Reading one candle
A candle shows four prices for its period: open, high, low and close. The body runs from open to close; the wicks reach to the high and low. A green (or white) body closed above its open; a red (or black) body closed below.
- A long body with short wicks: one side was in control all period.
- A small body with long wicks: both sides pushed, neither won.
- A long wick on one side: that side pushed and was rejected.
Three patterns worth knowing
Pin bar
A small body with a long wick on one side, at least two-thirds of the range. A long lower wick at support says sellers tried and were beaten back; a long upper wick at resistance says the reverse.
Engulfing
A candle whose body completely covers the previous candle's body, in the opposite direction. A bullish engulfing after a decline shows buyers overwhelming the last sellers.
Doji
Open and close nearly equal — a cross. Indecision. On its own it means nothing; after a long run into a level, it is the first sign the run is tiring.
Timeframe
A pattern on the daily chart is a hundred times more significant than the same shape on the 1-minute chart, because a hundred times more money agreed on it. Use candles to time an entry at a level you already chose, not to find the level.
Summary
A candle shows who won its period. Pin bars, engulfing candles and dojis are reactions worth acting on when — and only when — they form at a level you had already marked.