Education · Stage 3 · 02
The anatomy of a candle
A candle holds four numbers and throws away everything else. Learning to read the four is an afternoon's work. Knowing what it threw away is the part that keeps you out of trouble, and it is the reason the later stages of this path exist at all.
Mak · 3 min read · Stage 3, article 2 of 4
The four numbers
Open, high, low, close. The body runs between the open and the close; the wicks reach out to the extremes that were touched and not kept. Colour is a convention for whether the close was above or below the open, nothing more.
A long wick means something precise, and it is worth saying carefully because it is usually said loosely: trades really happened out there. Somebody bought at the high. Somebody sold at the low. The price then left, which means whoever was on the other side had more staying power than whoever pushed it there.
| Shape | What must have happened inside the bar |
|---|---|
| Large body, small wicks | Price moved one way and stayed. Whatever resisted was not enough to push it back before the bar closed. |
| Small body, long wicks | Price went to both extremes and returned. Two sides took turns, and neither finished in front. |
| Small body, no wicks | Very little happened at all. Often a quiet hour, or a market waiting for something. |
| One long wick only | An excursion in one direction that did not hold, and a close back at the other end. |
The vocabulary, without the promises
The named shapes are useful as words, so that two people describing the same bar say the same thing. They are names, not reasons.
- Marubozu — almost no wicks. Price opened at one end and closed at the other.
- Pin bar or hammer — a small body with a wick several times its size.
- Doji — open and close in nearly the same place, whatever happened in between.
- Engulfing — a body that fully covers the previous body.
Every one of those describes a shape that has already finished. None of them says what comes next, and any sentence that attaches a percentage to one of these names is selling something.
What every candle destroys
Here is the part that matters, and it is not a subtlety.
A candle records the four extremes and not the order they happened in. The high might have come in the first ten seconds or the last. The low might have preceded it or followed it. Completely different sequences of events produce a chart you cannot tell apart.
There is a second thing it destroys, and it is the one the rest of this path is built to recover: where the trading actually happened. A candle does not say whether the volume piled up at the high, at the low, or in the middle — and that difference changes the meaning of the same shape completely.
What you can honestly get from one candle
Not nothing. Just less than the internet suggests.
- Where price has been in this period, which is a fact.
- Whether the extremes were kept or given back, which is what the wicks record.
- How this bar compares with its neighbours — bigger, smaller, more indecisive.
What you cannot get is the order, the participation, or the intent. Anyone reading intent off a single candle is filling in a story where the data ended.
Two candles is not one candle, and a level with three tests is not a level with one. Sequence and context are the next two articles, and after that this path stops looking at shapes and starts looking at what produced them.