Recently, while organizing my trading notes, I remembered the Japanese candlestick chart. Honestly, if you don’t understand this system, technical analysis is basically impossible to play.

Candlestick charts were invented by Japanese rice traders hundreds of years ago and weren’t introduced to the West until 1989. Now they have become the standard tool for traders worldwide. Why? Because they can visually display the open, close, high, and low prices over a period of time, and also reveal market sentiment.

To understand candlestick charts, you first need to grasp three key elements: color, body, and shadows. A green candlestick indicates an upward trend, while a red one indicates a downward trend. The body represents the range between the opening and closing prices, and the shadows (also called wicks) show the price fluctuations within that period.

I’ve noticed many people tend to overlook an important detail—the ratio between shadows and body can reveal a lot of information. The longer the shadows relative to the body, the more intense the buying and selling struggle, and the higher the chance of a trend reversal. Conversely, short shadows and a long body suggest a clearer trend with a higher probability of continuation.

For example, a green candlestick with a very long body and almost no upper shadow indicates that buyers are completely in control—buyers kept pushing the price higher throughout the period. The opposite is true as well. A long upper shadow shows attempts to push the price higher were ultimately suppressed, while a long lower shadow indicates selling pressure was absorbed by buyers.

The most common single-candlestick patterns include several types. A “dome top” has a short body with roughly equal upper and lower shadows, usually indicating market indecision. Doji is more extreme, with the open and close prices the same, looking like a plus sign—that signals a standoff between buyers and sellers. A “marubozu” (no shadows) has no wicks at all, with a very clear body, representing a strong and definite trend.

I want to highlight the hammer candlestick. It features a short body with a long lower shadow, indicating the market was pushed down to a low point but then rebounded. Despite strong selling pressure, buyers stepped in. However, a single hammer alone doesn’t confirm a reversal; it usually needs to be followed by a strong upward move for confirmation. The inverted hammer is the opposite shape, suggesting buyers may take control.

The hanging man looks similar to the hammer, but the key difference is its position. The hammer appears after a downtrend, while the hanging man appears after an uptrend—that’s a bearish signal. The shooting star is similar to the inverted hammer but appears in an uptrend, indicating increased selling pressure.

Two-candlestick patterns are even more powerful signals. The engulfing pattern involves one candle being completely engulfed by a larger opposite-colored candle. Bullish engulfing occurs after a decline, with a green candle that surpasses the previous red candle’s range—especially meaningful after a long downtrend. Bearish engulfing is the opposite, occurring after an uptrend, signaling a potential reversal.

Another pattern is the piercing line, which is also a two-candle formation: a long red candle followed by a long green candle, where the green candle’s close surpasses the midpoint of the red candle’s body. This indicates strong buying momentum and a possible trend reversal.

My advice is not to rely solely on single candlestick patterns for trading decisions. These patterns should be combined with timeframes and support/resistance levels. Short-term candlestick signals can be too random, so signals from longer timeframes (daily, weekly, monthly) are more reliable. Also, for reversal patterns, it’s best to wait for confirmation from subsequent price action. Two-candle patterns tend to be more reliable. To truly master this technique, you need to observe and practice extensively, familiarizing yourself with how these patterns perform in real trading on a demo account.