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How to Read a Candlestick Chart: A Complete Guide for Forex and Gold

Updated October 27, 2026 · By the Pips & Gold team

A candlestick chart is the most common way traders look at price. Each candle packs four prices into one simple shape. Once you can read it, you can see at a glance who was in control, buyers or sellers, and how strongly. This guide takes you from the basics to the context that experienced traders use.

By Pips & Gold teamLast updated October 21, 202610 min readLevel: Beginner to intermediate

Key takeaways

Every candle shows four prices for one period: open, high, low and close (OHLC).
The body shows where price opened and closed; the wicks show how far it travelled and was pushed back.
A single candle is a clue, not a signal. Location (support, resistance, trend) matters more than the shape.
Higher timeframes carry more weight. One H4 candle summarises sixteen M15 candles.
Candles describe what already happened. They do not predict the next move, so always plan your stop loss and risk first.

What a candlestick shows

Pick any period, for example one hour. During that hour the price starts somewhere, moves up and down, and finishes somewhere. A candlestick records four numbers for that hour:

Open: the first price of the period.
High: the highest price reached.
Low: the lowest price reached.
Close: the last price of the period.

Traders call these the OHLC prices. A bar chart and a candlestick chart show exactly the same four numbers; candles just make them easier to read quickly. Line charts usually show only the close, which hides how far price travelled inside each period.

The anatomy of a candle. Colours vary between platforms; many use green or white for up candles and red or black for down candles.

The thick part is the body. It runs from the open to the close. If the close is above the open, the candle is bullish (price rose during the period). If the close is below the open, it is bearish. The thin lines above and below are the wicks (also called shadows or tails). They show the high and low, the ground price covered but couldn't hold.

Which price does the chart use?In MetaTrader 5 and most forex platforms, candles are drawn from the bid price. You buy at the higher ask price, so a buy order can be filled even though the candle never seemed to touch your level. The gap between the two is the spread. Our guide to spreads, commissions and swaps explains why this matters.

Reading the body and the wicks

The shape of a candle tells a short story about the fight between buyers and sellers during that period.

What you see	What it usually means
Long body, small wicks	One side was in control from start to finish. Strong momentum.
Small body, long wicks on both sides	Price moved a lot but ended near where it began. Indecision.
Long lower wick, body near the top	Sellers pushed price down, but buyers pushed it back up before the close (rejection of lower prices).
Long upper wick, body near the bottom	Buyers pushed price up, but sellers pushed it back down (rejection of higher prices).
Body much larger than recent candles	A burst of activity, often news, a session open or a breakout.

Measure candles in two ways: the body size (|close − open|) and the range (high − low). The ratio between them is useful. A body that fills most of the range shows conviction. A body that is a small part of the range shows hesitation.

Worked example

Measuring a gold candle and what it is worth

A one-hour gold (XAU/USD) candle has open 4,100.00, high 4,118.00, low 4,095.00 and close 4,112.50. On most brokers one standard lot of gold is 100 ounces, so a $1 move is worth $100 per lot, or $10 on 0.10 lot.

Body = 4,112.50 − 4,100.00 = $12.50 (bullish) Range = 4,118.00 − 4,095.00 = $23.00 Body ÷ range = 12.50 ÷ 23.00 = 54% Upper wick = 4,118.00 − 4,112.50 = $5.50 Lower wick = 4,100.00 − 4,095.00 = $5.00 Value of the full range on 0.10 lot (10 oz): 23.00 × 10 = $230

So a trader holding 0.10 lot through that hour could have seen a $230 swing, even though the candle closed only $12.50 higher. That is why the range, not just the body, should guide where you place a stop loss.

Common candlestick patterns

Patterns are names for shapes that appear often. They are useful shorthand, but no pattern works on its own. Here are the ones worth knowing first.

Five common shapes. Real candles are rarely this neat.

Doji

The open and close are almost the same, so the body is a thin line. It signals a balance between buyers and sellers. After a long trend, a doji can be an early sign the trend is tiring; in a quiet range it often means nothing.

Hammer and hanging man

A small body near the top with a lower wick at least about twice the body. After a fall, it is called a hammer and shows buyers rejecting lower prices. The same shape after a rise is called a hanging man, a possible warning that sellers are testing the market.

Shooting star and inverted hammer

The mirror image: a small body near the bottom with a long upper wick. After a rise it is a shooting star (rejection of higher prices). After a fall it is an inverted hammer.

Marubozu

A long body with little or no wick. One side controlled the whole period. In gold, these often appear on big news such as US jobs or inflation data.

Engulfing

A two-candle pattern. In a bullish engulfing, a bearish candle is followed by a bullish candle whose body completely covers the previous body. A bearish engulfing is the opposite. It shows a sharp change in control from one period to the next.

Patterns fail oftenStudies of candlestick patterns give mixed results, and any edge they once had tends to shrink after costs. Treat a pattern as a reason to look closer, never as a reason on its own to enter a trade. Always know where your stop loss goes before you think about profit.

Context: where a candle appears matters most

The same hammer means very different things in different places. Experienced traders always ask three questions before they read anything into a candle:

What is the trend? Are highs and lows rising, falling or flat on the timeframe above the one you trade?
Where is price? Is the candle at a level that mattered before, such as yesterday's high or low, a round number like 4,100 on gold, or a recent swing point?
When did it form? Candles around session opens and big news are larger and less reliable. A wild candle at 8:30 a.m. New York time on a US data day is often noise.

A hammer that forms at a clear support level, in an uptrend, after a quiet pullback, is worth paying attention to. The same hammer in the middle of nowhere, in a downtrend, during news, is usually not.

Use volume carefullyForex and spot gold have no central exchange, so the "volume" in MT5 is usually tick volume: the number of price changes, not the amount traded. It can still show when activity picks up, but don't treat it like stock market volume.

Timeframes: the same market, different zoom

Each candle covers one period of the timeframe you choose: M1 (1 minute), M5, M15, M30, H1 (1 hour), H4, D1 (daily), W1 (weekly) and MN (monthly). Higher timeframes are built from lower ones.

Four 15-minute candles combine into one 1-hour candle with the first open, the last close, and the overall high and low.

This is why a scary-looking sequence of red M5 candles can be just a small wick on the H4 chart. A common approach is to use three timeframes: a higher one for the trend (for example D1), a middle one for levels (H4 or H1) and a lower one for timing (M15).

Daily candles and broker timeWhere a daily candle starts depends on your broker's server clock. Many forex brokers use a server time of GMT+2 or GMT+3 so that the daily candle starts at 5 p.m. New York time, which avoids a small Sunday candle. If two charts of the same market look different, check the server time.

How to read a chart, step by step

Zoom out first. Look at the daily chart. Is price trending, ranging, or moving wildly?
Mark the obvious levels. Recent swing highs and lows, the previous day's high and low, and round numbers.
Drop to your trading timeframe. Watch how candles behave when they reach your levels: do they close through them, or leave long wicks?
Look for agreement. A rejection candle at a level, in the direction of the bigger trend, is stronger than a pattern on its own.
Plan the risk before the reward. Decide where the trade is wrong (often beyond the wick of the signal candle), then size the position so that loss is small. Our guide to lots and position sizing shows how.
Write it down. Screenshot the chart and note why you took or skipped the trade. Over time, your notes are worth more than any pattern list.

Worked example

Placing a stop loss beyond a wick

On EUR/USD H1, a bullish hammer forms at a support level. The candle's low is 1.08420 and the planned entry is 1.08560. You put the stop 5 pips below the wick, at 1.08370, and risk 1% of a $5,000 account.

Stop distance = 1.08560 − 1.08370 = 0.00190 = 19 pips Risk allowed = 1% × $5,000 = $50 Pip value per standard lot (EUR/USD) ≈ $10 Lot size = $50 ÷ (19 pips × $10) = 0.26 lot → round down to 0.26 lot (or 0.25 to be safe)

The candle told you where the trade is wrong. The maths told you how much to trade. Both matter.

Going deeper: notes for experienced traders

Candle closes beat intrabar moves. A spike through a level that closes back inside is a different event from a close beyond it. Many systematic traders only act on closed candles to avoid reacting to noise.
Range expansion and contraction. Compare each candle's range with the Average True Range (ATR). A run of small candles often comes before a large one; it tells you volatility is about to change, not in which direction.
Session structure in gold. Gold often trades quietly in the Asian session and widens its ranges at the London open and again at the New York open. The same pattern can be meaningful in one session and noise in another. See forex trading sessions.
Heikin-Ashi and Renko are not price. These smoothed charts are useful for seeing trends, but their candle prices are averages, not real tradeable prices. Don't place orders from them.
Test before you trust. If you rely on a pattern, test it on your market, timeframe and costs. Our guide on how to backtest an EA in MT5 shows how to do this honestly.

Common mistakes

Trading a pattern without context. A hammer in the middle of a downtrend is not a buy signal.
Acting before the candle closes. A candle can change shape completely in its last minutes. Wait for the close if your rule depends on the shape.
Ignoring the wicks. The wick shows how far price can swing. Stops placed inside the normal range get hit by noise.
Reading low timeframes only. M1 and M5 charts are full of noise. Always check the trend on a higher timeframe.
Forgetting the spread. Charts show the bid. Buy orders, and the stop loss on a sell trade, are triggered by the ask, which is higher.
Treating candles as predictions. Candles describe the past. Risk management decides whether you survive being wrong.

Printable checklist

I checked the trend on a higher timeframe (H4 or D1).
I marked the key levels: recent highs and lows, yesterday's high and low, round numbers.
I waited for the candle to close before acting on its shape.
I checked the news calendar and session time.
I know where my trade is wrong (stop loss beyond the wick or level).
I sized the trade so the loss at my stop is 1-2% of my account or less.
I allowed for the spread on my entry and stop.
I took a screenshot and wrote down why I took or skipped the trade.

Frequently asked questions

What do the colours on a candlestick chart mean?

Usually green (or white) means the price closed higher than it opened, and red (or black) means it closed lower. You can change the colours in MetaTrader 5, so always check the open and close rather than relying on colour.

What is the best timeframe for reading candles?

There is no single best one. Higher timeframes such as H4 and daily are less noisy and better for spotting the trend. Lower timeframes such as M15 are used for timing entries. Many traders use two or three together.

Do candlestick patterns really work?

On their own they are unreliable, and any edge tends to be small once costs are included. They are most useful as a way to read how buyers and sellers behaved at an important price level, combined with trend and risk management.

Why does my chart look different from someone else's?

Brokers use different price feeds and different server times, so the daily candle can start at a different hour and highs and lows can differ slightly. Both charts can be correct.

Is a doji a reversal signal?

Not by itself. A doji shows indecision. After a long trend at a key level it can be an early warning; in a quiet range it usually means very little.

Can an EA read candlesticks?

Yes. An Expert Advisor can read the open, high, low and close of any candle and act on rules. Whether those rules make money has to be tested honestly, including costs and losing periods.

Risk warning: most EAs lose money in the long runTrading forex and gold with leverage is high risk and you can lose all of your deposit. Most Expert Advisors do not make money over the long term. Every result shown here is a backtest on past prices, not live trading, and past results do not promise future results. Live results will be different because of spreads, commission, slippage and changing markets. This is not financial advice. Test on a demo account first and only trade money you can afford to lose. Full risk disclaimer.

Sources and further reading

This guide is general education, not financial advice. Broker terms differ; always check your own broker's contract specifications.