A candlestick chart (Japanese candlestick chart, or K-line) is a price-chart format in which each time interval — a day, hour, or minute — is drawn as a single "candle" that encodes all four OHLC values: open, high, low, and close. It is the modern default for discretionary technical analysis because the candle's geometry makes the balance of buying and selling pressure within the interval immediately legible, where a plain line (close-only) discards three of the four prices and a Western bar (OHLC bar) shows the same data but in a form most readers find harder to scan at a glance. The format itself is purely a way of displaying OHLC data; it carries no forecast. The interpretive layer that reads multi-candle shapes as signals — candlestick patterns — is a separate topic with its own contested evidence base, deferred to the Candlestick Patterns node.

How each candle is formed

A single candlestick is built from one interval's four prices:

• Real body — the thick rectangle spanning the open and the close. Its top and bottom are the open and close (not the high/low). The body's length measures how far price travelled net of intraday noise.
• Upper shadow (wick/tail) — the thin line from the top of the body up to the interval's high.
• Lower shadow (wick/tail) — the thin line from the bottom of the body down to the interval's low.
• Color / fill — encodes direction. A hollow (or, in modern color schemes, green/white) candle forms when the close is above the open (an up interval); a filled (red/black) candle forms when the close is below the open (a down interval). StockCharts notes that hollow candles indicate buying pressure and filled candles selling pressure over the interval. Color conventions are display choices and vary by platform; the open-vs-close rule is universal.

If open and close are (near) equal, the body collapses to a thin line — a doji — signalling indecision. A candle with no shadows on a side means the interval opened or closed at its extreme.

How to read it

The shorthand most practitioners use:

• Long body = conviction / one-sided control. StockCharts: "the longer the body is, the more intense the buying or selling pressure." A long hollow body = buyers dominant; a long filled body = sellers dominant.
• Short body = little net movement; consolidation or balance.
• Long shadow = rejection of a price level. A long upper shadow means price was bid up intraday but sellers forced it back down (failed rally); a long lower shadow means sellers pushed price down but buyers reclaimed it (failed decline). The longer wick marks where the rejected move ran out of fuel.
• Position of the body within the range — a small body sitting at the top of a long lower shadow (a hammer-like shape) reads as a bullish intraday reversal; the same body atop a long upper shadow reads bearishly.

These readings describe what the interval did, not what comes next. Single-candle reading is descriptive and reliable; treating any single shape as a forecast is where it becomes interpretive and contested.

How it's used in practice

In normal practice the candlestick chart is the substrate, not the strategy. Traders read the candles for context — is the interval decisive or indecisive, is there visible rejection at a level — and then layer the actual decision tools on top: trend, support/resistance, moving averages, volume, and indicators. Specific recognized uses of the candle geometry itself:

• Gauging conviction behind a move — a breakout confirmed by a long-bodied candle on rising volume is read as stronger than one on a small indecisive body.
• Spotting rejection at a level — long wicks poking through support or resistance and snapping back are a primary discretionary signal that a level held.
• Multi-candle patterns — engulfings, hammers, dojis, stars, etc. — the named formations that traders watch for reversals/continuations. The recognition lives here in the chart format; the evidence on whether they predict is covered, with measured base rates, in the Candlestick Patterns node — cross-link, don't duplicate.

Operational specifics for any one trading style (exact entry, stop placement, hold period for a swing setup) belong to the Swing Trading branch, not here.

Standing & evidence

The candlestick format is the de-facto standard across retail and most discretionary professional platforms — uncontroversial as a display method; it shows strictly more than a line chart and the same data as a bar chart in a more scannable form. What is contested is the predictive value of candlestick patterns read off that format. The academic and backtest record is genuinely mixed: Caginalp & Laurent (1998) reported statistically significant predictive power for certain candlestick patterns on large-cap U.S. stocks in their sample, while later bootstrap-based studies (e.g. Marshall, Young & Rose, 2006, on the DJIA) found candlestick strategies added no value once randomness was accounted for. The recurring methodological finding is that results depend heavily on how the trend filter, holding period, exits, and transaction costs are defined — "does it work" is inseparable from "exactly how are you trading it." Treat single-candle and pattern reading as an interpretive skill with a weak, conditional, and unsettled standalone edge — not as an established forecasting tool. (Full base-rate discussion is in the Candlestick Patterns node.)

Strengths & limitations

Strengths: the visual encoding of OHLC is the format's whole value — body/wick geometry surfaces intraday conviction and rejection far faster than a bar chart, with no information lost versus a line chart. It scales across all timeframes and asset classes and is platform-universal.

Limitations: (1) The chart is descriptive — the candle tells you what the interval did, never what happens next; the forecast comes from the analyst, not the format. (2) Candle appearance is timeframe- and session-dependent: a "bullish" daily candle can hide a bearish intraday structure, and the open/close that define the body shift with the chosen interval and (for 24h markets) the chosen session boundary. (3) The single most common misuse is over-reading a lone candle in isolation — trading a hammer or doji with no regard for the trend, the level it sits at, or volume. Candle geometry is context, not a standalone trigger.

System relevance

This node is the chart-format definition that sits beside its siblings — Bar & Line Charts, Point & Figure, Renko & Heikin-Ashi — under Chart Types. Its natural cross-link is the Candlestick Patterns node (TA §006), which owns the named formations and their measured base rates; this node deliberately defers all pattern-efficacy claims there. For any Delvantic analysis consuming chart context, candlesticks are the underlying OHLC representation, not a signal in themselves — any "this candle is bullish" inference is interpretive and should be weighted accordingly downstream.

Sources

• StockCharts ChartSchool — Introduction to Candlesticks: https://chartschool.stockcharts.com/table-of-contents/chart-analysis/candlestick-charts/introduction-to-candlesticks (real body, shadows, hollow/filled = close vs open, body/shadow length meaning, Homma/Sakata origin, Nison's dating of the format).
• Investopedia / Wikipedia — Candlestick chart: definitions of real body, upper/lower shadow, OHLC encoding; Munehisa Homma (18th-c. rice trader) origin; introduction to the West by Steve Nison, Japanese Candlestick Charting Techniques (1991).
• Steve Nison, Japanese Candlestick Charting Techniques (1991) — canonical Western text popularizing the format.
• Marshall, Young & Rose (2006), bootstrap test on DJIA (no added value); Caginalp & Laurent (1998) (significant predictive power in sample) — illustrating the genuinely mixed evidence on candlestick patterns (full treatment in the Candlestick Patterns node).