How to read a single candle
Every candle tells the story of a full time period through four prices:
| Component | What it represents | What it tells you |
|---|---|---|
| Body | Between open and close | A long body means strong conviction |
| Upper wick | Body top to the high | A long wick means higher prices were rejected |
| Lower wick | Body bottom to the low | A long wick means lower prices were rejected |
| Colour | Close above/below open | Who controlled the period |
The principle most people miss: a long wick matters more than colour. A candle with a long lower wick means sellers pushed price down and buyers forcefully rejected it — far more valuable information than whether the candle is green or red.
The core reversal patterns
| Pattern | Candles | Direction | Required context |
|---|---|---|---|
| Hammer | 1 | Bullish reversal | After a decline |
| Shooting star | 1 | Bearish reversal | After an advance |
| Engulfing | 2 | Bullish or bearish | After a clear trend |
| Harami | 2 | Slowdown/reversal | After an extended move |
| Morning star | 3 | Bullish reversal | At a low |
| Evening star | 3 | Bearish reversal | At a high |
A useful general rule: the more candles a pattern contains, the more reliable it tends to be — because it reflects a longer struggle and a clearer resolution. A three-candle morning star carries more weight than a single candle.
Location matters more than shape
This is the single most important idea on this page, and where beginners go most wrong: the exact same candle means different things depending on where it appears.
A hammer at strong support after an extended decline is a meaningful signal. The identical hammer in the middle of a sideways range with no level nearby is meaningless noise.
So the correct reading order is:
- Where are we? Is price at a significant level?
- What is the prevailing trend? A reversal pattern needs a trend to reverse.
- What is the candle saying? Shape comes last, not first.
A worked example with numbers
Take a specific gold scenario to show the full application:
Setup: gold falls from 2440 to 2400 where support has held twice before. A hammer forms with a small body at 2408 and a lower wick extending to 2398.
| Element | Value | Rationale |
|---|---|---|
| Entry | 2410 | After a confirming candle closes above the hammer |
| Stop-loss | 2396 | Below the hammer's wick with a margin |
| Risk | $14 | 2410 − 2396 |
| Target | 2438 | Prior resistance |
| Reward | $28 | A 1:2 ratio |
Note the decision rests not on the candle alone but on candle + support + confirmation candle + an acceptable reward ratio. Lot size is then derived from the stop distance — see position sizing.
Three-candle patterns: morning star, evening star and harami
Most Arabic explanations stop at single and two-candle patterns, even though three-candle patterns are the most dependable, because they tell a complete story: dominance, then hesitation, then resolution in the opposite direction. That three-step sequence is hard to form by chance, unlike a single candle produced by a passing move.
| Pattern | Candle sequence | Validity condition |
|---|---|---|
| Morning star (bullish reversal) | Large down → small body → large up | The third closes at least within the upper half of the first body |
| Evening star (bearish reversal) | Large up → small body → large down | The third closes at least within the lower half of the first body |
| Bullish harami | Large down → small candle inside its body | The second body sits entirely inside the first |
| Bearish harami | Large up → small candle inside its body | The second body sits entirely inside the first |
Note the conceptual difference between the two families: a star announces a possible reversal, while a harami announces only that momentum has stalled. A harami tells you the trend has lost force, not that it will turn — which is why it is used far more often as an exit signal on an existing position than as a counter-trend entry. Confusing the two is a common cause of entering early against a trend that has not actually reversed.
The location rule applies to three-candle patterns exactly as it does elsewhere: a morning star at tested support is worth studying; a morning star mid-range means nothing.
When candlestick patterns fail
No pattern works every time, and understanding why they fail protects you more than memorising shapes. The most common causes:
- No location: the pattern sits mid-range with no reference level — the single biggest cause of failure.
- Low timeframes: M1 and M5 patterns are full of noise; H4 and daily patterns are far more dependable.
- News: a major economic release overrides technical logic within seconds.
- A trend stronger than the pattern: in a powerful trend, reversal signals get absorbed one after another.
- Acting without confirmation: trading before the candle closes, when its shape can still change entirely.
This means risk management is not an optional add-on to patterns but part of the strategy itself: you enter at a size that makes a failed pattern an ordinary event rather than a disaster.
Fitting candles into a trading plan
Candles are an excellent timing tool but not a complete strategy. The practical combination:
- Trend: establish it on a higher timeframe or via a moving average.
- Location: wait for price to reach meaningful support or resistance.
- Signal: look for a candle pattern aligned with your trend at that level.
- Confirmation: wait for the candle to close, ideally with a following candle confirming.
- Risk: stop behind the pattern's wick and a size that caps the loss at 1–2%.
This sequence turns "reading candles" from visual guesswork into a repeatable, reviewable process.