What is a candlestick chart, and how do you read one?

A candlestick chart shows what a price did over a period of time, one block per period. Each block, the candle, carries four numbers: the price the period opened at, the highest it reached, the lowest it reached, and the price it closed at. Those four are usually written in that order, open, high, low and close, and abbreviated to OHLC.

Everything else on a candle is drawing. The four numbers are the content, and any two charts carrying the same four numbers for the same period are showing the same thing, whatever colours or widths they use.

The thick part in the middle is the body, and it runs between the open and the close. It says where the price started and finished, and nothing about the route.

The thin lines above and below are the wicks, sometimes called shadows or tails. The upper wick reaches to the high, the lower wick to the low. They are what the body cannot show: how far the price travelled during the period without staying there.

So a long body with short wicks is a period that moved in one direction and held it. A short body with long wicks is a period that moved a long way in both directions and finished near where it began. A candle with no body at all, where the open and close are the same price, is called a doji.

The colour says one thing only: whether the close was above the open. A candle that closed higher than it opened is drawn in one colour, usually green, and one that closed lower in another, usually red. Green and black, or white and black, are the same convention in different paint.

It is worth being precise about this, because the colour is the part most often over-read. It is not a measure of size, it does not compare this candle with the one before it, and it says nothing about what comes next. A red candle far above a green one is still a price that has risen.

A candle covers a period, and which period is a choice. On a one-minute chart each candle is a minute; on a daily chart each candle is a day. The same price history drawn at two timeframes gives two different-looking charts, both correct.

Aggregating upward is exact. A one-hour candle built from sixty one-minute candles opens where the first one opened, closes where the last one closed, and takes the highest high and the lowest low of the sixty. Going the other way is not: a one-hour candle does not contain the information needed to say what its sixty minutes each did, only what they added up to.

That asymmetry is why a chart tool can show you a higher timeframe from data you have, and has to invent something to show you a lower one. CandleDraw discloses that where it does it, rather than leaving it to be assumed.

The technique comes from Japanese rice traders, and the charts are still called Japanese candlesticks to distinguish them from bar charts and line charts, which carry the same or less information in a different shape. A bar chart shows the same four numbers with ticks instead of a body; a line chart usually shows the close alone and throws the other three away.

The candle won because the body makes the open-to-close distance a filled shape rather than a gap between two marks, so a page of them can be read at a glance. That is a property of the drawing, which is why drawing them well is worth some care.

A candle is a summary, and summaries lose things. It does not say in what order the high and the low happened, so a period that fell and then recovered and a period that rose and then gave it back can print exactly the same candle. It does not say how much was traded unless the chart carries volume separately. And it does not say anything about what happens next.

Nothing on this site is advice about what to do with a chart. The value of understanding the shape is that it lets you read what happened and explain it to somebody else accurately.