Table of Contents

What is a candlestick chart?

Components of a candlestick chart

Interpreting patterns on a candlestick chart

Potential benefits and limitations of using candlestick charts

The bottom line

LearnStock AnalysisHow to Read a Candlestick Chart

How to Read a Candlestick Chart

Jul 26, 2022


7 min read

Candlestick charts show incremental movements in the price of an asset for a given period of time, they may help investors identify very short-term trading opportunities.

Investors who look at charts for stocks and other financial assets often want to know how the current price compares to the price a month or year ago. Is it higher or lower? Which way does the price seem to be headed? How long has it been going up or down?

But other investors might compare prices now against the price just one day ago, one hour ago or even five minutes ago.

Simple line charts are used for historical trends by tracking the movements of a market or asset price across longer time spans. But candlestick charts tend to be used more often for tracking very recent price moves and for short-term trading strategies, not long-term investment decisions.

What is a candlestick chart?

A candlestick chart, so called because the chart display is a series of vertical rectangles resembling candlesticks, gives more price information than line charts, which typically display only a single price for each trading day. A candlestick chart shows investors the degree of price movement within smaller time increments. Looking at one is like zooming in on the line chart to see a more granular picture of price movement.

Candlestick charts were first used about 300 years ago by rice traders in Japan, to try to gauge whether prices were poised to rise or fall. Some of the Japanese names for certain observed price patterns in the rice market are still used by traders today in analyzing candlestick charts for all sorts of financial markets—stocks, exchange-traded funds (ETFs), currencies, commodities, government bonds, and derivatives.

The volume and liquidity of an asset influence the choice of time increments for charting. For example, stock and ETF traders might use 15-minute or hourly intervals to find any developing trends or signs of a price reversal, in one or more trading days. Currency traders, on the other hand, might use the shortest time increments, such as one or five minutes. They do so because so much currency trading is done globally, and a possible trend or reversal may occur in the span of a few minutes.

Candlestick charting is used to try to gauge immediate market sentiment—the collective inclination of traders to buy or sell, at a given time— and whether the sentiment is on a continuing trend or reversing. Trading decisions also are driven by whether candlesticks suggest the sentiment is becoming more bullish or bearish.

Candlestick charts often are used in technical analysis—the study of price patterns and trends of an asset or market. Technical analysis is different from fundamental analysis, which looks for the intrinsic value of an asset, such as a stock price based on a company’s sales and earnings growth, for instance.

Components of a candlestick chart

A candlestick has the following components:

  • Body.

    The wide part of the candlestick, filled with a color indicating whether the asset traded higher or lower in the designated time increment.

  • Color

    . Green, or sometimes white, indicates the price closed higher than it opened. Red, or sometimes black, indicates the opposite—a closing price that was lower than the open.

  • Wick.

    The thin line above or below the body, sometimes called the shadow, showing the highest or lowest intra-period prices. The upper wick in particular resembles the wick on a candle.

The depiction below shows two basic candlesticks, with the candle colored green to denote a bullish move (the price closed higher for the time increment), and red candle for a bearish one (price closed lower). The thin lines above and below the candles—the wicks—show the intra-period high and low for the time frame being examined.

(Image from

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

Get Started

Four price points are found in a single candle: open, close, high, and low. These are for the incremental time period chosen—one day, one hour, or 15 minutes, etc. A new candle is created as each time increment passes. Longer candles and wicks indicate a bigger price change in the given time period.

Let's say a trader wants to examine, in 15-minute increments, the intraday movement of a widely traded ETF that tracks the S&P 500 Index. In the course of a normal U.S. stock market trading day, from 9:30 a.m. to 4 p.m. New York time, that comes to 26 increments. The chart below covers a span of five trading days, or 130 such increments, each signified by a candlestick.

The trader can study the candlesticks, examining the size and color of the body and the length of the wicks, to discern price trends or where trends might be reversing, giving the trader an opportunity to buy or sell shares of the ETF.

Interpreting patterns on a candlestick chart

Traders will use candlestick charts to look for patterns that suggest either a continuation of a short-term price trend or a reversal in a trend. Patterns may be perceived from one or more candlesticks, such as:

  • Single-candle pattern

    . This considers the size of a candle’s body and length of its wicks, which may suggest a reversal in price direction. Examples of a single-candle pattern are the Hammer, a bullish (green) candle with a short body and a long lower wick, or Hanging Man, a bearish (red) candle also with a short body and a long lower wick. They look the same, and they can signal an imminent price upturn or downturn, respectively, based on the context of adjacent candles. 

  • Double-candle pattern

    . Two adjacent candles are examined for their size and position differences, including differences in their bodies and wicks. Examples of this type of pattern are bearish engulfing and bullish engulfing patterns, in which the length of the second candle is longer than the first candle, and harami patterns, in which the first candle encompasses the second.

  • Triple-candle pattern

    . The size and position of a series of at least three candles are examined either to confirm a price trend or detect a reversal. Some examples: a long bearish candle followed by a short bearish candle, followed by a long bullish candle; a long bullish candle followed by a short bullish candle followed by a long bearish candle; three consecutive long bullish candles, each with a higher close than the one before. The names of these patterns are known as Morning Star, Evening Star, and Three White Soldiers, respectively.

Potential benefits and limitations of using candlestick charts

Candlestick charts offer investors some benefits, including:

  • More price information

    . A line chart displays only a single price for each point along the line; candlesticks show opening, closing, high and low prices.

  • Ease of interpretation

    . Candlestick charts clearly show the degree of short-term price volatility in each period.

  • Reading market sentiment

    . Candlesticks give traders an idea of immediate sentiment among traders—the balance of buyers and sellers and whether that balance is shifting.

At the same time, candlestick charts can have some limitations:

  • Short-term perspective

    . Stock traders often examine only a few days of candlesticks, at most, while currency traders look at minutes and hours. Candlestick charts are less useful for longer periods and long-term investors.

  • Too much information

    . Candlestick charts, showing price fluctuations in short spans, can appear cluttered, getting in the way of a longer-term perspective.

  • Crowding out

    . Many hedge funds and high-frequency trading firms use algorithms based on candlestick patterns, crowding out small investors and making it difficult for them to find profitable candlestick-driven trades.

The bottom line

Candlestick charts show incremental movements in the price of an asset for a given period of time, from as little as a minute to a day or so. They may help some investors identify very short-term trading opportunities in stocks, ETFs, currencies and other markets. Day traders and professional fund managers sometimes use these charts for making many trades in a single day. Candlestick charts, however, tend to be less useful for long-term investors, whose wealth goals and investment decisions span years or even decades.


Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

Three Things, a newsletter from Titan

Stay informed on the most impactful business and financial news with analysis from our team.

You might also like

What Is Fundamental Analysis?

Fundamental analysis is a method of attempting to determine the intrinsic value of a stock, using publicly available financial information.

Read More

What Is Market Cap?

It’s used for comparing and ranking companies by size, and for benchmarking the stock returns of a company against an index of comparable companies based on market cap.

Read More

R-Squared for Investing: What It Is & How to Calculate It

Learn all about how R-squared can be a good yardstick for investors to decide if they want investments that closely track an index, such as index funds.

Read More

What Is Return on Equity (ROE)?

ROE tells investors if a company is making good use of their money to generate earnings, particularly when compared to its competitors and the rest of the industry.

Read More

Cash Management

Smart Cash

Smart Cash FAQs

Cash Options

Get Smart Cash


© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.

Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.

The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit for applicable terms and conditions and important disclosures.

Cryptocurrency advisory services are provided by Titan.

Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.

Contact Titan at 508 LaGuardia Place NY, NY 10012.