Green and red candles are an important part of candlestick charts, which are a type of financial chart used by traders to visualize price movements and make informed trading decisions. Candlestick charts display the high, low, open and close prices for a security over a specific timeframe. The color and shape of the candlestick provide important information about the price action.
Green Candles
A green candle indicates that the closing price of the security was higher than the opening price for that timeframe. The top of the candle body shows the closing price, while the bottom of the candle body shows the opening price. If the close was higher than the open, it means there was upward momentum in the price action.
Some key things to know about green candles:
| The candle body is green or hollow |
| The closing price was higher than the opening price |
| It represents strength in upward price movement |
| It shows buying pressure overwhelmed selling pressure |
A long green candle shows strong buying pressure that pushed the price up significantly from open to close. A long green candle is generally considered bullish, showing strong upward momentum. The longer the green candle, the more bullish the signal.
A short green candle indicates a smaller increase in the closing price compared to the open. A series of small green candles suggests some buying interest but more consolidation and indecision in the market.
Red Candles
A red candle indicates the opposite of a green candle – the closing price was lower than the opening price for that period. The top of the red candle shows the open, while the bottom shows the close. If the close was lower than the open, it reflects downward price momentum.
Some key things to know about red candles:
| The candle body is red or filled |
| The closing price was lower than the opening price |
| It represents weakness in downward price movement |
| It shows selling pressure overwhelmed buying pressure |
A long red candle shows strong selling pressure that pushed the price down significantly from open to close. A long red candle is generally considered bearish, reflecting strong downward momentum. The longer the red candle, the more bearish the signal.
A short red candle tells us the closing price fell just slightly compared to the open. A series of small red candles suggests some selling interest but more consolidation and indecision.
Candlestick Colors
While green and red are the typical colors used for candlestick charting, the colors can sometimes be different depending on the software or platform being used. For example:
| Green candles may appear as white or hollow |
| Red candles may show as black or filled |
| Some platforms allow users to customize the colors |
So the colors may vary, but the interpretation remains the same – green reflects strength and red reflects weakness, regardless of the exact colors shown. The key is to identify candles with a close higher than the open as bullish, and candles with a close lower than the open as bearish.
Candlestick Components
Candlesticks have several key components that influence their interpretation:
| Open – The opening price for the period |
| Close – The closing price for the period |
| High – The highest price traded during the period |
| Low – The lowest price traded during the period |
| Wick/Shadow – The upper and lower wicks show the high and low |
| Body – The body shows the open and close |
The size of the candle body and the upper/lower wicks provides additional insight into the trading session beyond just the color of the candle. For example, a long upper wick shows buyers drove prices higher during the session but sellers later forced prices back down to the close.
Reading Candlestick Charts
Experienced traders can gain valuable insights into market psychology and supply/demand dynamics by analyzing candlestick patterns. Here are some tips for reading candlestick charts:
| – Focus on the relationship between consecutive candles |
| – Identify candlestick patterns like “evening star” or “three white soldiers” |
| – Long green candles show strong buying pressure, long red candles show robust selling pressure |
| – The wicks provide additional information about price rejections |
| – Volume data can confirm or reject the strength of price movements |
No single candlestick should be viewed in isolation. It’s important to assess candlesticks within the broader technical context of the chart and other factors like trading volume. Combining candlestick analysis with trends, support/resistance, and indicators provides a robust approach.
Bullish Candlestick Patterns
Some candlestick patterns are considered particularly bullish and can signal good opportunities to go long or take profits on short positions:
| – Long green candle – Signifies strong buying pressure |
| – Hammer – Potential reversal signal after a downtrend |
| – Bullish engulfing – Bulls overtaking control from bears |
| – Piercing pattern – Bullish reversal after a downtrend |
| – Morning star – Bullish reversal after a downtrend |
| – Three white soldiers – Continuation of an uptrend |
These bullish candlestick patterns reflect situations where buyers are in control and upward momentum is likely to continue. Traders watch for these formations to time long entries or close out short positions.
Bearish Candlestick Patterns
Some candlestick patterns are seen as particularly bearish and can provide good opportunities to initiate short positions or take profits on long trades:
| – Long red candle – Highlights robust selling pressure |
| – Hanging man – Potential top after an uptrend |
| – Bearish engulfing – Sellers taking control from buyers |
| – Dark cloud cover – Bearish reversal signal |
| – Evening star – Bearish reversal pattern after an uptrend |
| – Three black crows – Continuation of a downtrend |
These bearish candlestick formations show situations where selling pressure is overwhelming buying interest and downward momentum is likely. Traders watch for these patterns to time short entries or close out long positions.
Doji Candles
A doji candlestick forms when the open and close are equal. This reflects great indecision in the market, with neither buyers or sellers able to gain control. The length of the upper and lower wicks can provide additional context:
| – Long-legged doji shows wide trading range but stalemate between buyers and sellers |
| – Dragonfly doji has small body near high of range, potential bottom signal |
| – Gravestone doji has small body near low of range, potential top signal |
Doji candles represent equilibrium between bulls and bears and often precede trend reversals. Traders watch for doji patterns after an established uptrend or downtrend as a sign the momentum may be shifting.
Candlestick Chart Timeframes
Candlestick analysis can be applied to charts using different timeframes. Shorter timeframes provide more candles and trading opportunities, while longer timeframes better identify overarching trends. Some commonly used timeframes are:
| – 1 minute |
| – 5 minutes |
| – 15 minutes |
| – 1 hour |
| – 4 hours |
| – 1 day |
| – 1 week |
| – 1 month |
Shorter timeframes like 5 or 15 minutes are useful for active intraday traders. Swing traders and investors may use 4-hour, daily, or weekly charts when evaluating trades and holding for longer periods. The timeframe that works best depends on one’s trading style and strategy.
How to Add Candlestick Charts in Trading Platforms
Most trading platforms make it easy to construct candlestick charts. For example:
| – In MetaTrader 4, click Insert, Indicators, and add Candlestick |
| – In Thinkorswim, go to Charts, Style, Type and select Candle or Candlestick |
| – In TradingView, choose Candles from the available chart types |
Traders can customize details like the candlestick width, colors, and inclusion of wicks versus just bodies. This allows optimizing the charts to suit one’s preferences.
The specific steps to build candlestick charts may vary between different trading platforms, but the basic process follows the same general principles. Traders should consult each platform’s documentation for exact instructions.
The Bottom Line
In summary, green and red candlesticks are crucial building blocks of candlestick charts used in technical analysis. The color and structure of candlesticks provide insightful information about buyer/seller dynamics and price momentum. Candlestick patterns can identify trading opportunities and signal potential trend reversals. By combining candlestick analysis with other techniques, traders can develop robust trading strategies. Whether using green and red candles or other colors, candlestick charts remain an invaluable tool for timing entries, exits and managing risk.