What are Japanese candlesticks and how to read them?

The Japanese candlestick is the most ingenious invention of graphical market analysis — and simultaneously the most often misused. It shows four numbers (open, close, high, low) in a single mark you can read in a second. At the same time 80% of new traders use candles as a mechanical signal ("Hammer = buy"), which leads straight to losses. Let\'s explain candle anatomy without fluff and show the 3 patterns actually worth knowing.

Candle anatomy — what does it actually show?

Every candle has four components representing four prices:

• Open — period\'s opening price (e.g. start of the hour for an H1 candle)
• Close — period\'s closing price (end of the hour)
• High — highest price in the period
• Low — lowest price in the period

Visually:

What does this say? In this hour buyers won the battle (close > open). They tried to push price 15 pips higher (to 1.0905) but sellers pushed back. Sellers also tried to drag price 10 pips below open (to 1.0840), but were quickly overrun. The whole story in one graphic mark.

How to read a candle in 1 second?

From practice: a candle with long body and short wicks = strong directional move, clear dominance of one side. A candle with short body and long wicks = battle, indecision, volatility.

Three patterns worth knowing

From 50+ classical patterns described by Nison, these three cover 80% of practical cases:

Doji — indecision candle

Body very small or zero (open ≈ close). Wicks can be large in both directions. Doji means: buyers and sellers were equal. Appears often at turning points — but on its own it means nothing. What matters is context: doji after a downwave at major support = potential reversal signal. Doji in the middle of a sideways range = nothing new.

Hammer / Shooting Star — reversal

Hammer: small body at the top, long lower wick (2× body or more). Appears after a downwave — sellers tried to push lower but buyers strongly bounced. Signal of potential upward reversal.

Shooting Star: mirror — small body at the bottom, long upper wick. After an upwave. Signal of potential downward reversal.

Key: hammer at the start of a downtrend (chart top) = nothing. Hammer in the 3rd downwave at D1 support — that\'s a signal. Context, context, context.

Engulfing — direction change

Bullish Engulfing: after a bearish (red) candle a bullish (green) candle appears whose body fully engulfs the previous candle\'s body. Suggests buyers took control.

Bearish Engulfing: mirror — red body engulfs the previous green. Sellers took control.

Engulfing is a stronger signal than Hammer/Shooting Star because it requires two candles — i.e. signal confirmed by another period.

A Japanese candle is not a buy signal. It\'s information. Only traders who use information in context profit. The rest click "Buy" because Hammer.

Classic candle-reading traps

Four mistakes I see in 80% of beginners:

1. Single candle = signal. No. Without context (trend, support/resistance, higher timeframe) a candle is a meaningless symbol. Check minimum 3 timeframes higher.
2. All patterns are equal. Engulfing on a major D1 level is 10× stronger than engulfing in the middle of M5 consolidation.
3. "Signal" mid-candle. The candle is "settled" only after close. Don\'t enter on a still-forming candle — close can change everything.
4. Counting candles, not price action. Candles are data visualisation. The same data in another form (bars, line chart, footprint) gives the same information. Don\'t fall in love with visualisation — fall in love with the data.