How to Read Candlestick Charts + Popular Reversal Patterns

What Is a Candlestick Chart and Why Traders Love It

A candlestick chart is a way of showing price movement as "candles," where each candle represents one time period, such as 1 minute, 1 hour, or 1 day, depending on the Time Frame you choose. The concept originated with Japanese rice traders hundreds of years ago and is still widely used today.

Candles are more popular than a plain line chart because a single candle conveys all of the open, close, high, and low, and also signals the "strength" of buyers and sellers through the color and shape of the candle. This lets you read market mood faster and spot recurring patterns that may inform your decisions.

Candle Structure: the Body and the Wick

A single candle consists of four price values, together called OHLC: the Open, High, Low, and Close. These four values are drawn as two main parts: the "Body" and the "Wick/shadow."

The Body is the thick rectangle between the open and close prices, showing how far the price ran from open to close. The Wick is the thin line extending from the Body to the high and low, showing how far the price reached before being pulled back.

Reading the ratio between Body and Wick matters greatly. A long body means one side has decisive strength, while a long wick indicates a price rejection occurred — for example, a long lower wick means the price was pushed down but buying strength pushed it back up.

• Open — the first price of that period
• High — the highest point the price reached in that period (the tip of the upper wick)
• Low — the lowest point the price reached in that period (the tip of the lower wick)
• Close — the last price of that period
• Body — the distance between Open and Close · Wick — the distance from the Body to the High/Low

Bullish vs Bearish Candles: How to Read Color and Direction

A candle's color tells you the price direction in that period instantly. Generally a bullish candle is green or white, meaning the close is higher than the open — buyers won that round. A bearish candle is usually red or black, meaning the close is lower than the open — sellers won. Colors can be changed in each platform's settings.

Beyond color, look at the "length" of the body too. A long, full green candle with almost no wick indicates very strong buying. Conversely, a candle with a small body but long wicks on both top and bottom signals market hesitation, with the two sides evenly matched and neither clearly in control.

Popular Reversal Candlestick Patterns

A reversal pattern is a candle shape that may signal the existing trend is about to change direction, such as from up to down or from down to up. These patterns are the most well-known and discussed among traders. The table below summarizes the popular ones for an overview.

A Closer Look at Common Reversal Patterns

A Doji forms when the open and close are almost equal, so the body is nearly a line, reflecting buyers and sellers being very evenly matched. It is therefore often seen as a market "hesitation" point. If a Doji appears after a long, clear trend, it may warn that the trend is losing steam, but a single Doji alone does not confirm a reversal.

The Hammer and Pin Bar focus on the "long wick," which indicates price rejection. For example, a Hammer at the end of a downtrend has a long lower wick, meaning the price was hammered down but buying strength pushed it back up to close near the high, interpreted as buyers gaining power. Conversely, a Shooting Star at the end of an uptrend signals selling pressure entering.

Engulfing is a two-candle pattern where the second candle has a large body that "engulfs" the entire previous candle. A Bullish Engulfing (green engulfs red) is usually seen as an upward reversal signal, while a Bearish Engulfing (red engulfs green) is a downward reversal signal. The larger the engulfing candle and the closer it forms to a key support/resistance, the more weight it carries.

Continuation Patterns: the Trend Keeps Going

Besides reversal patterns, there are candlestick patterns that suggest the existing trend is likely to "continue" after a brief pause, called continuation patterns, which help traders distinguish a normal pullback from a genuine reversal.

Common examples include Rising/Falling Three Methods — a large candle with the trend, followed by a few small counter-trend candles, then closing with another large candle in the original direction — or Marubozu, a long full candle with no wick showing decisive one-sided strength, indicating the trend still has momentum.

• Rising Three Methods — a brief pause in an uptrend, then continuing up
• Falling Three Methods — a brief pause in a downtrend, then continuing down
• Marubozu — a long candle with no wick, showing decisive one-sided strength; the trend is still strong

Caution: Candles Are Not Fixed Signals

A common beginner mistake is seeing a candlestick pattern and rushing into an order immediately, when a candlestick pattern is only a "probability," not a trade command that guarantees results. The same pattern in different contexts can produce completely different outcomes, so you must always consider the surrounding factors.

Things to consider alongside it include the main trend, key support/resistance, the Time Frame used, trading volume, and economic news. A candlestick pattern that forms at support/resistance and aligns with the larger trend is usually more reliable than one that appears floating in the middle of the chart.

This article is for educational purposes only and is not investment advice. Forex trading carries high risk and you can lose your deposit. No chart pattern or strategy guarantees profit. You should practice on a demo account, manage risk with a Stop Loss, and trade only with money you can afford to lose.

From Reading Charts to Automation (EA) and a VPS

Once you can read candles and patterns fluently, many people want to turn their chart-reading rules into an automated system. That is the origin of the EA (Expert Advisor), a program that sets conditions such as "when a Bullish Engulfing forms at support, open an order," and lets the system work for you with discipline, without watching the screen all the time.

But an EA only works when the trading program (MT4/MT5) is open and connected to the internet at all times. If you run it on a home PC, a single power cut or dropped connection stops the EA and you may miss key moments. EA traders therefore favor a Forex VPS that is on 24 hours a day in a data center, so the system runs continuously and stably.