Candlestick patterns explained: how to read a candlestick chart

Candlestick chart explained: what is a candlestick?

A candlestick chart is the most common way traders look at price. Instead of drawing a single line through closing prices, it draws one "candle" for each period. That period can be anything: one minute, five minutes, one day or one week. Each candle packs four numbers into one small picture, so you can see at a glance how price moved inside that period, not just where it ended.

Once you can read one candle, you can read the whole chart. That is why learning how to read candlestick charts is usually the first real step in technical analysis.

How to read a candlestick: open, high, low and close

Every candle is built from four prices:

• Open — the first traded price of the period.
• High — the highest price reached.
• Low — the lowest price reached.
• Close — the last traded price of the period.

The thick part is the body. It covers the range between the open and the close. The thin lines above and below are the wicks (also called shadows). The upper wick runs up to the high and the lower wick runs down to the low.

Take a hypothetical 15-minute candle. It opens at 100, rises to 108, dips to 97 and closes at 105. The body runs from 100 to 105. The upper wick stretches from 105 to 108, and the lower wick from 100 down to 97. In plain words: buyers pushed price up, sellers pulled some of it back, and buyers still finished ahead.

What do green and red candles mean?

On most charts a green (or hollow) candle means the close was above the open. Buyers won that period. A red (or filled) candle means the close was below the open. Sellers won. Colour only compares the close with the open of the same candle, though. A green candle can still close lower than the previous candle's close if it opened after a gap down. Read the colour, but also read where the candle sits.

The wicks matter as much as the body. A long upper wick says price went up and was pushed back down. A long lower wick says price was sold off and bought back. Wicks are the record of what the market tried and rejected.

Single-candle patterns every beginner should know

These are the candlestick patterns for beginners that come up most often. Each one is a single candle.

• Doji. The open and close are almost the same, so the body is a thin line. It shows indecision: neither side won the period. After a long move it can hint that the move is tiring. In a quiet, sideways market it usually means very little.
• Hammer and hanging man. Both have a small body near the top and a long lower wick, at least twice the body's length. After a fall it is called a hammer: sellers pushed price down, but buyers took it back. After a rise the same shape is called a hanging man, a warning that selling pressure showed up during the period. Same shape, different name, because the context is different.
• Shooting star. The mirror image: a small body near the bottom and a long upper wick, appearing after a rise. Buyers tried to push higher and were rejected.
• Marubozu. A long body with little or no wick. A green marubozu means buyers were in control from the first trade to the last; a red one means sellers were. It shows strength, not a turn.

Bullish and bearish candlestick patterns with two or three candles

Multi-candle patterns describe a shift from one period to the next. These are the bullish and bearish candlestick patterns most traders learn first.

Bullish and bearish engulfing

A bullish engulfing appears after a decline. A small red candle is followed by a larger green candle whose body fully covers the red body. Sellers had the previous period; buyers took over completely in this one. A bearish engulfing is the reverse: after a rise, a small green candle is swallowed by a larger red one.

Morning star and evening star

A morning star has three candles. First a strong red candle in a downtrend, then a small candle (often a doji) showing hesitation, then a strong green candle closing well into the first candle's body. It reads like a story: selling, pause, buying. The evening star is the same story upside down, at the end of a rise.

Inside bar

An inside bar is a candle whose high and low both stay within the previous candle's range. It shows the market contracting and catching its breath. It does not say which way price will go next. Many traders simply mark the mother candle's high and low and wait to see which side breaks.

Candlestick patterns vs chart patterns: what's the difference?

People often mix these up. Candlestick patterns are tiny: one to three candles, describing the fight inside a few periods. Chart patterns, such as triangles, double tops and head and shoulders, take dozens of candles to form and describe a bigger structure. Think of candlesticks as the close-up and chart patterns as the wide shot. A hammer can appear at the bottom of a double bottom, for example, and the two pieces of information support each other. If you want the bigger shapes, read our guide to chart patterns like triangles and head and shoulders.

Why context matters more than the pattern

The hammer and the hanging man show the most important lesson in candles: the shape alone tells you very little. Three things change what a candle means.

• Trend. A bullish pattern inside a clear downtrend is fighting the bigger flow. The same pattern after a pullback inside an uptrend is moving with it.
• Level. A rejection wick at a well-watched support or resistance level means more than one floating in the middle of a range. Levels such as pivot points give you a place where a reaction is worth noticing.
• Timeframe. A doji on a daily chart represents a full day of trading. A doji on a 1-minute chart may be just a few quiet trades. Lower timeframes produce far more patterns, and far more noise.

Why a candlestick pattern alone is not a trade signal

Candlestick patterns describe what already happened. They do not promise what happens next. A textbook bullish engulfing can be followed by a sharp fall the very next candle. Patterns appear constantly, and most of them lead nowhere special. If you act on every hammer and every engulfing, you will take many trades with no real reason behind them. That matters, because SEBI's own study found that about 9 in 10 individual F&O traders lost money (93% in its FY22–FY24 study).

A rule-based trader turns the order around. The conditions come first, and the candle comes last. For example, a trader might first check the trend with the SuperTrend indicator, then momentum, then whether price is near a meaningful level. Only when all of those agree does a candle get a vote, as confirmation that buyers or sellers are actually stepping in at that spot. A hammer that appears when the trend, momentum and level checks are not all met is simply ignored.

Common candlestick mistakes beginners make

1. Trading the shape without the context. A pattern with no trend, level or timeframe behind it is just a shape.
2. Acting before the candle closes. A candle that looks like a hammer at minute ten can close as something completely different. The pattern only exists once the period ends.
3. Collecting pattern names. Memorising forty patterns does not help if you cannot explain why a candle has the shape it has.
4. Seeing what you want to see. If you are already in a trade, every candle starts to look like it agrees with you. Write your rules down before the session starts.
5. Ignoring the exit. Even a well-placed pattern can fail. Without a predefined stop, one failed pattern can undo many good decisions.

Using candlesticks inside a rule-based plan

Candles are the language of the chart, and they are worth learning well. But a disciplined trader is not the one who spots the most patterns. It is the one who waits for conditions to line up, uses the candle only as the last confirmation, knows the exit before entering, and sizes each position so that one wrong call is a small, survivable loss. That is the approach The Simple Trade teaches, in Tamil and English, through a step-by-step framework where every condition has to be met before a trade is even considered. If you would like to learn it in order, our recorded courses start from the basics.

All examples in this article are hypothetical and for education only. They are not recommendations to buy or sell anything.