Basics of Candle Charts: What Is a Candle Chart?

Candle charts were first used by Japanese rice merchants in the 18th century to track rice prices and are now a universal tool for traders around the world. Each candle represents the price changes over a certain time period, such as 1 minute, 5 minutes, 1 hour, or 1 day.

Each candle contains four key data points:

• Opening Price (Open): Price at the beginning of the time period

• Closing Price (Close): Price at the end of the time period

• Highest Price (High): Highest traded price within the time period

• Lowest Price (Low): Lowest traded price within the time period

Body and Shadows:

• Body: The part between the opening and closing prices

• Shadows (Wicks): Represent the price fluctuation range during the time period (upper and lower shadows)

Colors usually indicate rise or fall (most exchanges allow users to set their own preferences):

• Green: Closing price is higher than the opening price (bullish)

• Red: Closing price is lower than the opening price (bearish)

Basic Structure of a Candle Chart

Learning how to read a candle chart starts with understanding the structure of each candle.

A typical candle consists of the following parts:

• Body: Connects the opening and closing prices

• Wicks (Shadows): Thin lines extending above and below the body, representing the highest and lowest prices

• Color: Indicates price trend. Green (or white) usually means rising; red (or black) usually means falling

For example:

• If the closing price is higher than the opening price, it’s a bullish candle

• If the closing price is lower than the opening price, it’s a bearish candle

How to Interpret a Single Candle

Understanding a single candle helps you determine whether the current market favors buyers (bulls) or sellers (bears):

• Long body, short wicks: Indicates a strong trend with focused momentum

• Long upper and lower wicks, short body: Indicates high volatility, but bulls and bears are currently balanced

• Long lower wick: Strong buying interest, low prices quickly bought up (potential support)

• Long upper wick: Selling pressure, high prices quickly sold off (potential resistance)

Common Candle Patterns:

• Hammer: Long lower wick, possible reversal upward

• Inverted Hammer: Appears after a downtrend, may indicate upcoming rise

• Doji: Opening and closing prices nearly equal, shows market indecision

• Engulfing Pattern: A candle that “engulfs” the previous one, indicating a potential trend reversal

Chart: Hammer Candlestick Pattern

Candle Combinations on the Chart

A single candle is like a snapshot of the moment, while a series of candles together reveal stronger trend signals.

Bullish Signals (Possible Uptrend):

• Morning Star

• Double Bottom

• Bullish Engulfing

Bearish Signals (Possible Downtrend):

• Evening Star

• Head and Shoulders

• Shooting Star

In actual trading, these signals are more reliable when combined with volume, support/resistance levels, etc. For more details, check out Gate Academy’s article: 10 Common Candle Patterns and How to Interpret Them. 10 common candlestick patterns and their interpretation.

Basic Chart Interface Functions (Using Gate.io as Example)

Popular trading platforms like Gate.io offer highly customizable candle chart interfaces. Understanding these features helps you observe the market more efficiently.

Core Features Include:

• Timeframe Switching: Supports various timeframes from 1-minute, 5-minute, to 1-day, 1-month, etc. Short-term traders prefer minute-level charts. Long-term traders prefer daily charts and above.

• Add Technical Indicators: Moving Average (MA), Relative Strength Index (RSI), MACD, Bollinger Bands, etc. Combine with candle charts for better decision-making.

• Drawing Tools: Trend lines, support/resistance lines, Fibonacci retracement, etc.

• Chart Theme Switching: Choose white or dark backgrounds to suit trading habits.

• Zoom In/Out/Drag Functions: Helps you observe past candle trends more clearly.

You don’t need to master all features, but you should at least know how to switch timeframes, add indicators, and draw lines.

Image:https://www.gate.io/trade/BTC_USDT

Using Candle Charts to Support Trading Strategies

Candle charts won’t directly tell you when to “buy” or “sell,” but they can greatly improve the quality of your decisions.

Practical Tips:

• Trade with the trend: If the chart shows an uptrend, avoid shorting; in a downtrend, avoid going long.

• Set stop-loss points: Use previous highs/lows to set stop-losses and avoid emotional trading.

• Combine with indicators: Candle charts + trend indicators like MA, MACD increase accuracy.

• Multi-timeframe alignment: Look for trend consistency across timeframes, e.g., bullish daily trend + hourly pullback = good entry point.

Beginner Tips: How to Practice Reading Charts

Beginners are often overwhelmed by charts. Here’s a gradual learning path:

1. Observe candle charts daily: Pick one or two coins and spend 10 minutes reviewing the trend each day
2. Start from the daily chart, then move to hourly and 5-minute charts
3. Focus on recognizing 2-3 common patterns (e.g., hammer, engulfing)
4. Use paper trading or small positions for practice
5. Record your analysis vs. actual outcomes to review and learn

Conclusion: Charts Are the Language of Trading

Candle charts themselves don’t generate profits—but they tell the “story” of the market.

Each candle reflects traders’ emotions, and the rises and falls show the ongoing battle between buyers and sellers. Understanding candle charts is your first step from “blind buying/selling” to “rational trading.”

Don’t rush to master all tools. Start by understanding the candle’s structure, then gradually build your own trading perspective.