Candlesticks are the foundation of technical analysis—each bar represents price movement over a time period and reveals the battle between buyers and sellers through visual patterns.
Candlestick Components
Each candlestick has four pieces of data:
- Open: Price at the start of the period
- High: Highest price during the period
- Low: Lowest price during the period
- Close: Final price at the end of the period
Visual Elements:
- Body: Rectangle from open to close (shows buyer/seller strength)
- Upper Wick: Line from close to high (shows rejection at higher prices)
- Lower Wick: Line from low to open (shows support from buyers)
Bullish vs. Bearish Candles
Bullish (Green) Candle:
- Close > Open
- Buyers in control
- Price pushed higher
- Size of body = strength of buying
Bearish (Red) Candle:
- Close < Open
- Sellers in control
- Price pushed lower
- Size of body = strength of selling
Candlestick Size Interpretation
| Body Size | Meaning | Implication |
|---|---|---|
| Large body | Strong conviction | Strong momentum, expect continuation |
| Small body | Indecision | Reversal or consolidation likely |
| Long upper wick | Rejection at highs | Sellers pushed price down |
| Long lower wick | Support held | Buyers pushed price up from lows |
| No wicks | Directional conviction | No buyers/sellers fighting back |
Real-World EURUSD Candlestick Analysis
1-hour chart, analyzing a specific candle
Candle: Opens 1.0900, closes 1.0950 (green, +50 pips)
- Body: Large green (strong buying)
- Upper wick: None (no rejection)
- Lower wick: Small (minimal support test)
Interpretation: Strong bullish candle, buyers are in control, expect continuation up.
Next candle: Opens 1.0950, closes 1.0945 (red, -5 pips)
- Body: Small red (indecision)
- Upper wick: Long (rejection at highs)
- Lower wick: Long (support tested)
Interpretation: Indecision candle, possible reversal or consolidation. Price is struggling to extend higher.
Key Candlestick Patterns
Doji (Indecision):
- Open and close nearly equal
- Long wicks both sides
- Buyers and sellers balanced
- Potential reversal signal
Hammer (Bullish):
- Small body (open and close close)
- Long lower wick (strong support)
- Small upper wick
- Reversal signal at support levels
Shooting Star (Bearish):
- Small body at bottom
- Long upper wick (rejection at highs)
- Small lower wick
- Reversal signal at resistance levels
Engulfing (Reversal):
- First small candle (one color)
- Second large candle (opposite color, engulfs it)
- Strong reversal signal
Bullish Engulfing:
- Red candle followed by large green candle
- Green completely covers red
- Buyers taking control, reversal to upside
Bearish Engulfing:
- Green candle followed by large red candle
- Red completely covers green
- Sellers taking control, reversal to downside
Using Candles with Support and Resistance
Candlesticks at support/resistance levels reveal momentum:
Bullish Signal at Support:
- Hammer candle at support (long lower wick, small body)
- Price held at support, rejection above
- Next: Buy if next candle confirms
Bearish Signal at Resistance:
- Shooting star at resistance (long upper wick, small body)
- Price rejected at resistance, pulled down
- Next: Short if next candle confirms
Real-World EURUSD Trade Example
4-hour chart, support + candlestick
Price: 1.0900 support level Candle 1: Opens 1.0920, closes 1.0885 (falls to support)
- Large red body (strong selling into support)
- Long lower wick (buyers absorbing at 1.0880)
Next candle: Opens 1.0890, closes 1.0935 (bounces from support)
- Large green body (strong reversal)
- Hammer-like pattern (support held)
Setup:
- Entry: Buy at 1.0920 (break of bounce candle)
- Stop loss: Below 1.0875
- Take profit: 1.0950
Candlestick patterns confirm directional bias.
Wicks Tell the Story
Long wicks reveal battle intensity:
Long Lower Wick = Buyers Strong:
- Price tested lower (sellers tried to push down)
- Buyers stepped in and pushed up
- Often seen at support levels
- Signal: Support is holding, expect bounce
Long Upper Wick = Sellers Strong:
- Price rallied higher (buyers tried to push up)
- Sellers stepped in and pushed down
- Often seen at resistance levels
- Signal: Resistance is holding, expect pullback
No Wicks = One-sided:
- No opposing buyers/sellers
- Strong directional move
- Continuation likely
Candlestick Confirmation Strategy
Don’t trade single candles. Wait for confirmation:
Bullish Setup (reversal at support):
- Price falls to support
- Hammer/bullish candle forms (signals reversal)
- Confirmation: Next candle closes above reversal candle
- Entry: Buy on confirmation candle close
- Stop: Below support level
Bearish Setup (reversal at resistance):
- Price rises to resistance
- Shooting star/bearish candle forms (signals reversal)
- Confirmation: Next candle closes below reversal candle
- Entry: Short on confirmation candle close
- Stop: Above resistance level
Timeframe Matters
Candlestick patterns on different timeframes have different meanings:
- 5-min candle: Quick, tactical pattern, short-term noise
- 1-hour candle: Good for day trading, reliable patterns
- 4-hour candle: Swing trading, pattern confirmation strong
- Daily candle: Position trading, major reversal signals
A doji on a 5-minute chart is noise. A doji on a daily chart is a significant reversal signal.
Key Takeaway
Candlesticks show the battle between buyers and sellers. Large bodies = strong conviction. Long wicks = rejection/support. Patterns like engulfing, hammer, and shooting star = reversal signals.
Use candlesticks to confirm entries at support/resistance levels. Don’t trade single patterns—always wait for confirmation from the next candle. Analyze wicks to understand where the fight occurred.
PipJournal lets you tag trades with the candlestick pattern at entry (hammer, engulfing, etc.), so you can measure which patterns are most profitable for your system.
