Deciphering the Parts of a Candlestick Chart

By Greg Schnell

The name “candlestick” was given to this type of stock chart because it has a body (or candle) for each day pictured in the chart. The chart reader can see the opening and closing stock price with a wider area in between called the body for each day with a wick strung through the body of the candle. The wicks sticking out from the candlestick bar show the extremes of the price movement throughout the day.

You can see an example of a candlestick below. Each bar represents the price of Apple Inc. for a specific day.

Apple Inc. candlestick chart
Chart courtesy of StockCharts.com
Apple Inc. candlesticks.

The important distinction is that the body of the candle reflects what happened during the day:

  • If it is hollow, the close was higher than the open. If it is filled in, the closing price was lower than when the markets opened.
  • On a hollow candle, the close is shown at the top of the body of the candle. On a filled-in candle, the close is shown at the bottom of the body of the candle. If the close is roughly the same as the open, the candle will appear to have no body, like on Apple’s chart for May 2. This candle shape is called a doji.

Notice the closing price of Apple Inc. on May 3 was lower than on May 2, but the candle is still hollow. The filling of the candle doesn’t reflect the change from the day before. It may coincidentally reflect the direction from the previous close. The hollow or filled candle style is a subtle change that makes the individual candles for each day stand out more than other displays.

The candle body

When looking at the body of the candlestick, pay close attention to the components as well as the shapes of the candles.

Candlestick components

Each candle body has several components. These components provide various pieces of information:

  • The opening price in the morning
  • The closing price at the end of the day
  • The difference between the two prices, which is the body
  • Hollow candle moved higher through the day
  • Filled candle moved lower through the day
  • The highest price of the day, shown by the top shadow (the upper “wick”)
  • The lowest price of the day, indicated by the lower shadow (the lower “wick”)

Candlestick shapes

The body of the candle tells you whether the market improved or fell during the day. Its appearance gives you a feel for the price action throughout the day. You can visualize these differences in the candlestick shapes:

  • A long, hollow body suggests the price moved up significantly in a single day, with buying pressure pushing it aggressively higher. (1)
  • A line across the middle of the shadow, referred to as a doji, means the market opened and closed at or near the same level, usually meaning the market is balanced at that price. (3)
  • A small, filled candle suggests the market was soft that day without a lot of momentum. (4)
  • A large, filled candle suggests selling pressure was evident as the price moved significantly lower. (5)
candlestick shapes candlestick charts
Chart courtesy of StockCharts.com
Candlestick shapes.

Shadows on a hollow candle

The size of each shadow shows you how far the price moved away from the two key times of the day, the open and the close. You can see the differences in shadows below. The shadows, or wicks, mean different things on a hollow body of the candle:

  • Long shadows above a hollow candle suggest very little support at the higher level. Bearish. (A bear market is a market in which stock prices are falling. People holding stock tend to begin selling stock.) (1)
  • Short shadows above a hollow body suggest the high was near to the close. Bullish. (A bull market is a market in which stock prices are rising. People tend to buy stock in this type of market.) (2)
  • No shadow above means the price climbed all day and closed at the highest price of the day. Very bullish. (3)
  • Small shadows below a hollow body mean the price tested slightly lower but then went up past the open to close at a higher level. Bullish. (4)
  • Long shadows below a hollow body mean the price moved significantly lower during the day, but then buyers came in and pushed the price back up above the open. Bullish. (5)
hollow candles candlestick charts
Chart courtesy of StockCharts.com
Shadows on hollow candles.

Shadows on a filled candle

The size of each wick shows you how far the price moved away from the two key times of the day, the open and the close. The shadows mean different things on a filled body of the candle. Shadow differences on filled candles are shown below:

  • Long shadows above a filled-in body suggest very little support at the higher level. The price traded higher during the day and then dropped and fell below the open to close down on the day. Bearish. (1)
  • Short shadows above a filled body suggest the price tried to go higher after the open but then traded down, moved below the open, and closed down from there. Bearish. (2)
  • Little or no shadow above means the price opened and fell all day. The close was below the opening price of the day and couldn’t go higher. Bearish. (3)
  • Small shadows below a filled body mean the price closed near the lows of the day. Bearish. (4)
  • Long shadows below a filled-in body mean the price moved significantly lower during the day. Buyers then came in and pushed the price back up significantly but not above the opening price for the day. Buyers stepping in and reversing the price back up is bullish. (5)
shadows candlestick charts
Chart courtesy of StockCharts.com
Shadows on filled candles.

Windows

When the stock market opens in the morning, the opening price may not be the same as the previous day’s close. News about the company, the related industry, or other news in politics may have come out after the market closed on the previous day, causing a gap between the previous day’s close and the open the next day. The candlestick chart style does not try to connect the price points together. An example of this can be found on the Apache (APA) chart on April 27. On a candlestick chart these are called windows rather than gaps.