How to Read a Forex Chart: Candlesticks

A price chart is just a picture of what buyers and sellers have done over time. Once you can read the building blocks, the wall of colour turns into useful information about who is winning the tug of war between buyers and sellers.

The three chart types

Charts come in three main styles: the line chart, which joins closing prices into a simple line; the bar chart; and the candlestick chart, by far the most popular because it shows the most information at a glance.

How to read a candlestick

Each candle shows four prices for its period: the open, close, high and low. The body spans the open and close, while the thin wicks show the highest and lowest points reached. A candle that closes higher than it opened is usually shown in one colour (bullish), and one that closes lower in another (bearish). One glance tells you who won that period.

Timeframes and what they mean

Each candle represents a chosen period, from one minute to one month. A daily chart shows one candle per day and suits position traders; a five-minute chart suits fast, short-term trading. Beginners are usually better starting on higher timeframes, which are less noisy and less stressful.

Support and resistance

Support is a price level where falling prices have tended to stop and bounce; resistance is where rising prices have tended to stall. These levels are among the most useful things a chart shows, because they mark where buyers or sellers have repeatedly stepped in.

Common candlestick patterns

• Doji: open and close nearly equal, signalling indecision.
• Hammer: a long lower wick, often hinting at a bounce.
• Engulfing: one candle fully covering the previous one, a possible reversal.

A word of caution

Patterns hint at probabilities, not certainties. No candle or pattern predicts the future reliably on its own. Use them alongside support and resistance, a clear plan and sound risk management, never as a crystal ball.