What is a Candlestick Chart?
A candlestick chart shows a stock's price movement over a given period (1 minute, 1 hour, 1 day, 1 week) using candle-shaped bars. Each candle shows four prices: Open, High, Low, Close (OHLC).
Candlestick charts were invented by Japanese rice traders in the 18th century and became the global standard for price chart analysis. Every broker platform (Zerodha Kite, Groww, Upstox) displays them by default.
Anatomy of a Candle
- Body: The thick rectangular section between Open and Close prices
- Upper shadow (wick): Thin line above the body — shows the Intraday High
- Lower shadow (wick): Thin line below the body — shows the Intraday Low
- Green/White candle: Close > Open — buyers were stronger (bullish session)
- Red/Black candle: Close < Open — sellers were stronger (bearish session)
A candle with a long green body and short wicks means the stock opened near its low and closed near its high — strong bullish session. A red candle with a long body means sellers dominated all day.
Key Single-Candle Patterns
Doji: Open ≈ Close — body is very thin/absent. Represents indecision between buyers and sellers. A Doji after a trend suggests potential reversal.
Hammer: Small body at the top, long lower shadow (2× body size). Appears after a downtrend. Means sellers pushed price down intraday but buyers recovered. Bullish reversal signal.
Shooting Star: Small body at the bottom, long upper shadow. Appears after an uptrend. Means buyers pushed price up but sellers reversed it. Bearish reversal signal.
Marubozu: Long body, no shadows at all. Strong momentum in one direction — bullish Marubozu (green, no wicks) means buyers controlled the entire session.
Spinning Top: Small body, equal-length shadows above and below. Indecision — neither buyers nor sellers won decisively.
Key Two-Candle Patterns
Bullish Engulfing: A large green candle completely covers the previous red candle. Bullish reversal — buyers overwhelmed previous day's sellers.
Bearish Engulfing: A large red candle completely covers the previous green candle. Bearish reversal signal.
Piercing Line: After a downtrend — red candle followed by green candle that opens below previous close but closes above the midpoint of the red candle. Moderate bullish reversal.
Three-Candle Patterns
Morning Star: Three candles — long red, small candle (doji or spinning top), long green. Bullish reversal after downtrend — one of the strongest reversal signals.
Evening Star: Opposite — long green, small candle, long red. Bearish reversal after uptrend.
Three White Soldiers: Three consecutive green candles, each closing higher than the previous. Strong bullish momentum.
Important Caveats for Indian Markets
- Candlestick patterns are probabilistic signals, not guarantees. Studies show even the best patterns succeed only 55–65% of the time.
- Always confirm patterns with volume — a Hammer on low volume is less reliable than on high volume
- Use patterns as one input alongside fundamentals and market context — not as standalone trading signals
- Over 89% of retail F&O traders in India lose money per SEBI data. Technical analysis alone does not consistently beat markets.