Candlestick Pattern Overview: Master K-line chart interpretation skills and understand the story behind market trends

Core Logic of Candlestick Charts

Candlestick charts, also known as K-line charts, are the most fundamental and important tools in technical analysis. They condense four key prices within each time period—opening price, highest price, lowest price, and closing price—into a visual chart, allowing traders to quickly understand market sentiment fluctuations during that period.

In simple terms, candlestick charts are not just about displaying price numbers but tell the story of the battle between buyers and sellers through their shapes and patterns. Mastering candlestick charts enables you to truly read the market’s pulse.

Structure Analysis of Candlestick Charts

Each candlestick consists of two parts:

Real Body: The rectangular core area of the candlestick, with width representing the difference between the opening and closing prices.

• If the closing price is higher than the opening price, the body is red, called a bullish (positive) candle (buying pressure prevails)
• If the closing price is lower than the opening price, the body is green, called a bearish (negative) candle (selling pressure prevails)
• The longer the body, the stronger the buying or selling force during that period

Shadow (Wick): The thin lines extending above and below the real body, representing the highest and lowest prices reached during that period.

• Upper shadow: the highest point, with length reflecting the degree of selling pressure
• Lower shadow: the lowest point, with length reflecting the support strength of the bulls

This combination of colors and shapes accurately reflects the psychological state of market participants.

Time Frame Determines Analysis Depth

The application of candlestick charts is not limited to a single time scale. Depending on the observation cycle, they are divided into daily, weekly, monthly, and other dimensions:

Daily Candlestick: Suitable for short-term price movements, helping traders seeking quick profits to capture daily volatility. When observing daily candles, support and resistance lines can be drawn to judge trend strength upon price breakthroughs.

Weekly and Monthly Candlesticks: Choices for long-term investors. With a broader time window, you can see the results of bulls and bears over the entire month or quarter, identifying more significant support and resistance levels. Combining fundamental news analysis yields even better results.

Candlestick patterns often vary greatly across different time frames, which is why professional traders perform cross-validation across multiple periods.

Quick Reference Table of Candlestick Patterns

Four Key Techniques for Reading Candlestick Charts

Technique 1: Determine Market Control by Closing Position

The most critical information is hidden in the closing price position. It reflects the fundamental question: Who currently controls the market?

By observing where the closing price is relative to the open, high, and low, you can infer current market sentiment:

• Close near the upper part of the range → Buyers are trying to maintain dominance
• Close near the lower part of the range → Sellers are still exerting pressure
• Close near the midpoint → Both sides are temporarily balanced

Technique 2: Compare Body Lengths to Assess Strength

Compare the current candlestick’s real body with previous candles to quickly evaluate current buying and selling momentum:

• If the current body is significantly longer (at least twice) → Indicates a sudden increase in one side’s strength, trend may accelerate
• If the current body is similar in size to previous ones → Strength is balanced or weakening, watch for trend reversal

This simple comparison often helps you anticipate shifts in market sentiment.

Technique 3: Track Highs and Lows to Identify Major Trends

The most direct way to read candlestick charts is to find the major wave highs and lows, then observe their movement:

• Higher highs and higher lows → Uptrend established, look for buying opportunities
• Lower highs and lower lows → Downtrend established, look for selling opportunities
• Highs and lows remain close → Range-bound oscillation, testing support and resistance repeatedly

These three basic trend structures form the framework for all market behaviors.

Technique 4: Capture Reversal Signals for High-Probability Opportunities

Predicting market turning points is key to low-risk trading. Follow these three steps to accurately judge reversal timing:

Step 1: Wait for price to reach key support or resistance levels and observe for breakout signs

Step 2: Watch for small candlestick bodies and slowing trend signals, combined with volume and technical indicators

Step 3: When a reverse candlestick appears with strong momentum, execute trading strategies

For example, if the price hovers near resistance, trend lines weaken, and a transition from bullish to bearish candlestick occurs, it often indicates sellers are taking over, and a shorting opportunity may arise.

Advanced Candlestick Analysis Methods

Key Point 1: Rising Swing Lows + Approaching Resistance = Buyers in Control

Many traders tend to short when prices approach resistance, but this is often a trap for beginners.

What to truly focus on is: Are the swing lows gradually rising?

If lows keep rising and approach resistance, it indicates buyers are steadily pushing prices higher, and sellers lack the power to push down. On the chart, this often appears as an ascending triangle pattern. Premature shorting in this scenario can lead to being squeezed.

Key Point 2: Momentum Overbought/Oversold Signals Reversal

When candlestick bodies shrink and volume diminishes, it indicates a lack of buying (or selling) momentum. This creates a “liquidity gap”—no one willing to trade at that price zone.

Once such a vacuum appears, the market can reverse rapidly because a large order can push prices swiftly. This is the best window for contrarian entries.

Key Point 3: Recognize Fake Breakouts

The most frustrating phenomenon for traders is the “false breakout”: price surges past resistance with a large bullish candle, but shortly after, the market turns downward, forcing stop-losses.

The strategy is: First confirm the authenticity of the breakout before chasing the move.

Check recent support and resistance levels; if the price falls back and the breakout fails, trade in the opposite direction of the false move. For example, if an upward breakout fails, go short; if a downward breakout fails, go long. This approach turns false breakouts into profit opportunities.

Three Essential Points to Master Candlestick Charts

✓ Understand the logic behind candlestick patterns, not just memorize them
The formation logic of candlesticks is quite simple—just the combination of open, close, high, and low prices. Grasping the underlying market psychology is more important than memorizing pattern names. The more you observe and think, the more natural your understanding becomes.

✓ Focus on closing position and body length
These two elements condense the core information of the entire candlestick, enough for you to judge market direction. No need for complicated formulas; simple logic is enough to decode the market.

✓ Cross-verify across multiple time frames
Understanding daily candles does not mean understanding the trend. Only through multi-dimensional confirmation across daily, weekly, and monthly charts can you improve the accuracy of your trading decisions and reduce the risk of false signals.

Mastering candlestick charts is like holding a ticket to technical analysis. Start observing now—every candlestick tells a story of market participants’ battles.