5. How to Read Candlestick Charts

How to Read Stocks – 10 posts for beginners | Post 5 of 10

Candlestick charts are the most popular chart type among Indian traders and investors. Once you learn to read them, they tell a rich story about each trading session.

Anatomy of a candle

Each candle shows four prices for a chosen period (one minute, one day, one week and so on):

  • Open – the first price of the period.
  • High – the highest price.
  • Low – the lowest price.
  • Close – the last price.

The thick part is the body, between the open and close. The thin lines above and below are the wicks or shadows, showing the high and low.

Anatomy of a candle

Colours

  • Green (or white) – the close is higher than the open; the price rose during the period.
  • Red (or black) – the close is lower than the open; the price fell.

What candles tell you

  • Long green body – strong demand throughout the session.
  • Long red body – strong supply throughout the session.
  • Long upper wick – the price went up but could not hold; supply came in at higher levels.
  • Long lower wick – the price fell but recovered; demand came in at lower levels.
What candles tell you

Common single-candle patterns

  • Doji – open and close almost equal. It signals indecision between buyers and sellers.
  • Hammer – a small body near the top with a long lower wick, often seen after a decline. It shows that lower prices attracted demand.
  • Shooting star – a small body near the bottom with a long upper wick, often after a rise. It shows that higher prices met supply.
Single-candle patterns

Two-candle patterns

  • Bullish engulfing – a green candle whose body completely covers the previous red candle's body.
  • Bearish engulfing – a red candle whose body completely covers the previous green candle's body.
Two-candle patterns

Timeframe matters

The same stock can look calm on a weekly chart and wild on a five-minute chart. Long-term investors usually look at daily and weekly candles; intraday traders use minute charts. Choose the timeframe that matches how long you plan to hold.

Price scale

For long periods, a logarithmic scale shows percentage moves proportionally, so a rise from ₹100 to ₹200 looks the same size as a rise from ₹1,000 to ₹2,000. For short periods, a normal (linear) scale works fine.

Use candles with context

A single candle pattern means little on its own. It becomes meaningful near important support or resistance levels and when confirmed by volume.

Key takeaways

  • Each candle shows open, high, low and close.
  • Body and wick lengths reveal the balance of demand and supply.
  • Patterns matter most at key levels and with volume confirmation.

Practise it: try these ideas risk-free with virtual money on GPS-AUTOTRADE India paper trading.

Disclaimer: This post is for education only. It is not investment advice or a recommendation to trade any security. Investments in the securities market are subject to market risks; read all related documents carefully and do your own research.

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