Here’s How to Interpret Market Candlesticks

I hope everyone got to spend some quality time with family and friends yesterday during the Thanksgiving market holiday.

US markets are open today, but they will be closing early at 1 p.m. ET.

That gives us an excellent opportunity to kick back and review some of the basic fundamentals every new futures trader should know.

You see, I often get questions from traders about how my time frame charts work. More specifically, they want to know how to read candlestick charts.

These aren’t the candlesticks that your grandmother used to decorate her dining room… I’m talking about those red and green lines you see in my time frame charts every day.

They may seem complicated at first, but candlestick charts are easy to understand once you know how they work!

Price Action

Naked price action is critical information for any trader. It tells you exactly what the price is doing at any given time. 

The price action dictates what’s going on in the market. It’s important to remember this. 

But how can we visualize and track price action as we prepare to trade? That’s where candlestick charts come into play.

Now let’s explore the details of candlestick charts and how they function…

Types of Candlesticks

A chart is made up of lots of individual market candlesticks. There are several types of candlesticks, but let’s take a look at bullish and bearish. 

Bullish and bearish candles

A green candle represents a bullish market. A bullish candle means that the price has increased over a given period. 

Green means positive price movement.

A red candle typically signifies a bearish market. This means that the price has decreased over the specified period. The market is down. 

Red means negative price movement.

Time Matters

If you’re looking at a 5-minute chart, each fully-formed candle represents 5 minutes of price action. An hourly chart means that each candle represents an hour.

A day chart signals a day’s worth of activity, and so on. 

These timeframes play a pivotal role in helping us determine when and how we should enter a market.

You can learn more about short-term and long-term trading in this free article I wrote: How To Interpret Charts

Traders garner information from these candles. They tell you all you need to know about what’s happening in the market.

The rectangular part of the candle is known as the “real body.” It shows us the specific price action relating to the opening and closing price.

In terms of the bullish candle, the bottom of the body shows the opening price, while the top shows the closing price. Bearish candles are the exact opposite. 

The bearish candle’s top is the opening price, while the bottom is the closing price—since the bearish candle is displaying a price decrease.

Russell 2000 (RTY) Candlestick Chart — Source: TradingView

When looking at charts, you’ll often see candles with vertical lines stretching on both ends. These vertical lines are referred to as the wicks of the candles. The wicks indicate the highest and lowest price of the period. 

The price would have touched the very top and the very bottom of the wicks as the candle was forming for closing. This is invaluable information for a trader as it gives us an idea of the overall price range.

These candles represent ticks. These ticks are the overall price movements within a specified timeframe. In futures markets, ticks are how we make money. 

Each tick represents a value in a futures contract. The more upward ticks we see in a trade, the more money we make. 

Check out my article on tick values to understand how we use them to make profitable trades. 

The Bottom Line

Market candlesticks serve as excellent indicators of traders’ emotions.

When traders are feeling confident in a market, we’ll see more bullish candles. If they’re pessimistic about a market, then bearish candles will dominate the chart.

Smart traders rely on candlesticks to make trading decisions since they can help forecast the short-term direction of price actions.

With ample practice, you’ll be able to read patterns in trading charts in no time.

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Keep on trading,

P.S. For more on the markets as well as trading education and trading ideas like this one, look for the next edition of Josh’s Daily Direction in your email inbox each and every trading day.

I’ll be bringing you more of my stock and futures contract trading tutorials as well as some additional trading ideas.

And if you know someone who’d love to make this a part of their daily trading routine, send them over to joshsdailydirection.com to get signed up!

Josh Martinez

Josh Martinez

Josh Martinez is an elite Analyst who’s been actively trading the financial markets since 2011. He’s known as one the leading innovative traders in this industry due to his his cutting-edge strategies.

Josh first burst into the scene when he took an initial deposit investment of $500 and turned into over $39,000 in just under 2 years.
Josh’s trading articles have been featured in Your Trading Edge, The FX Street, Trader Planet, Forex Crunch, Trading Pub, and Equities.com.

In addition to trading, Joshua has also trained thousands of traders worldwide. His strategies and systems have helped others find success in the market

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