How to Read a Candlestick Chart: A Beginner's Guide

The four prices in one candle

Each candle covers one period, such as 5 minutes, one hour or one day. It records four prices: where trading opened, the highest price reached, the lowest price reached, and where it closed.

The thick part is the body, between the open and the close. If the close is above the open, the candle is usually shown green (or hollow); if below, red (or filled). The thin lines above and below are the wicks or shadows, showing the high and low.

So a single daily candle tells a small story. A long green body means buyers controlled most of the day. A long upper wick means price went up during the day but was pushed back down before the close.

Reading body and wick sizes

Body size shows conviction. Compare it with recent candles rather than judging in isolation: a ₹10 body is large for a calm stock and small for a volatile one.

Wicks show rejection. A long lower wick means sellers pushed price down, but buyers brought it back up. A long upper wick means the opposite. A candle with tiny wicks and a big body closed near its extreme, which shows one-sided pressure.

Gaps matter too. If today's candle opens far above or below yesterday's close, something changed overnight, often news or results.

Single-candle patterns

Doji: open and close almost equal, with wicks on one or both sides. It shows indecision. After a long rally, a doji suggests buying is slowing; in the middle of a range it means little.

Hammer: a small body near the top with a long lower wick, at least about twice the body. After a decline, it shows that sellers pushed price down but buyers recovered most of it. The inverse shape after a rally is often called a shooting star.

Marubozu: a long body with almost no wicks. It shows strong control by one side for the whole period.

Two- and three-candle patterns

Bullish engulfing: a red candle followed by a green candle whose body completely covers the previous body. After a fall, it suggests buyers took over. The bearish engulfing is the mirror image.

Morning star: a long red candle, then a small candle (often gapping lower), then a strong green candle closing well into the first candle's body. It suggests a possible turn after a decline. The evening star is the opposite after a rally.

Inside bar: a candle whose high and low are both inside the previous candle's range. It shows a pause and contraction, and a break of its high or low is sometimes used as a trigger.

Context matters more than the pattern

The same hammer means very different things in different places. At a well-tested support after a fall, it is worth noticing. In the middle of nowhere during a choppy range, it is noise. Patterns work best as a second opinion at a level you already care about, not as standalone signals.

Timeframe matters as well. A pattern on a daily chart reflects a full day of trading by many participants. The same shape on a 1-minute chart can come from a handful of orders.

Volume can strengthen the reading: an engulfing candle on unusually high volume shows more participation than one on thin volume.

A worked example

Suppose a stock has fallen from ₹900 to ₹820 over two weeks and reaches ₹815, an area where it bounced twice last quarter. On the daily chart a hammer forms: it opens at ₹818, falls to ₹801 during the day, and closes at ₹819 with volume above its 20-day average.

Read together, this says: price reached a known support, sellers pushed it lower, and buyers recovered almost all of it on above-average participation. A trader using this setup might plan a buy above the hammer's high (about ₹822) with a stop below its low (₹801), and a first target near the next resistance.

If the next day opens and falls below ₹801 instead, the idea is simply wrong and the stop limits the damage. The pattern was a reason to look, not a guarantee.

Other ways to draw candles

Bar charts show the same four prices with small ticks instead of a body. Line charts join only the closing prices and are good for seeing the bigger trend without noise.

Heikin Ashi candles average recent prices to smooth the chart. They make trends easier to see, but their open and close are not real traded prices, so do not use them to place exact orders. Use them for reading direction and switch back to normal candles for entries and stops.

How reliable are patterns?

Studies and backtests generally find that most candlestick patterns, used alone, have only a small edge, if any, and results vary widely by market and period. That does not make them useless; it means they should be one input among several, with a stop-loss for when they fail.

The best way to know whether a pattern helps in your style is to test it. Define it precisely, run it over years of data, and look at the win rate and average result after costs.

Practise reading candles

Seekho on iTradeChart has a lesson on candles and quiz levels with real chart shapes. The Time machine lets you step through a past day one candle at a time, guessing what comes next before you see it.

In the Scanner you can search for 19 candle patterns (hammer, engulfing, doji, morning star and more) across NIFTY lists, and combine them with conditions like RSI or price above a moving average. In the Strategy builder, add a pattern as a condition and backtest it before trusting it.