How to Read Candlestick Charts and Patterns for Trading

Bob Iaccino, Chief Market Strategist and Co-Founder of Path Trading Partners, joins us live every Thursday from 9 AM ET, as our risk management educator.

With 30 years' experience working as an active investor in equities, commodities, futures and FX, there are few better to talk on the subject of trading strategies.

Bob has developed a method for breaking down his key fundamentals of risk management in a way that he believes retail traders can understand and use to get actionable insights to bring into their own trading.

Understanding how to read candlestick charts is a core skill for any active trader. These charts deliver real-time insight into price action, market sentiment, and potential reversals. Once you learn how to read a candle chart and recognize key candlestick patterns, you gain a clearer view of what buyers and sellers are doing at any given moment.

This guide walks you through the basics of candlestick charts, the most important patterns, and how to apply this knowledge in your trading strategy.

A candlestick chart is a type of financial chart that visualizes price movement over a specific time frame. Each candlestick shows four key values: the opening price, closing price, highest price, and lowest price during that period.

• The body of the candle reflects the range between the open and close.
• The wicks, also known as shadows, represent the high and low points.
• A candle that closes higher than it opened is typically green or white. This signals bullish movement.
• A candle that closes lower than it opened is usually red or black. This signals bearish movement.

Candlestick charts are widely used because they offer more visual clarity than traditional line charts.

Learning how to read candlestick charts involves more than recognizing shapes. It’s about interpreting market psychology. Each candle represents a battle between buyers and sellers; the outcome shows who had the upper hand.

Watch for the following:

• Patterns of consecutive candles that suggest trend continuation or reversal
• Long wicks that can indicate indecision or price rejection
• Large bodies that signal strong momentum in one direction

These visual cues help you anticipate where the market may be headed next.

Recognizing the difference between bullish and bearish candles is the first step in understanding a candlestick chart.

Bullish Candles:

• Close price is higher than open
• Often appear after a pullback or at a support zone
• Long lower wicks may suggest rejection of lower prices

Bearish Candles:

• Close price is lower than open
• Often appear near resistance or after extended uptrends
• Long upper wicks may suggest rejection of higher prices

These characteristics become more powerful when they appear in key locations on the chart.

The 3-candle rule is a confirmation technique that can help reduce false signals. Rather than reacting to a single candle, traders look for three consecutive candles reinforcing the same direction.

• In a bullish setup, look for three higher closes with higher highs
• In a bearish setup, look for three lower closes with lower lows

This approach can give you a stronger signal before committing capital to a trade.

The learning curve can feel steep if you are new to candlestick chart reading. These tips can help you build a solid foundation:

• Learn the most common candlestick patterns first, such as the doji, hammer, and engulfing candles
• Look at candles in context with nearby support and resistance levels
• Using confirmation tools like volume or trendlines can strengthen your analysis
• Look for clean patterns and reliable setups

Building skill in reading candlestick charts takes study and repetition. Here are tools and resources that can support your learning:

• Trading platforms with real-time candlestick charting, such as TradeZero or TradingView
• Pattern recognition libraries that provide labeled chart examples
• Journals to log and review trade outcomes based on candle-based entries and exits
• Educational resources that combine technical analysis with risk management training

By combining visual analysis with a structured approach, you can make better-informed decisions and avoid chasing every impulse move.

Reading candlestick charts gives you a potent edge. From scalping intraday to swing trading multi-day setups, learning to read candlesticks in stock market conditions can improve your timing, entries, and exits. The more time you spend studying these patterns, the more naturally they can guide your trading decisions.

This Blog (hereafter referred to as the “Content”) is produced by TradeZero. The Content may include the views and opinions of TradeZero and a third-party participant, Bob Iaccino. Bob Iaccino is compensated by TradeZero for participating in the Content. Mr. Iaccino’s trading experiences and accomplishments are unique, and your trading results may vary substantially from his. TradeZero is not responsible for and neither affirms nor endorses any of Mr. Iaccino’s views or opinions expressed in the Content. TradeZero makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security.

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