How to Read Candlesticks — Step-by-Step Guide & Full Breakdown

[00:02] best way to truly understand price is to look at Japanese candlesticks. Most but they do not actually know how to read them. They see green candles, red

[00:14] candles, big wicks, small bodies, engulfing patterns, dojis, and all of this like random stuff on the chart. But the truth is, every candlestick is actually telling a story. And if you do not understand that story, you're

[00:30] basically trading blind. As traders, we use candlestick charts to analyze and interpret price charts in the financial markets. To us, this is our key form of technical analysis. So, let's break it down in this entire

[00:46] lesson. I'm going to go through what is a Japanese candlestick, when you should use them, how to use them, and why you shouldn't just be blindly memorizing going to teach you everything I know about Japanese candlesticks.

[01:01] Now, here's what a candlestick is. A candlestick basically shows you what price did over a specific period of time. It tells you where price open, where price close, the highest price reached to, uh the lowest price reached,

[01:18] and it basically just tells you like who is in control of price. Each candlestick is basically a snapshot of price action over a certain time period. That time period could be the 1-minute, the 5-minute, the 1-hour, the

[01:33] 4-hour, the daily time frame, depending on the time frame in which you are looking at. For example, right now we are on the 4-hour time frame. So, each one of these candlesticks represents the price action that is going on for the

[01:47] past 4 hours. All right, so you can see this big bearish candlestick right here. That means that within this 4-hour candlestick, there is four times 1-hour Right? So, if you look at this right here,

[02:01] go to the one hour time frame, you can see 1 2 3 4 four one hour bearish candlestick forms a four hour bearish candlestick. And then you can see this here. This is formed by

[02:15] 1 2 3 4 Okay, my math sucks. 1 2 3 4 four candlesticks, right? So, these four candlesticks combined together it forms a four hour candlestick, right? So, uh if you look at a 15 minute time frame,

[02:29] if you look at a 15 minute time frame, this four 15 minute time frame candlestick right here, combine them together and you will get this one hour candlestick. So, candlestick allow us to know what's

[02:41] going on on the lower time frame itself without actually going down to the lower time frame. Right? So, like I said, it's a snapshot of the price action. the candlestick. Okay? So, this is what

[02:55] Like, just dissecting the candlestick itself. You must understand that at any point of time, when a candlestick actually opens, it opens like let me just show you the live market condition right now. You can

[03:08] see this is a candlestick that is being opened. And when it opens, it opens in a horizontal line just like this. And if there is selling pressure, it's going to start to create like this bearish candlestick to the downside. If there is

[03:23] buying pressure, it's going to push price up and creates this bullish Okay, so in this case, you can see candlestick open just like this, like a horizontal line just like this, and then

[03:36] selling pressure right now is pushing price down. Okay, so this is the one hour candlestick that's being formed, and it was just created about nine minutes or so, give or take around nine minutes. And it opened somewhere around

[03:49] sellers in the market, it just keep on pushing price down. You can see it's just starting to go down even lower and lower and lower and lower. Right? So, if there's enough buyers later on, price could potentially move up and then the

[04:03] instead. Let me just go back to the basics, right? Just to explain to you how the entire candlestick actually works. So, in this case, you can clearly see that this is the open price. In a bullish

[04:17] scenario, there's going to be buying pressure stepping to the market causing price to go up, to move up. So, eventually the candlestick closed closed bullish? We know when the close price is higher than the open price.

[04:33] This indicate to us that buying pressure caused price to came all the way up here and it closed just like this. And then on the other side, we got the bearish when the close price is lower than the opening price. Which tell us that there

[04:48] was selling pressure causing price to go down. As simple as that. And then that is the candlestick body, right? See this rectangle thing that you can see right here. This is the candlestick body. And you might observe that there is

[05:01] these two thin lines right here, right? At the higher side and also at the lower side, right? So, this is actually the upper wick and then this is the lower wick. The body shows you the distance between

[05:15] the open and the close. The wick shows you how far price moved before pulling Okay, so bear in mind that this is the close price. But then this shows us that at some point of time,

[05:30] price has literally went all the way up here before coming down and closing at this price point right here, leaving a trail behind which is our upper wick. at some point of time, price has went all the the down here, right? Came all

[05:46] the way down here to the lowest price before it went all the way up and closing at this price point, giving us our lower wick. Right? It basically show us how far price has moved before it starts to pull back and close at this

[06:01] And if you look at this bearish candlestick right here, same exact thing. Open price, close price. This tells us that there was a lot of selling way down here. But while this candlestick was forming,

[06:14] at some point of time there was some buying pressure stepping to the market causing the price to get pushed all the way up here, giving us a high before causing price to come all the way down, leaving us a upper wick, leaving us a

[06:28] trail. And cut later, it might potentially came all the way down here, came down to the lowest price leaving us a lower wick as well. So, a bullish candle, it close higher than it open, which signals that's

[06:43] buying pressure. A bearish candle closes lower than it open, which show us us that is selling pressure. Now, here's an important thing to note. A bullish candle does not always mean

[06:57] A bearish candle does not always mean sell. It just tells you who had more control during that candle. price action right here, you can see this is the 1-hour candlestick that's

[07:11] being formed. And at this moment it's bearish, right? Open right here, price you can see there's selling pressure in the market, which tell us that the sellers are in control of price. But it haven't closed yet. It requires

[07:27] around an estimate of around 47 minutes 30 seconds before it starts closing. So, a lot of things can happen within these next 47 minutes. Within these next 47 minutes you can get some buying pressure stepping to the market causing price to

[07:41] candlestick close bullish just like this instead. Right? So, this candlestick just tell us the price action that is going on within that period of time. Right? It just shows us the tug-of-war between the buyers and sellers.

[07:56] between the buyers and sellers. So, yeah. That's pretty much the anatomy of a candlestick. Uh basically, let's just to give you like a pro tip, look at the candlestick body. Right? If the candlestick body is big, big candlestick

[08:09] body, this means there's a lot of momentum. Small candlestick body means there's very little momentum. So, in this case right here, if you look at let's say this candlestick right here. Big candlestick body, right? Very big

[08:21] candlestick body compared to this previous candlestick right here. This tells us that there's a lot of buying pressure, a lot of buying momentum. So, as a result, we can expect this buying pressure to continue and

[08:34] indeed it did just that. Price just continued going up even higher. Right? So, let's take a look at this one right here. You can see this bearish candlestick have a big, strong body. Right? This body right here is

[08:47] significantly bigger than the previous candlestick right here, which tells us market and we can expect this selling pressure to sustain. Now, compare this to like maybe this little candlestick right here.

[09:01] small right here. It's a very small candlestick body, which tells us that there is not much momentum, there's indecision in price. Right? There's a very less conviction in the market right now, which could potentially tell us

[09:15] that price is reversing or if there's sufficient momentum, price could just continue going up. So, when the body is large, it usually means that one side has strong control during that candle.

[09:28] When the body is small, it usually means there was more hesitation or balance between buyers and sellers. So, that's what the candlestick body candlestick wicks, right? Which is once again, all the upper wick and the lower

[09:42] wick that you can see right here. When you have a very long upper wick like in this instance, this tell us that when this candlestick was forming, price got pushed all the way up, right? It pushed all the way up here.

[09:56] But then later on it got rejected, right? The sellers pushed price all the candlestick body closed somewhere around And if there's a long lower wick just like this, this tell us that price

[10:10] pushed all the way down here, but then once again got rejected by the buyers the way up here. As a result the candlestick closed somewhere around here. So, when you have this long upper wick

[10:24] there's a lot of volatility in the market. It usually means that there is a market. It usually means that there is a lot of price rejection or indecision in the market depending on the context in which the wicks are appearing in.

[10:40] So, once again, wicks just show you where price tried to go, but failed to hold. Okay? So, that is pretty much like everything you need to know about Japanese candlesticks on a basic

[10:52] the candlestick itself. Now, let's quickly go through this, right? Because this is what a lot of you guys might have seen if you've started trading. And that is the candlestick pattern cheat sheet.

[11:05] tell you to go and memorize every single one of these candlestick pattern and try then when they do appear in the market, if you see this inverted hammer, you should just buy. If you see this tweezer

[11:20] top or whatever, you should just sell. But, it's not as simple as that. The candlestick pattern is as important as the context in which the candlestick pattern appears. Right? So, if you see this bullish

[11:36] three-line strike, but the market is actually in a downtrend, what tends to pattern is formed, you should be entering for a sell instead of entering for a buy because the prevailing trend direction is actually bearish. So, I

[11:51] memorize candlestick patterns. Instead, I want you guys to understand the relationship between the buyers and the sellers by analyzing the Right? By already understanding who is in control of price, whether the buyers

[12:05] supply. And you do that by looking at the candlestick body and the candlestick wick. through like these golden rules of Japanese candlesticks, which will just

[12:19] fundamentally change the way you perceive candlesticks forever. Because trust me, in my first year of trading, I tried to follow the I was sitting over here, and I was like trying to wrap my my head around all

[12:32] these like 30 different candlestick patterns, trying to memorize them. But it just didn't stuck with me. Like, yes, I could memorize this one or like memorize 50 freaking candlestick patterns, that's like out of my world,

[12:46] right? I'm smart, but I'm not that smart. So, as a result, I just came up with like this own method of using candlestick patterns, and that is you to just observe the momentum and the pressure of the candlesticks just by

[13:00] looking at the anatomy of the candlestick itself. That tells me so much about the price action without needing me to memorize useless patterns. Okay, but if you want to like really just, you know, keep things simple for

[13:13] you, the conventional advice or the advice that I used to give traders in my first three years is to just stick to three candlestick pattern, right? It's to try to memorize just three. And for me, my favorite candlestick patterns

[13:26] the bearish engulfing candlestick pattern and the morning star and the evening star candlestick pattern and the three line strike candlestick pattern. even like look at this cheat sheet, all right? It's been ages. But yeah, this

[13:41] The reason why this candlestick pattern tends to work is because of really the at this bullish engulfing candlestick, look at the body. The bullish candlestick body is significantly bigger than the previous candlestick body. All

[13:56] which tells us there's buying pressure and buying momentum. That is why bullish engulfing candlestick pattern tends to work. It's not because the textbook says so. It's because that this tell us that the buyers overpowered the sellers. Same

[14:11] the morning star basically tell us that there's a bearish candlestick, a doji candlestick, which signal indecision. It does not really mean that price is going to go up or go down. It just signal indecision. And the next

[14:24] candlestick after the doji candlestick is a bullish candlestick, which tell us that the buyers have won the tug-of-war. The So as a result, price is most likely going to reverse to the upside. Same

[14:37] the bearish engulfing, which is like just the opposite. And I same thing as The reason why these candlestick patterns work is because of momentum and pressure. And that's what we're going to talk about next. Okay, so here's my

[14:51] golden rules of Japanese candlesticks. Like I said, do not just blindly memorize candlestick patterns. Understand how the candlesticks actually Understand how the candlesticks actually work. Why price move the way it does.

[15:03] And when you do, this is where you are able to really just observe the price action and trade with the institutions. So the first rule is candlesticks tell you everything about price action, which

[15:16] is who's in control of the market. At any given moment, if you look at a candlestick, like for example, if look at a live price action right now, I can is actually bearish.

[15:28] shifted bearish, but another reason is because if you look at the most recent candlesticks, price is bearish, right? There was a lot more bearish candlesticks than bullish candlesticks in the past few hours,

[15:42] control of price. Or another example, like let's say we Or another example, like let's say we look at this price action right here.

[15:54] this is actually a uptrend, right? Clear as day, price is bullish. Why? Because there's a lot of momentum. There was a lot of bullish candlesticks, and not candlesticks, but the bullish candlesticks that was formed have a big

[16:09] body, have a very huge body right here. Right? That's what I always say, the big black candlestick, you know what I'm saying? The BBC. Okay, so that's how you remember it, all right? BBC. When it's BBC, big bullish candlestick, a lot of

[16:24] buying pressure. BBC, big bearish candlestick, a lot of selling pressure. That's it. Next up, you got the doji candlesticks, right? Like I said earlier, doji candlesticks signal indecision.

[16:36] Does not signal a reversal, it just signal indecision. Once again, here's where a lot of traders tend to go wrong. They assume that after a doji candlestick, price is just going to reverse.

[16:48] Let me just bust that myth. In this case, doji candlestick formed, but did price reverse straight away? No, it didn't. In this case, doji candlestick formed, right? This is not really like a doji

[17:00] like a doji, it's kind of shaped like a doji candlestick. In this case, was there reversal? No. So, once again, don't just blindly follow what the do so. Understand that doji candlestick just

[17:14] signal indecision, which means neither buyers nor sellers has gained control of the market. So, what you want to do is to focus on what happens after the doji candlestick. Because that will tell you a lot more. What you do want to do is to

[17:29] focus on the context, the location in which the doji candlestick appears. So, for example, in this case, price was heading down. Boom. We got this candlestick right here with a long low

[17:44] tell us that, you know what, buying pressure is stepping into the market pushing price up. The long low wick. And then followed by a doji candlestick. indecision. And it could potentially tell us that these sellers is losing

[18:00] momentum. Right? The sellers are getting kicked out of the market by the buyers. long low wick right here, which indicated buying pressure. The next sign was that we got a doji candlestick, which tell us that there was indecision.

[18:12] Because if the sellers wanted to take control of price, price would just continue going down with a lot of bearish momentum and pressure. The third confirmation came when we got a bullish engulfing candlestick, a big

[18:26] bullish candlestick, right after the doji candlestick, which signaled to us buying momentum has entered into the market. Buying pressure has entered into the market. In fact, this was so good. It was so bullish that

[18:39] it didn't even have a wick. No upper wick, no lower wick, just a candlestick body just like this, which tells us a lot of buying pressure And just as expected, after this is formed, prices continue bullish.

[18:54] give you. Is don't just focus on the doji candlesticks, but focus on the context in which it appears in and what it does after it appears in the market. body, the more momentum or pressure there is.

[19:10] So, once again, I already covered this briefly just now. Look at this big bearish candlestick right here. Look at this BBC. Is there a way for price to actually go bullish after this BBC occurs?

[19:24] It might, but like the BBC is just going to dominate. It's just going to dominate. You know, it's just going to dominate. So, as a result, continue bearish, it just continue going down. Because that's way too many

[19:38] selling pressure and selling momentum in this candlestick right here, within this 15 minutes over here. So, just like gravity, right? And using the laws of physics, when there's when something have a lot of momentum, it's

[19:52] just going to continue to just collapse with ease. Just try rolling a ball down a slope. Right? It might requires a lot of, you know, pressure, a lot of force to get the rock up the slope, but once this

[20:09] rock gets up the slope and you push the rock down the slope, it starts coming down and you will start to see it starts getting momentum, the the pressure starts the the like pressure or whatever the physical terms is, starts building

[20:22] the rock grows faster and faster and faster and faster. It's the same scenario right here. Okay, so after you see this big bearish there was a lot of selling momentum causing price to just collapse like

[20:35] crazy. Until that the momentum fades away, until the rock comes to a stop. price again. Once again, the market moved back to a phase of balance before the next imbalance occurs.

[20:50] that says that there was a lot of momentum, and what happens after that is annihilation, destruction, collapse, right? Where price just

[21:02] continue crashing down. The next tip is candlesticks on the higher time frame matter than more than the lower time frame. So, if I see like let's say like a on the daily time frame, right? Let's

[21:16] say I see this big bullish candlestick occurs on a daily time frame. I know for a fact that there's a lot of buying pressure and momentum. bullish candlestick on let's say the 5-minute time frame like over here,

[21:32] it's less significant. Okay, it's less significant because this buyers, you know, overwhelmed the sellers. But, this right here tell us that within a day the buyers overwhelmed the

[21:48] Which means that this move right here is a lot more significant than the one that we have right here. And therefore it's a lot more valuable, which means that it's a it's a lot more like worthwhile, right?

[22:02] it's a lot more stronger. So, you can see the exact same candlestick pattern on the 4-hour time frame and it might work in the way you envision it work, but if you see the exact same pattern on the 5-minute time frame, it might not

[22:17] 4-hour time frame is just a lot more significant. matter a lot more than the lower time frame itself. And fifth tip is do not just rely on candlestick patterns without context.

[22:32] It's all about location. It's all about timing. It's all about your bias. So, you want to make sure that you are combining all the market mechanics concepts that we're going to cover with candlestick patterns. Right? Don't

[22:45] just use candlestick pattern alone. It's not the best confluence out there. You need multiple influences. You need multiple confirmations to support your trade idea, to support your trade bias. So, use your structure, right? So, if

[23:00] price is actually creating a bullish break of structure right now and this is where I know for a fact that okay, bullish break of structure over here. candlestick after the break of

[23:12] tell us that price is potentially going to start pulling back. pulling back and then once price comes down here, starts going up, we can creating a new lower high and then eventually comes down to the demand zone

[23:26] another concept that we're going to cover very very soon. And then you can see once price is approaching this demand zone, ideally, I want to see some sort of big bullish candlesticks. Right? Or I want to see like this

[23:40] reversal candlestick pattern right here to signal to me that the market is the pullback is over and right now we're just going to shift bullish. So use all the weapons in your arsenal to develop a trade idea, to develop a

[23:54] trade bias. And last tip that I have for you is to compare the size of the candlestick body to the size of the wick. If you have a candlestick body, which is a lot bigger than the wick

[24:07] you? This tell you that there is a lot of buying pressure, a lot of buying momentum, like in this case right here. However, if you have this candlestick right here with a very small body but

[24:21] very long upper and lower wick, right? In this case, it's like 20% body but 80% wick. Well, in just now, this is about 90% body and 10% wick.

[24:33] Right? So this tells us that there is very less momentum, very less pressure. market, which is why, you know, price came all the way down here, got rejected, price went all the way up there, got rejected again. Right? So

[24:47] that's going on right here. And as a result, this tells us that there's a lot of indecision, a lot of uncertainty, which means that at any given moment, price could just reverse. And it did exactly that.

[25:01] reverse. And what candlestick pattern is this? This is actually your good old evening star candlestick pattern, or at least a variation of it. And notice what happens after this candlestick was formed.

[25:16] It was followed by a bearish candlestick with 90% body and 10% wick. Big bearish candlestick body which signaled to us a lot of selling pressure, a lot of selling momentum.

[25:29] candlestick body is formed, price has continued collapsing. This is the power of just understanding candlestick pressure and momentum. When you do, you can essentially bend the market to your will. Not really bend

[25:44] know what I mean. You can essentially just observe what's going on in the market and just trade with it rather than against it. this is such a beautiful thing, because I really believe that

[26:00] candlesticks are the heartbeat of the market. when you can hear the heartbeat of the market, you can trade with it.

[26:13] Right? Because the market is always telling you a story. All you got to do is to listen. It's an art, man. It's a bloody It's an art, man. It's a bloody masterpiece.

[26:27] right? I know you probably expected me to delve deeper into freaking not how I operate. Because in my first year of trading, I did that, right? I've candlestick patterns in the world, and I realized that over time, the candlestick

[26:43] patterns, it works to a certain extent. But what's more important is, once which you're applying them in. Because the context of the market will determine whether the candlestick patterns work in the way where it's supposed to

[26:57] work. Candlesticks, all they do is to help you read price. Help you listen to the heartbeat of the market. They do not replace market structure. They do not replace liquidity concepts or timing.

[27:10] You still have to understand all of these market mechanics concepts so that you can have the full picture. This is just a piece of the puzzle This is just a piece of the puzzle itself. It's not the full picture yet.

[27:22] Okay? So, yeah, do not just memorize candlestick Don't just enter for a buy because you see a bullish candlestick. Don't just enter for a sell because you see a freaking bearish candlestick.

[27:35] is to just memorize the candlestick patterns. share with you guys like everything that I wish I knew about candlestick patterns I have your best interest at heart. Like

[27:48] doing is that I'm speaking to my younger self. If I knew all of these concepts back in my first year of trading, I wouldn't have blown seven accounts. I wouldn't have failed six freaking funding challenges. I wouldn't have lost

[28:01] like $10,000 of my life savings. But now looking back in retrospect, I realize that I have to do all of that. I have to go through the hardship, the trials, the tribulations

[28:13] for me to become the man I am today. For me to learn that all of these concepts is actually much more useful if you apply them in this manner. All of the losses were just

[28:27] allowing me to, you know, learn these lessons so that I can pass on these lessons to you. And I think that's the most beautiful thing about trading because yeah, man, like

[28:42] I don't feel like this is work. I don't know what you guys are thinking, but like when I speak, I speak with conviction. I speak with passion because I genuinely love this game. I really believe that trading's an art. And if

[28:54] you really just, you know, view it as an art, you will see how beautiful the market actually is. It's really just a representation of the But that's another topic for another day.

[29:07] remember, the goal here is not to memorize freaking candlestick names or patterns or to like, you know, be one of those buy like a mouse pad where it has all the

[29:21] You look like a freaking weeaboo when you have that, right? Don't be a geek, geek. Instead, the goal here is to understand what price is actually communicating. Candlesticks help you read the momentum,

[29:35] the rejection, the indecision, the pressure, the intent. And once you understand that, the chart becomes much more easier to interpret. So, yeah. To keep things simple, every candlestick

[29:50] tells a story. It shows you where price open, where it's going to close, where it went to using the wicks, how high it went, how

[30:02] And the candlestick body tells you who is in control of price. And the wicks is in control of price. And the wicks tell you where price was rejected. And the real edge comes from reading those candlesticks in the right context.

[30:19] to teaching you guys more of these awesome market mechanics concepts. And as always, remember, you're just one trade away. Mwah.