Auron FX is an independent guide, not a broker, and this article is education, not personal investment advice.