Candlestick Charts

Stock trading dictionary: meaning, example and how traders use it.

Last updated: October 17, 2026

Definition: Candlestick Charts are price charts that draw each time period as a candle showing the open, high, low and close, with a filled or colored body that makes it easy to see whether buyers or sellers controlled the session.

How to read candlestick charts

Each candle summarizes one period, such as a day, an hour or five minutes. The thick body spans the open and the close. The thin lines above and below, called wicks or shadows, extend to the session high and low.

  • A green or hollow candle means the close was above the open (a rising period).
  • A red or filled candle means the close was below the open (a falling period).

The data is the same as a traditional OHLC bar chart, but the colored bodies make the battle between buyers and sellers easier to see at a glance.

Candlestick example

Suppose a stock opens at $40.00, trades as low as $39.20, climbs to $42.10 and closes at $41.80. The day's candle has a green body from $40.00 to $41.80, a short upper wick to $42.10 and a lower wick to $39.20. The long body and close near the high show that buyers dominated most of the session.

Now suppose the next day opens at $41.90, rallies to $43.50, but closes at $41.95. The candle has a tiny body and a long upper wick, showing that sellers rejected higher prices.

Common candlestick patterns

  • Doji: open and close nearly equal, signaling indecision.
  • Hammer: small body near the top with a long lower wick after a decline, a possible reversal signal.
  • Shooting star: small body near the bottom with a long upper wick after an advance.
  • Engulfing: a candle whose body fully covers the prior candle's body in the opposite direction.

Patterns are more meaningful when they appear at a support level or resistance zone and are confirmed by rising volume.

Limitations of candlestick charts

A single candle hides the order in which prices traded during the period, and many patterns fail often when taken in isolation. Candles work best as one part of broader charting that also considers the trend, volume and the market backdrop. You can plot candles and indicators with our stock charting software.

Choosing a candlestick time frame

The same stock can look very different on a five-minute, daily or weekly candlestick chart. Short time frames show intraday swings useful to active traders but contain more noise. Daily candles are the most common for swing traders, while weekly and monthly candles smooth out daily fluctuations and highlight the larger trend. Many analysts check a higher time frame first to identify direction, then drop to a lower one to time entries and exits.

Frequently asked questions

What do red and green candles mean?

A green candle means the price closed higher than it opened for that period. A red candle means it closed lower than it opened.

Are candlestick patterns reliable?

No single pattern is reliable on its own. Traders usually look for confirmation from trend, volume, and support or resistance before acting.

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For information only, not investment advice. See the disclaimer.