If you're just starting out with technical analysis, learning how to read candlestick charts is a great first step. No matter how you choose to trade, this skill is essential for understanding price action.
Candlestick charts may look complicated at first, but they’re easier to grasp than you might think. This guide will walk you through the basics of how they work and how to read them.
What is a Candlestick Chart?
A candlestick chart is a type of financial graph that shows how an asset’s price moves over a specific period of time. Each candlestick on the chart represents one unit of time—this could be as short as one second or as long as one year.
The chart gets its name because each time segment looks like a candle, with a body and wicks. When viewed together, these candles form a complete picture of how price has changed over time.
Candlestick charts were first used by Japanese rice traders in the 1700s, most notably by Homma Munehisa. His methods form the foundation of modern candlestick analysis. Today, traders still use this chart type to spot trends and make decisions based on past price movement.
How Does a Candlestick Work?
Each candlestick shows four key pieces of information for a set time period:
Open: The price when the period begins
High: The highest price reached
Low: The lowest price reached
Close: The price when the period ends
Together, these are known as the OHLC values.
Body and Wicks
The thick part of the candle is the body, which shows the distance between the open and close prices.
The thin lines above and below are called wicks (or shadows), representing the high and low prices reached during the time frame.
Candle Colours
A green candle means the closing price was higher than the opening price—price went up during that period.
A red candle means the closing price was lower than the opening price—price went down during that period.
How to Read Candlestick Charts
Once you know how candlesticks work, reading a chart becomes much easier. Each candle tells a story about what happened to price in that time period.
For example:
A long body often indicates strong buying or selling pressure.
A short body suggests little movement—possibly market indecision.
Long wicks might indicate a price rejection at either the high or low.
If you're using the Digital Surge TradingView chart, it will default to a 1-hour timeframe. This means each candle shows one hour of price movement. You can change this timeframe at the top left of the chart to get different views—from 1 minute to 1 week—depending on how you want to analyse the asset.
Changing the timeframe can help you identify short-term or long-term trends more clearly.
Limitations of Candlestick Charts
While candlestick charts are powerful tools, they do have limitations:
They don’t show exactly what happened between the open and close.
You can't tell whether the high or the low came first in the time period.
To get more detail, traders often use smaller timeframes or combine candlesticks with other tools like indicators or volume data.
Final Thoughts
Understanding candlestick charts is a core skill in technical analysis. These charts have been used for centuries to track price movements and spot patterns across various markets.
Now that you understand the basics, you can explore more advanced charting techniques and indicators to enhance your trading analysis.
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