A candlestick chart displays the price action of an asset over a specific timeframe. Each candle represents four data points: the open, high, low, and close price. The rectangular body shows the range between the opening and closing prices. If the close is higher than the open, the candle is typically green or white. If the close is lower than the open, the candle is red or black.
The thin lines extending from the body are called wicks or shadows. These indicate the extreme high and low prices reached during that period. A long upper wick suggests buyers pushed the price up, but sellers forced it back down before the close. A long lower wick suggests sellers pushed the price down, but buyers regained control.
Traders use these shapes to identify market sentiment. For example, a doji occurs when the open and close are nearly identical, signaling indecision. Patterns like engulfing candles or hammers help identify potential trend reversals. Always remember that candlestick patterns are probabilities rather than certainties. Trading involves significant risk, and past performance does not guarantee future results. Use these charts alongside other technical indicators to confirm your analysis before executing any trades.
How this answer was produced
AI-assisted draft, human-reviewed by AlphaScala editorial against our standards before publication. General education, not advice for your specific situation.