Understand Candlesticks
Candlesticks turn price movement into a visual story. Once you understand what one candle is telling you, reading a chart becomes much easier.
What Is a Candlestick?
A candlestick shows how price moved during a specific period of time. Depending on the chart you are viewing, one candle could represent one minute, five minutes, one hour, one day, or another timeframe.
Each candle gives you four important pieces of price information: where price opened, the highest price, the lowest price, and where price closed.
Each candlestick is a small summary of what price did during that particular period of time.
The 4 Pieces of Information in Every Candle
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- Open: Where price started during that candle.
- High: The highest price reached during that candle.
- Low: The lowest price reached during that candle.
- Close: Where price finished when that candle ended.
Bullish vs. Bearish Candles
Candles are commonly displayed in different colors to make it easier to see whether price closed above or below where it opened.
The exact candle colors can be changed on most trading platforms. Green and red are common, but the meaning comes from the open and close, not simply the color.
The Body and the Wicks
The Body
The thick part of the candlestick is called the body. It shows the distance between the opening price and the closing price.
The Wicks
The thin lines extending above or below the body show how far price traveled beyond the open and close during that period.
What Can the Size of a Candle Tell You?
A larger candle body generally shows that price moved more between the open and close. A smaller body shows that the open and close were closer together.
Long wicks show that price traveled to an area but moved away from it before the candle closed. This can give you useful information about how buyers and sellers behaved during that period.
Never make a trading decision from one candle alone. A candle becomes more useful when you understand where it appears on the chart and what price was doing before it formed.
Timeframes Change What Each Candle Represents
Remember what you learned in Lesson 4 about chart timeframes. On a 5-minute chart, each completed candle represents five minutes of price activity. On a 1-hour chart, each completed candle represents one hour. On a daily chart, each candle represents one trading day.
The basic candle structure stays the same. What changes is the amount of time represented by each candle.
Don’t Memorize Patterns Yet
You may hear names such as doji, hammer, engulfing candle, shooting star, and many others.
Don’t worry about memorizing all of those right now. First learn to look at a candle and understand its open, high, low, close, body, and wicks.
Later, those candle formations will make much more sense because you’ll understand what price is actually doing instead of simply memorizing pattern names.
We’ll add an LYK Trader video here showing real candlesticks on a trading chart and how to read them step by step.
Key Takeaways
- Every candle represents a specific period of time.
- Every candle contains an open, high, low, and close.
- The body shows the distance between the open and close.
- The wicks show the highest and lowest prices reached.
- A bullish candle closes above its open.
- A bearish candle closes below its open.
- One candle by itself does not tell the entire story.
- Learn to read price first before trying to memorize candle patterns.
Lesson 5 Complete
You now understand the basic information contained inside a candlestick and how candles help turn price movement into something you can visually read.
Next, we’ll learn how traders identify important areas on a chart where price has previously reacted: support and resistance.