Japanese Candlesticks 101: How to Read Price Action

Every candlestick represents a specific period of time (e.g., 5 minutes, 1 hour, or 1 day) and contains four critical data points: Open, High, Low, and Close (OHLC).

The 'Body' of the candle is the filled area between the Open and the Close. If the Close is higher than the Open, the candle is typically green (bullish). If the Close is lower, it's red (bearish). The wicks (or shadows) represent the price extremes reached during that period.

The size of the candle body tells you who is in control of the trend. A long green body shows that buyers are aggressive and have high 'conviction.' A small, compressed body (like a Doji) indicates indecision and a potential shift in momentum.

When you see a large body breaking a support or resistance level, it confirms that institutions are behind the move. Conversely, small bodies at the top of a trend suggest that the dominant players are stepping aside.

Long wicks are the most important part of the candle for price action traders. A long upper wick shows that the price tried to move higher but was aggressively pushed back down by sellers—this is called Rejection.

A long lower wick at a support level is a high-probability bullish signal. It shows that although sellers tried to push the market down, buyers intervened and 'absorbed' all the selling pressure before the candle closed.

A single candlestick pattern (like a Hammer or Shooting Star) means nothing in isolation. You must look at where it occurs. A rejection candle at a major Fibonacci level or a 200 EMA is 10x more powerful than one in the middle of a sideways range.

Always look for 'Confluence'—when a candlestick signal aligns with a structural level or a technical indicator. This is how professional traders filter out 'noise' and find high-probability setups.