Candlestick Charts & Price Action

Read the story that price is telling through candlestick patterns.

Anatomy of a candlestick

Each candlestick shows four prices for a time period: Open, Close, High, and Low.

Green/white candle: Close > Open (price went up). The bottom of the body is the open, the top is the close.
Red/black candle: Close < Open (price went down). The top of the body is the open, the bottom is the close.

The thin lines above and below the body are called wicks (or shadows). They show the high and low extremes during that period.

Support and resistance

Support is a price level where the stock tends to stop falling and bounce up. It's a "floor" created by buying demand.

Resistance is a price level where the stock tends to stop rising and pull back. It's a "ceiling" created by selling pressure.

When a stock breaks through resistance on high volume, that old resistance often becomes new support — and vice versa. This is called a breakout.

Support and resistance levels

TSLA has bounced off $240 three times this month. That's strong support. If you're entering a daily challenge and TSLA is at $243, the downside risk is limited because $240 support is close.

Key candlestick patterns

Doji — Open and close are nearly equal (tiny body, long wicks). Signals indecision. Often appears before a reversal.

Hammer — Small body at the top, long lower wick. Appears after a downtrend. Signals buyers are stepping in.

Engulfing — A large candle that completely "engulfs" the previous candle. Bullish engulfing (green after red) signals reversal upward.

Three white soldiers — Three consecutive green candles, each closing higher. Strong bullish signal.

Candlestick chart

Don't trade patterns in isolation. A hammer at a support level with rising volume is a strong signal. A hammer in the middle of nowhere is just noise.

Practice

Scenario 1 of 3

+15 XP

NVDA has been declining for 3 days and just hit $460 — a level it bounced off twice last month. Today's candle is a hammer (long lower wick) on 2x average volume.

What does this likely signal?

Scenario 2 of 3

+15 XP

You're watching AAPL on a 15-minute chart. Three consecutive large green candles have formed, each closing higher than the previous — a 'three white soldiers' pattern. But RSI is at 78.

Should you add AAPL to your portfolio?

Scenario 3 of 3

+15 XP

A stock you're watching has formed a doji candle (tiny body, long wicks) right at a major resistance level on twice-average volume.

What does this pattern suggest?

Knowledge check

+50 XP

1. What does a green candlestick indicate?

2. What is a "breakout"?

3. A hammer candlestick after a downtrend suggests:

Apply what you learned

Use chart patterns to pick stocks in your next challenge