Reading Candlestick Charts
Candlestick charts are the most popular chart type among traders worldwide. Originating in 18th-century Japan where rice traders used them to track prices, candlesticks pack an enormous amount of information into a simple visual format. If you want to read price action, you need to master candlesticks first.
Anatomy of a Candlestick
Every single candlestick tells you four pieces of information about a specific time period:
| Component | What It Tells You |
|---|---|
| Open | The price at the start of the period |
| Close | The price at the end of the period |
| High | The highest price reached during the period |
| Low | The lowest price reached during the period |
The Body
The body (thick rectangle) represents the range between Open and Close:
- Bullish candle (green/white): Close is above Open - buyers won the period
- Bearish candle (red/black): Close is below Open - sellers won the period
The Wicks (Shadows)
The thin lines extending above and below the body are called wicks or shadows:
- Upper wick: Shows the highest price reached before sellers pushed it back down
- Lower wick: Shows the lowest price reached before buyers pushed it back up
Long wicks tell a story of rejection. A long lower wick means buyers aggressively rejected lower prices. A long upper wick means sellers rejected higher prices. The longer the wick relative to the body, the stronger the rejection.
Bullish vs. Bearish Candles
Bullish Signals (Buyers in Control)
- Large green body with small or no wicks = strong buying pressure
- Small body with a long lower wick = buyers stepping in at support
- Close near the high of the candle = bulls closing strong
Bearish Signals (Sellers in Control)
- Large red body with small or no wicks = strong selling pressure
- Small body with a long upper wick = sellers rejecting higher prices
- Close near the low of the candle = bears closing strong
Essential Candlestick Patterns
1. Doji
A doji forms when Open and Close are nearly the same price, creating a cross or plus sign shape. It signals indecision in the market.
| Doji Type | Shape | Meaning |
|---|---|---|
| Standard Doji | + shape | Pure indecision |
| Long-Legged Doji | + with long wicks | Extreme indecision, volatility |
| Dragonfly Doji | T shape (lower wick only) | Bullish reversal signal |
| Gravestone Doji | Inverted T (upper wick only) | Bearish reversal signal |
A doji on its own is not a signal. It becomes powerful when it appears after a strong trend, suggesting the trend may be losing momentum.
2. Hammer & Inverted Hammer
Hammer: Small body at the top, long lower wick (at least 2x the body). Appears in downtrends and signals a potential bullish reversal. Buyers are stepping in aggressively at lower prices.
Inverted Hammer: Small body at the bottom, long upper wick. Also appears in downtrends. Less reliable than the hammer but still signals potential buying interest.
3. Engulfing Patterns
Bullish Engulfing: A large green candle completely "engulfs" the previous red candle's body. Strong reversal signal at the bottom of a downtrend.
Bearish Engulfing: A large red candle completely engulfs the previous green candle's body. Strong reversal signal at the top of an uptrend.
Engulfing patterns are most reliable on higher timeframes (4H, Daily) and when they occur at key support/resistance levels. On RoboForex MT4, you can set up alerts when these patterns form on your watched instruments.
4. Shooting Star
The shooting star has a small body at the bottom with a long upper wick (at least 2x the body). It appears in uptrends and signals bearish reversal. Buyers tried to push higher but sellers overwhelmed them.
Reading Multiple Candles Together
Single candles give clues, but the real power comes from reading candles in context:
- Trend direction - Are candles making higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend)?
- Body size progression - Are bodies getting larger (momentum increasing) or smaller (momentum fading)?
- Wick behavior - Are wicks consistently appearing on one side (showing repeated rejection)?
- Volume confirmation - On MT4, enable volume indicators to confirm candlestick signals
Practical Application on MT4
When analyzing candlestick charts on your RoboForex MT4 platform:
- Start with the Daily chart to identify the overall trend
- Drop to the 4H chart to find key candlestick patterns at support/resistance
- Use the 1H or 15min chart for precise entry timing
- Always check the candle close before acting - a pattern is not confirmed until the candle closes
| Timeframe | Best For | Reliability |
|---|---|---|
| Monthly / Weekly | Major trend direction | Highest |
| Daily | Swing trade signals | High |
| 4 Hour | Intraday setups | Medium-High |
| 1 Hour | Entry timing | Medium |
| 15 Min / 5 Min | Scalping entries | Lower (more noise) |
Chart Analysis Practice
Pattern Matching
Summary
Candlestick charts are the foundation of technical analysis. By understanding the anatomy of individual candles and recognizing key patterns, you gain the ability to read what buyers and sellers are doing in real time. Practice identifying these patterns on your RoboForex MT4 demo account across different timeframes, and always wait for candle closes before making trading decisions.