Lesson 2: How to Read a Candlestick Chart

📘 Day Trading in 5 Minutes · Lesson 2 of 10

In Lesson 1 we set expectations and defined day trading as opening and closing positions within a single session. Now we learn the language those decisions are made in: the candlestick chart.

Almost every trader uses candlesticks because a single candle packs four numbers and a clear visual into one shape. Once you can read one candle, you can read a thousand. Let's break it down.

The anatomy of one candle

Each candle covers a fixed slice of time. On a five-minute chart, one candle is five minutes of trading. It records four prices for that window.

• Open: the price when the time slice began.
• Close: the price when it ended.
• High: the highest price touched during the slice.
• Low: the lowest price touched.

The thick part is called the body, and it spans the distance between the open and the close. The thin lines poking out the top and bottom are the wicks, sometimes called shadows. They reach up to the high and down to the low. So the body shows where price started and finished, while the wicks show how far it strayed along the way.

Green versus red

Color tells you direction at a glance. A green candle means the close was higher than the open, so price rose during that slice. A red candle means the close was lower than the open, so price fell. Some charts use white and black, or hollow and filled, but the logic is identical.

What one candle tells you

The shape itself carries meaning. A long body with tiny wicks says one side dominated the whole slice with little pushback. A long green body is strong buying. A long red body is strong selling.

Wicks reveal rejection. A long lower wick means price dropped, then buyers shoved it back up before the close. Sellers tried and failed. A long upper wick is the reverse: buyers pushed up, then sellers slapped it back down. When the body is tiny and wicks stretch both directions, neither side won, which signals indecision.

Reading a sequence

One candle is a sentence. A sequence is the story. This is where reading charts gets useful for a day trader.

A run of green candles with rising highs and rising lows tells you buyers are in control and the price is trending up. A run of red candles doing the opposite means sellers are running the show. When you see big bodies suddenly shrink into small ones with long wicks, momentum is stalling and a turn may be near.

You are looking for who has the upper hand and whether that is changing. That single read, who is winning and is it shifting, sits underneath nearly every trading decision you'll make in this course.

When specific shapes repeat often enough to be named, we call them candlestick patterns, and they're worth studying once the basics feel natural. If you want the wider picture beyond candles, including axes and price scales, our guide on how to read stock charts fills in the rest.

Next up

A candle means nothing until you know how much time it covers. In Lesson 3 we tackle timeframes: what the 1-minute, 5-minute, 15-minute, and hourly charts each show, why day traders lean on the lower ones, and how checking more than one frame keeps you from getting faked out.