Candlestick chart: how to read a candle
A candlestick chart on a real stock
July 3, 2024. Red candle: it opens at $202.83 and closes at $202.00 (−0.41% from the open), between a low of $200.99 and a high of $203.64. Ordinary candle: body 31.3%, upper shadow 30.6%, lower shadow 38.1%: no threshold crossed, a session without a particular shape.
How a candle is built: the four prices
Fig. 1 · Anatomy
- The body runs from the open to the close: it is the filled part.
- The shadows are the thin lines above and below: they reach the high and the low of the session.
- Green when the close is above the open, red when it is below: in a red candle the open sits at the top of the body.
- One candle stands for one session; on a weekly chart it stands for one week.
Body and shadows: what they tell
Fig. 2 · Green and red: who won the session
- The broken line is the path of the price inside the session; the candle keeps only four of its points.
- It closes above the open: the buyers won, the candle is green.
- It closes below the open: the sellers won, the candle is red.
Fig. 3 · Long body and short body
- The body is measured against the range, that is the whole candle from low to high.
- Long body: one side ran the session from start to finish.
- Short body between two shadows: the price moved a lot, but ended close to where it started.
Fig. 4 · Long shadows: a rejected move
- Long lower shadow: the price fell a long way and was then pushed back up.
- Long upper shadow: the price rose a long way and was then pushed back down.
- The shadow says how far the price went; the body says where it closed.
Fig. 5 · The doji: open and close almost equal
- The body shrinks to a dash: the session ends where it began.
- Dragonfly when the shadows are all below, gravestone when they are all above.
- On its own it is a point of balance: what it tells depends on the candles around it (the doji lesson).
The candle types, with the thresholds of this page
the first example of each type in the JPMorgan Chase windowEvery candle splits into three parts that add up to 100% of the range: upper shadow, body, lower shadow. The rules below look only at these three percentages, and a part below 10% is «almost missing». The thresholds are a convention of this page, written so that every candle can be checked with numbers: the books describe the shapes in words, and the boundaries can be moved.
1Long body
- the body is at least 70% of the range
- one side alone ran the session: buyers if green, sellers if red
JPMorgan Chase, : body 86.8%, upper shadow 0.5%, lower shadow 12.7%
2Long body without shadows (marubozu)
- a long body with both shadows below 10%
- it opens at one extreme and closes at the other; the Japanese call it marubozu
JPMorgan Chase, : body 91.0%, upper shadow 4.9%, lower shadow 4.1%
3Short body
- the body is at most 30% of the range, with a shadow on each side
- much movement and little result: the spinning top
JPMorgan Chase, : body 17.7%, upper shadow 46.9%, lower shadow 35.4%
4Doji
- the body is at most 10% of the range: open and close almost equal
- dragonfly when the upper shadow is almost missing, gravestone when the lower one is
JPMorgan Chase, : body 4.2%, upper shadow 59.3%, lower shadow 36.5%
5Long lower shadow
- the lower shadow is at least 50% of the range
- it is the shape of the hammer and of the hanging man: the name changes with the trend it appears in
JPMorgan Chase, : body 16.2%, upper shadow 24.0%, lower shadow 59.8%
6Long upper shadow
- the upper shadow is at least 50% of the range
- it is the shape of the shooting star and of the inverted hammer: here too the trend it appears in matters
JPMorgan Chase, : body 24.4%, upper shadow 62.6%, lower shadow 13.0%
Interactive exerciseYour turn: find the candle
JPMorgan Chase, the same sessions as the chart at the top: the judge uses the thresholds of this page- Choose what to look for, above the chart: the longest body, a doji or a long lower shadow.
- Click the candle: the blue column follows the mouse and shows which one you are pointing at.
- Read the verdict: yes or no, with the numbers of the candle; then try another task.
Look for the candle with the longest body of the whole window and click it: what counts is the distance between open and close, not the shadows.
Candle, bar and line: the same day on three charts
Fig. 6 · Six sessions drawn in three ways
- The candle and the bar carry the same four prices: only the drawing changes.
- On the bar the open is the tick on the left, the close the tick on the right.
- The line joins the closes only: cleaner, but it loses the open, the high and the low.
- The fifth session, highlighted, is the same on all three charts: try reading it on each.
The same candle on different time frames: one week, five sessions
the first full week of JPMorgan Chase in the window: five sessions, one candleFig. 7 · Five sessions become one weekly candle
- The weekly candle opens with the open of Monday and closes with the close of Friday.
- Its high is the highest of the five highs, its low the lowest of the five lows.
- The candles in between disappear: the weekly candle tells the result, not the path.
- The same holds for the monthly candle (a month of sessions) and, the other way round, for intraday candles (one hour, five minutes).
| Session | Open | High | Low | Close |
|---|---|---|---|---|
| $199.57 | $201.38 | $198.53 | $199.69 | |
| $200.14 | $204.16 | $199.97 | $202.09 | |
| $200.64 | $202.42 | $200.09 | $202.25 | |
| $200.71 | $202.54 | $199.90 | $201.91 | |
| $198.55 | $201.91 | $196.71 | $199.47 | |
| Week | $199.57 | $204.16 | $196.71 | $199.47 |
The weekly candle opens at $199.57 and closes at $199.47, with a high of $204.16 and a low of $196.71; read with the rules of this page it is a «Doji», with the body at 1.3% of the range. The 87 sessions of the window become 18 weekly candles: press «Week» above the chart at the top to see them.
Where candles lead: multi-candle patterns
Fig. 8 · Three patterns of two and three candles
- Candlestick patterns read two or three neighbouring candles, not a single one.
- Engulfing: the body of the second candle wraps the whole body of the first.
- Harami: the opposite, a small body inside the large body that precedes it.
- Morning star: a long red candle, a small one, a long green one. Each pattern has its own lesson.
Where to go from here
The basicsThe other lessons in the «The basics» section
What is technical analysis
- the study of price and volume to recognise the trend and the levels
- three premises: price discounts everything, trends, history repeats
- exercise: uptrend, downtrend or sideways on three real charts
Uptrend: higher highs and higher lows
- higher highs and higher lows: how to recognize an uptrend
- swing points, and the two signals that end a trend
- mark the higher lows yourself on a real chart
Support and resistance
- the level where the decline stopped, and the one where the rise stopped
- touches, time and volume: how much a level counts; once broken, it switches roles
- find the level yourself on a real chart: the judge counts the touches
Trendline
- the line through rising lows: two points and the third touch
- the break with the 3% filter, the fan, the channel
- where the line runs, day by day
Frequently asked questions
How do you read a candlestick chart?
Each candle is one session with four prices. The body, the filled part, runs from the open to the close; the two thin lines above and below, the shadows, reach the high and the low. Green when it closes above the open, red when it closes below.
What do green and red candles mean?
Green: the close is above the open, the session ended higher than it started. Red: the close is below the open. Many charts use white and black, or hollow and filled, instead: the meaning is the same.
What is a doji candle?
A candle whose open and close are almost equal: the body shrinks to a dash. On this page a candle is a doji when its body is within 10% of the range. It describes a balanced session, one that ends where it began.
What is the difference between a candlestick chart and a bar chart?
None in the data: both show the open, high, low and close of every session. The drawing changes: the candle fills and colours the space between open and close, the bar marks them with two ticks. A line chart, instead, joins the closes only.
Method and sources
| Source |
|---|
| Steve Nison, Japanese Candlestick Charting Techniques: how a candle is built, body and shadows, the doji and the multi-candle patterns. |
| John J. Murphy, Technical Analysis of the Financial Markets: chapter 12, Japanese candlesticks; chapter 3, chart construction (candlesticks, bars and line). |
| Gregory L. Morris, Candlestick Charting Explained: the single candle lines (long days, short days, marubozu, spinning tops, doji). |
The chart uses the JPMorgan Chase sessions from to from our archive, adjusted for dividends and corporate actions; the calculations run on the prices as they are written on the page. The type thresholds (10%, 30%, 50% and 70% of the range) are a convention of this page, chosen so that every rule can be checked with numbers. The numbered figures are diagrams drawn to explain, not prices. This guide explains how the tools work: it does not contain investment recommendations and promises no returns. Our method · licence · report an error.
DOMINA’s stock pages, indices and commodities are rebuilt every night. Leave your email: we write to you when the picture changes.
No third-party advertising. Unsubscribe with one click. Go to the platform →