Candlestick Chart

A candlestick chart is a type of price chart in which each time period, such as one minute, one hour or one day, is drawn as a single "candle" that shows four prices: the open, the high, the low and the close. The thick part of the candle, called the body, spans the open and close, while thin lines called wicks or shadows reach up to the high and down to the low. Candles are usually coloured green or white when the price closed higher than it opened and red or black when it closed lower.

Candlestick charts are the default view on most stock market, currency and crypto trading platforms, including the charts on exchanges and price-tracking sites. They are a core tool of trend analysis and technical analysis, which try to read market behaviour from past price and volume. They differ from a simple line chart, which joins only closing prices, and from a bar chart, which shows the same four prices with small ticks rather than a filled body.

Think of each candle as a one-line diary entry for a stretch of time. It records where the price started, where it finished, and the highest and lowest points it reached in between. A tall body means the price travelled a long way in one direction; a short body with long wicks means it swung around a lot but ended close to where it began.

Laid side by side, the candles tell a story at a glance. A run of green candles shows buyers in control, a run of red ones shows sellers in charge, and a cluster of small, mixed candles suggests the market is pausing to make up its mind. Traders scan these shapes the way a weather watcher scans clouds, looking for hints of what may come next, while knowing the hints are often wrong.

Candlestick charting is generally traced to rice traders in 18th-century Japan, and in particular to Munehisa Homma, a merchant from Sakata who is credited with studying how traders' emotions moved rice prices on the Dojima exchange in Osaka. The method was largely unknown in Western markets until the late 1980s and early 1990s, when analyst Steve Nison introduced it to English-speaking traders through articles and his 1991 book on Japanese candlestick techniques. Once charting moved onto computer screens, candlesticks spread quickly because they pack more information into each period than a line chart.

Each candle carries the same four data points, often abbreviated OHLC:

• Open. The first traded price of the period, at the bottom of a rising candle's body and the top of a falling one.
• Close. The last traded price, at the top of a rising candle's body and the bottom of a falling one. In 24-hour markets such as crypto, the "close" of a daily candle is set by the platform's chosen time zone, usually midnight UTC.
• High and low. The ends of the upper and lower wicks, showing the full range traded.
• Time frame. The same market can be viewed in one-minute, hourly, daily or weekly candles, and the picture can look very different at each scale.

Charts usually add a volume bar beneath each candle, which helps traders judge whether a move was backed by heavy trading, as measured by figures such as average daily trading volume.

Traders give names to single candles and short sequences that are thought to signal shifts in sentiment. A doji has almost no body, meaning the open and close were nearly equal, and is read as indecision. A hammer has a small body near the top and a long lower wick, suggesting sellers pushed the price down but buyers pushed it back. An engulfing pattern occurs when one candle's body completely covers the previous candle's body in the opposite direction, read as a possible reversal. Sequences of three rising or falling candles are taken as signs of strong bullish or bearish momentum. Patterns are often judged alongside levels such as the 52-week high and low or an all-time high.

Candlestick patterns describe what has already happened; they do not predict prices reliably. Academic studies of their forecasting power have produced mixed results, and the efficient market hypothesis holds that publicly visible price patterns should already be reflected in prices. The same pattern can mean different things on different time frames, and traders often see the patterns they expect. In thinly traded markets, including many small crypto tokens, a few large orders or wash trading can create misleading candles. For this reason, candlesticks are generally used alongside other information, such as volume, fundamentals and risk limits, rather than on their own.