Let’s Deconstruct a Candlestick Chart to Understand It Better

Anatomically, a single candlestick on a chart consists of a body and a wick:

Source: Wikipedia Candlestick Anatomy - body, wick, open, high, low, close.

The body: the thick (rectangular) block is called the candlestick’s body. It shows the difference between open and closed positions.

Color: Notice that the body is either red/green in color - which is intuitive in the sense that:

• A green-colored (open) candlestick body represents a trading day where the closing price was higher than the opening price (bullish).
• A red-colored candlestick body represents a trading day where the closing price was lower than the opening price (bearish).

Modern candlestick charts utilize color to display the direction of movement in price.

The wick: the thin line on either side of the candlestick body is called a wick. They represent the highest and lowest price points during a trading session.

Length of the wick: The length of the wick can indicate the asset's volatility. Larger wicks with smaller bodies suggest high volatility.

There are four components to a candlestick chart - the high, the low, the open, and the close: These four components can be read in a single candlestick on the chart.

• The wick on top of the body presents the rage of trading prices between the open/close and the highest price traded;
• The wick on the lower part of the body represents the open/close and the lowest price traded;
• The body represents the range of prices traded between the close and the open.

Furthermore, there are instances when the closing and opening prices during a trading session are the same.

Candlestick patterns,

In fact, the open-high-low-close prices (OHCL) during a specific trading session can give traders key information about the macro market. Depending on the location/region of the horizontal line (as shown in the image of candlestick patterns above)- we can gather information about where we traveled through the trading session. An opening price will tell us the balance point between buyers and sellers at the beginning of a trading session, while the closing price will indicate the balance point at the end of the trading session. Last but definitely not least - the movement of this balance point over time is an even more important indicator.

💡To measure the balance point movement among buyers and sellers - divide each candlestick into one-thirds once the session has closed. This will help you gather information about the authoritative patterns in the market.