Anatomy of a candle

A candlestick chart packs four prices into a single shape. Once you can read one candle fluently, you can read a whole chart, because every pattern in this course is just a combination of these four numbers.

The four prices

Each candle covers a fixed period of time, such as one hour or one day, and records:

• Open: the first traded price of the period.
• High: the highest price reached.
• Low: the lowest price reached.
• Close: the last price of the period.

Together these are often called OHLC data.

Body and wicks

A candle has two parts.

• The body is the thick rectangle between the open and the close. It shows how far price travelled from start to finish of the period.
• The wicks (also called shadows) are the thin lines above and below the body. The upper wick runs from the top of the body to the high; the lower wick runs from the bottom of the body to the low.

Bullish and bearish candles

• If the close is above the open, the candle is bullish: buyers pushed the price up over the period. Platforms commonly draw these in green or white.
• If the close is below the open, the candle is bearish: sellers pushed the price down. These are commonly drawn in red or black.

Colours are a platform setting, so always check what yours uses. Picture a bullish candle as a box whose bottom edge is the open and top edge is the close, with a thin line poking out above to the high and below to the low. A bearish candle is the same shape, but its top edge is the open and its bottom edge is the close.

Worked example: measuring a candle

Here is a one-hour EUR/USD candle (example prices):

The close is above the open, so this is a bullish candle.

• Body: 1.1030 − 1.1000 = 0.0030 = 30 pips
• Upper wick: high minus close = 1.1040 − 1.1030 = 10 pips
• Lower wick: open minus low = 1.1000 − 1.0985 = 15 pips
• Total range: high minus low = 1.1040 − 1.0985 = 55 pips

Check: 30 + 10 + 15 = 55 pips. The parts add up to the range.

What does it tell you? Sellers pushed the price 15 pips below the open at some point, buyers then took it as high as 1.1040, and the period closed fairly near the top. The body makes up 30 out of 55 pips, a little over half the range, so buyers held most of the ground they gained.

What the shape is telling you

Rather than memorising names, get used to asking three questions of every candle:

1. How big is the body compared with the range? A large body means one side controlled most of the period. A tiny body means indecision.
2. Where did it close within its range? A close near the high suggests buying pressure into the end of the period; a close near the low suggests selling pressure.
3. How long are the wicks? A long wick shows a price level that was reached and then rejected.

Timeframes

The same price action can be grouped into candles of any length. Common timeframes are 1 minute (M1), 5 minutes (M5), 15 minutes (M15), 1 hour (H1), 4 hours (H4), daily (D1) and weekly (W1).

A longer candle is built from shorter ones: its open is the first open, its close is the last close, its high is the highest high and its low is the lowest low.

Worked example: four H1 candles make one H4 candle

The four-hour candle is a modest bullish candle with a 22-pip body, hiding the fact that candle 3 was a sharp 18-pip drop. Higher timeframes smooth out noise but also hide detail, which is why traders often look at more than one.

A note on daily candles in forex

The forex market trades around the clock from Monday to Friday, so there is no single official close. Each broker sets a server time for the daily candle, and many use 5pm New York time. Two brokers with different server times can show slightly different daily candles for the same day, which matters when you are reading daily patterns.

Key takeaways

• Every candle records open, high, low and close; the body spans open to close and the wicks reach the high and low.
• A close above the open is bullish, below the open is bearish; colours depend on your platform settings.
• Body size, where the close sits in the range, and wick length tell you who controlled the period.
• Higher-timeframe candles are built from lower ones and can hide important intraday moves.