Study guide
7.2 Introduction to Candlesticks
CMT Level I Chartered Market Technician
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1 Introduction and Exam Overview
1.1 Current CMT Level I Exam Facts 1.2 Charter Path and Study Plan
2 Theory and History Foundations
2.1 A Brief History of Technical Analysis 2.2 The Dow Theory 2.3 Markets, Instruments, Data, and the Technician
3 Market Hypotheses and Fibonacci
3.1 The Efficient Markets Hypothesis 3.2 The Fibonacci Sequence and the Golden Ratio
4 Chart Types and Construction
4.1 An Overview of Charting 4.2 The X Axis 4.3 The Y Axis 4.4 Charting Volume and Open Interest
5 Trend Analysis
5.1 What Is a Trend 5.2 A Trend's Four Phases 5.3 Trend Identification and Following
6 Volume, Open Interest, and Internals
6.1 Introduction to Volume Analysis 6.2 Volume, Open Interest, and Price 6.3 Market Internals
7 Chart Pattern Analysis
7.1 Classical Chart Patterns 7.2 Introduction to Candlesticks 7.3 Introduction to Candlestick Patterns 7.4 Basics of Point-and-Figure Charting
8 Internal and External Technical Indicators
8.1 Moving Averages 8.2 Technical Indicator Construction 8.3 Introduction to Bollinger Bands
9 Statistics for Technicians
9.1 Introduction to Statistics, Part 1 9.2 Introduction to Statistics, Part 2 9.3 Introduction to Probability
10 Behavioral Finance and Sentiment
10.1 Behavioral Finance 10.2 Market Sentiment and Technical Analysis 10.3 Sentiment Measured from Market Data 10.4 Sentiment Measured from External Data
11 Cycle Analysis
11.1 Foundations of Cycle Theory 11.2 Common Cycles
12 Equities, Indexes, and Fixed Income
12.1 Equities 12.2 Indexes 12.3 Fixed Income and Bonds
13 Futures, ETPs, and Currencies
13.1 Futures 13.2 Exchange-Traded Products 13.3 Foreign Exchange
14 Digital Assets and Options
14.1 Digital Assets 14.2 Options
15 Relative Strength
15.1 Introduction to Relative Strength 15.2 Relative Strength and Its Uses
16 Volatility Analysis
16.1 The Meaning of Volatility to a Technician 16.2 Measuring Historical Volatility 16.3 Options-Derived Volatility
17 Systematic Methods and Ethics
17.1 Introduction to Quantitative Methods 17.2 Code of Ethics 17.3 Standards of Professional Conduct
7.2 Introduction to Candlesticks
Key Takeaways Explain This Topic AI
Candlestick charting grew from 18th-century Japanese rice-market practice associated with Munehisa Homma and the Dojima Rice Exchange, then moved onto modern electronic platforms.
The four data points are open, high, low, and close; the four visual parts are the real body (open to close), the upper wick (to the high), the lower wick (to the low), and the implied high-low range.
Standard coloring: close above open is typically a hollow or green body; close below open is typically a filled or red body; color answers this interval's open-versus-close fight, not automatically the prior close.
A long body with the close near the extreme shows strength; a wide high-low range shows volatility; a small body relative to the wicks shows indecision.
This unit is construction and single-candle sentiment; named reversal combinations belong in the next section.
Last updated: September 2026
Candlestick construction sits in Classical Techniques ( 33% of CMT Level I). The prior chart-types unit showed that a candle is another drawing of open, high, low, and close . This ExamFinch section is independent teaching on where that drawing came from , how the four data points become four visual parts , how standard coloring is assigned, and what a single candle can say about strength, volatility, and indecision . Named reversal combinations belong in the next section. Do not turn this unit into a pattern catalog.
From Dojima rice ledgers to a modern quote screen
Candlestick charting is not a 1990s software skin. It grew from Japanese rice-market practice in the 18th century . The Dojima Rice Exchange in Osaka was the institutional home of organized rice trading and of rice-ticket (futures-like) dealing. Market lore associates the visual language of the session — open, high, low, and close drawn as a body and shadows — with Munehisa Homma (also spelled Honma), a rice trader from Sakata whose rules stressed the balance of demand and supply and the mood of the crowd , not only the last print.
Whether every later rule can be footnoted to Homma is a historian's fight. Level I needs the lineage : Edo-period Japan , Dojima , Homma / Sakata , then a late-20th-century migration into Western technical work. Steve Nison's English-language books in the early 1990s are the usual bridge that put candlesticks on U.S. equity and futures screens. After that, every retail platform shipped a candle chart next to the Western bar.
What crossed the ocean was a construction and a sentiment language . A candle does not invent new prices. It re-encodes OHLC so the eye sees who won the session (close versus open) and how far the fight traveled (high versus low) without hunting for left and right ticks.
Western bar charts were already doing OHLC. The Japanese contribution that Level I cares about is the real body as a first-class object and the habit of reading body size, wick size, and location as a session narrative . Modern platforms then added color . Color is a convention layered on that narrative.
Four data points, four parts
The four data points are the same as on a bar:
Open — first official print (or published open) of the interval.
High — highest traded price.
Low — lowest traded price.
Close — last print or settlement.
Those four numbers are data . The four parts are drawing instructions :
Part Built from What it shows
Real body Open and close Who won the interval: buyers if close is above open, sellers if close is below open; how much they won is the body's height
Upper wick (upper shadow ) From the top of the body to the high How far price traveled above the open-close range before being pushed back
Lower wick (lower shadow ) From the bottom of the body to the low How far price traveled below the open-close range before being reclaimed
Range (the whole glyph) High minus low Total volatility of the interval; body plus both wicks must add to this distance
If the high equals the greater of open and close, there is no upper wick . If the low equals the lesser of open and close, there is no lower wick . If open equals close, the body collapses to a line — the construction seed of a doji , named as a pattern in the next section.
Worked construction: open 62.10 , high 64.80 , low 61.40 , close 64.20 .
Body runs 62.10 to 64.20 (height 2.10 ). Close is above open, so this is an up candle under standard coloring.
Lower wick is 62.10 − 61.40 = 0.70 .
Upper wick is 64.80 − 64.20 = 0.60 .
Range is 64.80 − 61.40 = 3.40 . Check: 2.10 + 0.70 + 0.60 = 3.40 .
A Western bar of the same session has a shaft 61.40–64.80, a left tick at 62.10, and a right tick at 64.20. Same data. The candle simply paints the open-close interval as a block so you do not have to compare two ticks.
Exam trap: calling volume a fifth part of the candle. Volume is usually a separate histogram . The candle's parts are body and wicks (and the implied range). Another trap: saying the body runs from high to low. That would erase the wicks.
Standard coloring
Color is a legend , not a new price. The standard teaching convention:
Close above open: bullish / up candle. Traditionally a hollow or white body; on modern screens usually green (sometimes blue).
Close below open: bearish / down candle. Traditionally a filled or black body; on modern screens usually red .
Close equals open: a doji-style thin body; color is secondary because there is almost no body to fill.
Hollow versus filled is the older paper convention. Green versus red is the later screen convention. Some platforms invert colors or let the user swap them. Some plot white and black regardless of a prior close. Level I's standard coloring is this session's close versus this session's open , not close versus yesterday's close.
That last point matters. A candle can be green (close above open) and still be down on the day versus yesterday if it gapped lower and then recovered inside the hole. It can be red and still close higher than yesterday if it gapped up and faded. The body answers intra-interval direction from the open . Comparison to the prior close is a different question (and is how some filled-if-down-day bar color schemes work). Know which legend the stem is using.
Worked coloring: yesterday closed 50. Today opens 51.50, high 52.00, low 50.80, close 51.10. Close (51.10) is below open (51.50), so the body is filled/red , even though 51.10 is above yesterday's 50. The session was a fade from the open after a gap.
How one candle shows strength, volatility, and indecision
Before you memorize combinations, read one glyph.
Strength is mostly the body . A long up body — open near the low, close near the high, small wicks — says buyers controlled the interval from start to finish. A long down body says sellers controlled it. The close finishing near the extreme is the strength clue: the winning side did not give the interval back.
Volatility is the range (high minus low), not the color. A wide candle, even with a modest body, says the auction traveled . Two narrow candles of opposite color can be a quiet tape, not a war. Compare today's range to recent ranges. A long body in a 0.3-point name is a different event than a 0.3-point body in a 12-point-range stock.
Indecision is a small body relative to the range , especially when both wicks are material . Price went somewhere and came back . Neither side held the extreme into the close. A session that opens and closes at the same price after tagging a high and a low is the extreme of that story (the doji construction). A small body after a long trend , sitting at a swing , is more interesting than a small body in the middle of a rectangle — but that where sentence is already walking toward the next section. Here, just see the indecision shape .
Look of the candle Strength reading Volatility reading Indecision reading
Long body, tiny wicks High — one side owned the close Range is about the body; directional volatility Low — little leftover argument
Long body, long wick on the losing side Still directional, but the other side probed High Moderate — a rejection is visible
- Short body, long both wicks Low net victory High if the range is wide High — two-sided, close near open
- Short body, tiny range Neither side pressed Low Quiet agreement, not a dramatic standoff
- Open equals close, visible wicks No net open-to-close victory Depends on wick length High if wicks are long
- In practice
You flip from a close-only line to candles on the same daily file. A week that looked like a smooth drift up is now four modest green bodies and one wide red candle with a long upper wick. The line hid who lost the open-to-close fight on Friday and how far the high ran. That is the point of the construction: strength (Friday's sellers won the body), volatility (Friday's range dwarfed Monday through Thursday), and a hint of indecision or rejection at the high (the upper wick). You still have not named a shooting star. You have read one session .
Construction limits
A candle cannot tell you the path inside the interval. An up candle that sold off to the low first and then recovered prints the same body and wicks as one that rallied first and then held. For path you need a lower interval or a tick chart.
A candle also does not include volume in its four parts. Overlay volume before you promote a long body to conviction. A wide green body on a dead holiday tape is a large range , not proof of sponsorship.
This section stops at construction, coloring, and single-candle sentiment . The next section names combinations — doji, hammer, engulfing, stars — and insists on trend location and confirmation . Independent CMT Level I practice by ExamFinch is at /practice/cmt .