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Key Takeaways
- Each standard candle represents the open, high, low, and close for one defined period.
- The real body spans open to close, while the shadows span from the body to the period high and low.
- The standard color compares a candle’s close with its own open, so a stock that gaps down and rallies prints green while still closing below the prior session. Read the prices behind the color.
- A forming candle updates until its interval ends. Trade a pattern from the completed candle, whose open, high, low and close are final.
- Use a defined pattern and price trigger to connect the candle with an entry, invalidation and target.
What is a candlestick chart?
A candlestick chart is a price chart in which each candle shows one interval’s open, high, low and close. The real body spans open to close, and the upper and lower wicks, also called shadows, extend to the high and low, so a single candle shows where price started, how far it traveled and where it finished.
Choose the interval and session definition. A five-minute candle and a daily candle summarize different sets of price observations.
How to read a candlestick: body, wicks and range
Real body = |close − open|. Upper wick = high − max(open, close). Lower wick = min(open, close) − low.
The three lengths add to the total range, high − low.
The worked candle opens at $52, reaches $56, trades down to $50 and closes at $55. Its body is $3, upper wick $1 and lower wick $2. Together they form the $6 range.
The body occupies 50% of the range. The close sits five-sixths of the way from the low to the high.
Formula
Real body = |close − open|; upper shadow = high − max(open, close); lower shadow = min(open, close) − low- Total candle range equals high minus low.
- A bullish candle closes above its open, while a bearish candle closes below its open under the standard convention.
Worked Example
A daily candle opens at $52, reaches a high of $56, trades to a low of $50, and closes at $55.
- |$55 − $52| = $3 real body
- $56 − $55 = $1 upper shadow
- $52 − $50 = $2 lower shadow
- $56 − $50 = $6 total range
The candle is bullish because it closes above the open, with a $3 body, $1 upper shadow, and $2 lower shadow inside a $6 range.
Candle color vs change from the prior close
Close above open is an upward body; close below open is a downward body. Open equal to close gives a zero body, commonly called a doji under the exact-equality definition.
The prior-close comparison is separate. A candle can close above its open while remaining below the previous session’s close. Read the chart’s color rule alongside the actual prices.
Forming candles, completed candles and intervals
A forming candle updates as the interval progresses, so a pattern that depends on the final body and shadows triggers only after the interval closes.
For a trade-based bar, use the first and last qualifying trades and the interval’s extremes. Match the session hours and price adjustments before comparing two charts; both change where each candle opens, peaks, bottoms and closes.
An hourly candle aggregates its constituent intervals into one open, one high, one low and one close. Use lower-interval data when the order of intrabar events matters to the setup.
How traders use candlestick charts
Doji, Hammer and other pattern names summarize defined price relationships. Combine the selected geometry with its trend and Support and Resistance location.
Specify the later price event required for entry, the invalidation level, position size and target. Distinguish the candle’s high or low from an order’s actual execution price.
A candle shows where the stock traded; Options Flow shows where large option orders filled in the same session, and the Options Profit Calculator turns your chart target into a payoff with the contract’s premium, expiration and volatility.
Limitations of candlestick charts
- A candle keeps four prices and drops the path between them. When a stop or an entry inside the bar depends on whether the $50 low or the $56 high printed first, read the lower interval for the order.
- Trade the completed candle. Every part of a forming candle, from its high and low to its pattern label, stays live until the interval ends.
- Read the color rule before the color. The standard color compares the close with the candle’s own open, so a stock that gaps down and rallies prints green while closing below the prior session.
- Match the interval, session hours and price adjustments before comparing two charts of the same market, because each one moves the candles.
- Act on a pattern only with its context: the trend it interrupts, the support or resistance where it prints, and a price trigger that sets the entry and the stop.
Bottom line
A candlestick chart packs each interval’s open, high, low and close into one shape, which makes direction and range easy to read at a glance. Read the actual prices rather than the color, wait for the candle to complete, and use pattern shapes only with trend, location and a defined price trigger.
Clear answers
Frequently Asked Questions
Sources and Further Reading
How entries are sourced, calculated and updated: editorial methodology.