Reading a candle

What this is about

A candlestick chart is the default on almost every trading platform, including this one, and most people use it for months without being told what the shape actually encodes. It is not decoration and it is not a signal. It is four numbers drawn compactly.

The four numbers

Every candle covers one period — a day on a daily chart, five minutes on a five-minute chart — and records four prices from it:

• Open — the first trade of the period
• High — the highest trade
• Low — the lowest
• Close — the last trade of the period

The body is the block between open and close. The wicks — the thin lines above and below, also called shadows — reach out to the high and the low.

Colour encodes one thing only: whether the close was above or below the open. Green (or hollow) means the close was higher. Red (or filled) means lower. That is the entire convention.

What the shape tells you

A long body means the period ended a long way from where it started. Buyers or sellers held control from open to close.

A short body means it ended near where it began, whatever happened in between. When a short body sits between two long wicks, the period was genuinely contested and nobody won.

A long upper wick means the price traded well above where it closed. It went up there and did not stay. Something met it.

A long lower wick is the same story inverted: it fell, and buyers took it back before the close.

That is the honest limit of what a single candle says. It describes a period. It does not predict the next one.

The thing almost nobody is told

A candle is an artefact of the timeframe you chose, not a fact about the company.

The same trading day is one candle on a daily chart, seven on an hourly chart, and seventy-eight on a five-minute chart. A "long lower wick with a strong close" on the daily can be, on the hourly, a steady fall followed by a sharp recovery — which reads completely differently.

Neither view is the true one. They are summaries at different resolutions, and the shape you are reacting to partly depends on a dropdown you selected. This is covered further in Timeframes and what they hide.

Patterns, and the honest position on them

You will meet named patterns — doji, hammer, engulfing, morning star. Each is a description of a shape, and each has a story attached about what it means.

The descriptions are fine. The stories deserve scepticism:

Published tests are mixed and weak. Academic work on candlestick patterns in liquid modern markets generally finds little to no reliable predictive edge once transaction costs are included. Where studies do find effects, they tend to be small, inconsistent between markets, and to fade in later periods.

The pattern is easy to see afterwards. Scroll back through any chart and hammers appear before rallies. Scroll on and you find as many before further falls, which nobody screenshots.

Nothing in a shape is a mechanism. A pattern is a summary of what already happened. Treating it as a cause requires believing that other participants will react to the same picture the same way — which is a claim about crowds, not about the company.

Use candles as a compact record of what a period did. That is what they are excellent at, and it is a real skill.

What this does not tell you

It does not tell you why. A long red candle on results day and a long red candle because the whole market fell look identical. The candle contains no reason.

It does not tell you what happened inside the period. Two identical candles can come from completely different paths — a straight slide, or a crash and a recovery. Open, high, low and close are the same either way.

It does not tell you volume. A large move on almost no trading and the same move on heavy trading draw the same candle. Volume is a separate row on the chart for exactly this reason, and it is its own lesson.

It does not tell you what happens next. No candle does. This is the claim most often made and least often supported.

Where to see this in the app

Chart draws candles by default. Hover any one of them and the four numbers appear as figures — open, high, low, close — which is the fastest way to connect the shape to the values it stands for.

Chart → the timeframe picker is the experiment worth doing once: pick a day with a dramatic candle, switch from daily to hourly, and watch that one shape become seven. Do this before you ever act on a shape again.

Chart → Volume, under the price, is the row that answers "was anybody actually trading during that candle" — the question the candle itself cannot.