Candlestick Chart

Candlestick charts originated in 18th century Japan, developed by rice trader Munehisa Homma. Each candlestick represents one time period (a 1-hour candle shows one hour of trading; a daily candle shows one day) and contains four data points: the open (where price started), close (where it ended), high (highest point reached), and low (lowest point reached). The body of the candle is the range between open and close; the wicks (shadows) extend to the high and low.

A green (or white) candle means price closed higher than it opened — buyers won that period. A red (or black) candle means price closed lower — sellers won. The relative size of the body versus the wicks tells you something about conviction: a large body with small wicks indicates strong directional movement (buyers or sellers were in control throughout the period). Long wicks indicate price tested extreme levels but was rejected — the opposing force pushed it back.

Specific candlestick patterns carry interpretive weight. A "hammer" (small body with long lower wick) at a support level suggests selling was absorbed — bullish. A "shooting star" (small body with long upper wick) at resistance suggests buyers were rejected — bearish. A "doji" (body is almost nonexistent) indicates indecision. "Engulfing" patterns — where a large candle completely engulfs the previous candle's body — suggest a momentum shift. According to a study by Thomas Bulkowski published in the Encyclopedia of Candlestick Charts, bullish engulfing patterns at support have a roughly 63% success rate on daily timeframes. These patterns are most reliable on longer timeframes (4-hour, daily, weekly) and when occurring at significant support/resistance levels rather than in the middle of a trading range.