A candlestick chart is a type of financial chart that displays the open, high, low, and close prices of a security for a specific time period. Each “candlestick” represents one time period and consists of a body (the area between open and close) and wicks or shadows (lines extending to the high and low prices). The body is colored differently depending on whether the closing price was higher or lower than the opening price.

Candlestick charts originated in 18th century Japan for rice trading and were popularized in Western markets by Steve Nison. They provide more visual information than traditional bar charts and help traders identify potential reversal patterns, continuation patterns, and market sentiment. Common patterns include doji, hammer, shooting star, and engulfing patterns.

Real-world example: A trader spots a “hammer” candlestick pattern at a key support level in EUR/USD, suggesting potential bullish reversal, and enters a long position expecting upward price movement.