Decoding Price Movements: A Guide to Mastering How to Read Japanese Candlesticks

Every market movement leaves a footprint on the chart. Traders who know how to read Japanese candlesticks can interpret that footprint and anticipate what comes next. This is not a mystical art, but a technical skill that can be learned with practice and discipline.

What’s inside each candle: The three key elements

When you observe a Japanese candlestick, you are seeing three pieces of information compressed into an image:

The body shows where the market opened and closed during that period. In a bullish (green) candle, the lower point is the opening and the upper is the close. In a bearish (red) candle, it’s the opposite. The length of this body reveals the intensity of the movement: the longer it is, the more decisive the control by buyers or sellers.

The wicks (the thin lines above and below) tell the story of the struggle during the session. A long upper wick indicates that buyers tried to push the price higher but were stopped by sellers. A long lower wick suggests sellers pressed down but buyers rescued the session. These wicks reveal indecision and volatility.

The color is the fastest indicator: green for bullish movements, red for bearish. This visual coding allows traders to process information in milliseconds.

The relationship that changes everything: Wicks versus body

The true skill in reading Japanese candlesticks lies in understanding the proportion between the body and the wicks. This relationship reveals the balance of power between buyers and sellers:

When the body is long and the wicks are short, market participants had clarity of purpose. Buyers dominated throughout the session without significant resistance, or sellers maintained unwavering control. This indicates a strong trend.

When the wicks are long compared to a small body, the market was indecisive. The price tested new levels, but participants couldn’t sustain them. This suggests a reversal could be near, as there is no consensus.

A long upper wick specifically indicates that after initial optimism, profit-taking occurred. Buyers gained ground but did not defend it. A long lower wick tells the opposite: initial pessimism was countered by opportunistic buying.

The individual patterns that work

Certain candlestick patterns repeat over and over because they reflect consistent market psychology.

The Doji candle forms when open and close are at the same price. Imagine this: after a trading session, the market ends exactly where it started. This is not coincidence but a symbol of pure indecision. The four main types (long legs, gravestone, dragonfly, and four-price) vary in where traders tested the price, but all transmit the same message: lack of direction. They are especially significant after strong movements, indicating momentum is waning.

The hammer has a short body at the top and a long lower wick, as if touching bottom. During the session, sellers pushed the price to lows, but buyers rescued it before close. In downtrends, this indicates the decline might be ending. Technicians usually wait for confirmation in the next candle before acting.

The inverted hammer reverses the shape: long wick at the top, short body at the bottom. It shows buying pressure followed by selling. Although less reliable on its own, it gains significance in context.

The shooting star appears in uptrends with the shape of an inverted hammer. The market rose, but sellers halted the momentum. The name is fitting: a bright hope that quickly fades. It signals weakening bullishness.

The marubozu (literally “bald” in Japanese) is the opposite of indecision: a candle without wicks. It opened at one end and closed at the other, without touching the middle. Green means buyers had total control throughout the session. Red indicates seller dominance without interruption. These patterns suggest a trend that will likely continue.

When two candles tell more complex stories

Dual patterns elevate analysis to another level of sophistication.

The engulfing candle occurs when one candle completely covers the range of the previous but in the opposite direction. Imagine a strong red candle followed by a much longer green candle: bullish engulfing. This shows a shift in power: what seemed like bearish control was completely nullified. The larger the engulfing candle, the more decisive the reversal. These patterns are especially powerful after long trends or near support/resistance levels.

The piercing line combines a long red candle followed by a long green candle. Usually, there is a gap down between them, indicating that buyers not only neutralized the previous sell-off but surpassed it decisively. The close of the second candle should be above the midpoint of the first to count as a valid pattern.

The three-candle patterns: The most reliable signals

This is where analysis gains maximum credibility because three candles provide enough context.

The morning star marks the peak of indecision in downtrends. First, a strong red candle, second a Doji (indecision), third a green candle closing well above the midpoint of the first. This visually shows how bearish markets end: exhaustion, confusion, recovery. Traders consider it one of the most reliable reversals.

The evening star is its inverse in uptrends: strong green, Doji, red closing below. Same mechanism, opposite direction.

The three white soldiers are three consecutive green candles with increasing long bodies after a downtrend. Each opens higher than the previous, each closes near its high. This shows buyers gaining momentum session after session. It’s a clear and decisive reversal upward.

The three black crows mirror the bullish pattern but in red. Each candle is stronger, each close lower. Sellers are dominating without opposition.

The bullish pattern (in a bearish context) consists of a long red candle followed by three small green candles, all contained within that red candle. This shows buyers attempted a reversal but without enough strength. The downtrend probably continues.

Applying how to read Japanese candlesticks in real trading

The difference between knowing the theory and making money is execution. When you identify these patterns, remember:

Context is everything. An isolated hammer is less significant than a hammer at a strong support after an extended downtrend.

Confirmation protects your capital. Many traders wait for the next candle to act, especially with individual patterns. A Doji candle is indecision until confirmed by subsequent movement.

Timeframes matter. Patterns on daily charts are more reliable than on 5-minute charts.

Volume amplifies the signal. A pattern with low volume is weak. With strong volume, it’s much more reliable.

Learning how to read Japanese candlesticks is not just recognizing shapes; it’s understanding that each shape represents decisions by thousands of participants. When you master this reading, you see the market not as random numbers but as a narrative of power between buyers and sellers. And in that narrative, trading opportunities become obvious.