Japanese candlesticks (or candlesticks) are the basic unit of any modern price chart. Invented in the 18th century by a Japanese rice trader named Munehisa Homma, they have a huge advantage over line charts: they condense four pieces of information per time unit instead of one. Once you know how to read them, they tell a much richer story than a simple curve.
The anatomy of a candle
Each candle represents the price variation over one unit of time: 1 minute, 5 minutes, 1 hour, 4 hours, 1 day, etc. It contains four prices:
- Open: the price at the start of the period;
- High: the highest reached during the period;
- Low: the lowest reached during the period;
- Close: the price at the end of the period.
Visually, a candle has two parts:
- The body (the rectangular part) connects open to close;
- The wicks (or shadows) show the high and low.
A candle whose close is higher than its open is called bullish: by convention, it's green or white. Conversely, a candle whose close is lower than its open is bearish, red or black.
How to read a candle in context
The magic of candles isn't their color — it's the proportion between body and wicks. This proportion tells how buyers and sellers fought during the period.
- Large body, short wicks: one side clearly dominated. It's a candle of "conviction".
- Small body, large wicks: both sides clashed, nobody really won. It's a candle of indecision.
- No body at all (open = close): it's a doji, the extreme case of indecision.
- Large lower wick, small upper body: sellers pushed price down, but buyers took it all back. This is a sign of rejection to the downside — often bullish at a support.
- Large upper wick, small lower body: symmetric. Rejection to the upside, often bearish at a resistance.
Some candles you must know
The hammer
A small body at the top, a large lower wick (at least twice the body size), almost no upper wick. Typically appears at the end of a downward move. Meaning: sellers tried to push lower, buyers regained control. Potential signal of bullish reversal, to be confirmed by the next candle.
The shooting star
The opposite of the hammer: small body at the bottom, large upper wick. Appears at the end of an upward move. Buyers pushed, sellers knocked them back. Potential bearish reversal.
The doji
Open = close (or almost). Total indecision. Taken in isolation, a doji doesn't say much, but after a strong trend, it often signals a slowdown or reversal. Particularly significant at key levels (support, resistance, Fibonacci).
The bullish engulfing
A green candle whose body completely engulfs the body of the preceding red candle. Buyers took over violently. Bullish signal, especially after several bearish candles.
The bearish engulfing
Symmetric. A red candle that engulfs the preceding green. Bearish signal.
The marubozu
A candle with a large body and almost no wick. No hesitation during the entire period: one side dominated from start to finish. Very strong conviction signal in the direction of the body.
Multi-candle patterns
Beyond isolated candles, certain combinations have predictive value:
- Morning star: red candle, doji, then green candle. Bullish reversal after a decline.
- Evening star: green candle, doji, then red candle. Bearish reversal after a rise.
- Three white soldiers: three consecutive green candles, increasing in size. Strong bullish continuation.
- Three black crows: three consecutive red candles. Bearish continuation.
These patterns are statistical indications, not certainties. They work better when they appear on higher timeframes (4h, 1D) and at key technical levels. Never trade a pattern in isolation without context.
What candles don't tell you
Before becoming obsessed with every candle, keep in mind:
- One candle doesn't explain why. A huge hammer doesn't tell you if it's manipulation, news, or a real reversal.
- Context is king. A hammer in the middle of an uptrend means something different than a hammer at a major support at the end of a decline.
- Timeframe matters enormously. A hammer on the 1-minute almost predicts nothing. A hammer on the 1D, after a clear descent, on a historical support level — that's a signal worth attention.
How to practice
Practical exercise: open DYOR, pick a coin, switch to 4h timeframe. Go through the last 100 candles and try, for each, to identify if it's:
- A candle of conviction (large body) — in which direction?
- A candle of indecision (small body, large wicks) — does it appear at a turning point?
- A known pattern (hammer, engulfing, doji) — does it appear at an interesting level?
Five minutes a day, for two weeks. You'll see your chart reading make a big leap.
To go further
- Support and resistance — the levels where candles take on their true dimension;
- Volume — what confirms or invalidates a candle signal;
- Chart patterns — multi-candle patterns in their "big format" version.