Understanding Price and Candlesticks

A candlestick converts four prices from one interval into a visual object:

• Open
• High
• Low
• Close

Instead of leaving those four numbers as raw data, the candlestick draws them as a shape that can be scanned quickly across many intervals.

A candlestick summarizes what happened during an interval. It does not determine what happens during the next interval.

Lesson 1 introduced the four prices that make up each interval. Before building candles from them, review their definitions:

Open = the first represented traded price for the interval according to the chart or data convention being used.

High = the highest represented traded price during the interval.

Low = the lowest represented traded price during the interval.

Close = the final represented traded price for the interval according to the applicable market or data convention.

A candlestick is built from a body and, when prices extend beyond the body, upper and lower wicks:

• High — the top of the interval's trading range
• Upper Wick — the line between the top of the body and the high
• Body — the area between the open and the close
• Lower Wick — the line between the low and the bottom of the body
• Low — the bottom of the interval's trading range

The open and the close form the two boundaries of the body. The high and the low form the outer extremes of the candle.

                High
                 │
            Upper Wick
                 │
              ┌───────┐
              │       │
              │ Body  │   ← Open and Close form
              │       │     the body boundaries
              └───────┘
                 │
            Lower Wick
                 │
                 Low

The candle body—sometimes called the real body—represents the distance between the open and the close.

Body Size = |Close − Open|

The absolute value is used because body size measures distance. A candle that rises $4 from open to close and a candle that falls $4 from open to close both have a body size of $4.

If Close > Open, the interval finished above its opening price.

Example: Open = $50, Close = $54.

Body Size = |$54 − $50| = $4.

This is commonly called a bullish candle or an up candle. In this lesson, that term is used only as a description of that completed interval—not as a forecast for the next one.

If Close < Open, the interval finished below its opening price.

Example: Open = $54, Close = $50.

Body Size = |$50 − $54| = $4.

This is commonly called a bearish candle or a down candle. Again, the term describes what happened during that interval; it does not determine the following interval.

Some candles have very small bodies because the open and the close were close together, even if price moved meaningfully within the interval.

Do not claim that a small body automatically predicts a reversal or proves indecision among market participants.

The shape describes the relationship between the open and the close; its significance depends on context.

The upper wick shows the distance between the top of the body and the interval high.

Upper Wick = High − max(Open, Close)

The top of the body is whichever of the open and close is higher. The upper wick measures how far above that boundary price traded during the interval.

The lower wick shows the distance between the interval low and the bottom of the body.

Lower Wick = min(Open, Close) − Low

The bottom of the body is whichever of the open and close is lower. The lower wick measures how far below that boundary price traded during the interval.

The total candle range measures the full distance between the interval high and the interval low:

Candle Range = High − Low

Example: High = $56, Low = $48.

Candle Range = $56 − $48 = $8.

The range includes the body and both wicks together.

Consider one completed interval with the following values:

• Open = $50
• High = $56
• Low = $48
• Close = $54

Body Size = |$54 − $50| = $4 — the distance between the open and the close.

Upper Wick = $56 − $54 = $2 — the high minus the top of the body, which is the close of $54.

Lower Wick = $50 − $48 = $2 — the bottom of the body, which is the open of $50, minus the low.

Total Range = $56 − $48 = $8 — the full high-to-low distance.

Check: body + upper wick + lower wick = $4 + $2 + $2 = $8, which equals the total range.

Two candles can have the same closing price but very different:

• opens
• highs
• lows
• ranges

A stock that closes at $54 after trading calmly between $53 and $54.50 had a very different interval than one that closed at $54 after trading between $48 and $56.

The candle provides more information than the closing price alone.

Charting platforms commonly use different colors to distinguish up candles from down candles—for example, one color when the close is above the open and another when the close is below the open.

There is no single universal color scheme. Different platforms, and even different settings on the same platform, use different colors.

Always confirm the chart platform's color convention before interpreting candles.

Color distinguishes how a completed interval finished relative to its open. It says nothing about what the next interval must do.

A larger candle range means price covered a larger high-to-low distance during that interval.

A smaller candle range means price remained within a narrower span during that interval.

Candle size describes the interval's movement. Do not assign a universal bullish or bearish meaning to large or small candles.

A large body means the distance between the open and the close was relatively large during that interval.

Its importance depends on context, including:

• previous candles
• the stock's normal volatility
• the timeframe being viewed
• news and events
• volume, when it is considered later in this course

A small body means the open and the close were relatively close together during that interval.

A small body records that relationship. Do not automatically label it a reversal signal.

A long upper wick means price traded materially above the body during the interval before finishing lower than the interval high.

That is an objective description of where price traded. Do not say that a long upper wick guarantees future selling.

A long lower wick means price traded materially below the body during the interval before finishing above the interval low.

That is an objective description of where price traded. Do not say that a long lower wick guarantees future buying.

When the high equals the top of the body—the higher of the open and close—little or no upper wick appears.

This describes how the interval finished relative to its extreme; it does not predict the next interval.

When the low equals the bottom of the body—the lower of the open and close—little or no lower wick appears.

Again, this is a description of the completed interval, not a prediction about the following one.

The body-to-range percentage describes how much of the interval's total range lies between the open and the close:

Body-to-Range % = Body Size ÷ Candle Range × 100

Example: Open = $50, High = $56, Low = $48, Close = $54.

Body = $4, Range = $8.

Body-to-Range = $4 ÷ $8 × 100 = 50%.

Half of the interval's total trading range lies between the open and the close; the other half lies in the wicks.

Do not establish arbitrary universal thresholds for what this percentage must mean.

Note: if High = Low, the candle range is zero and this percentage should not be calculated, because dividing by zero is undefined.

The closing location describes where the close occurred within the interval's range:

Close Location % = (Close − Low) ÷ (High − Low) × 100

Example: High = $56, Low = $48, Close = $54.

($54 − $48) ÷ ($56 − $48) × 100 = 75%.

The close finished 75% of the way from the interval low to the interval high.

This is a description of where the interval settled, not a trading rule.

Note: if High = Low, the range is zero and the closing-location percentage should not be calculated, because dividing by zero is undefined.

The same calculation can describe where the open occurred within the interval's range:

Open Location % = (Open − Low) ÷ (High − Low) × 100

Example: Open = $50, High = $56, Low = $48.

($50 − $48) ÷ ($56 − $48) × 100 = 25%.

The open occurred 25% of the way from the interval low to the interval high.

Note: if High = Low, the range is zero and the opening-location percentage should not be calculated, because dividing by zero is undefined.

This distinction must be made very clear: a candle and a trend are different things.

One up candle does not establish an uptrend.

One down candle does not establish a downtrend.

A candle summarizes one interval. A trend describes behavior across many intervals. Lesson 4 will teach trends in detail.

An individual candle shows what happened during one interval.

A sequence of candles shows how price behaved across multiple intervals—whether highs and lows have been rising, falling, or holding steady.

This lesson deliberately stays with single-candle mechanics. It does not introduce named multi-candle patterns, because a name is not evidence of what price must do next.

The same underlying market activity can be summarized as:

• many 5-minute candles
• one daily candle
• part of one weekly candle

The underlying trades may be the same, but the visual summary changes with the timeframe. Always know which interval a candle represents before interpreting it.

A daily candle commonly summarizes one trading day according to the data provider and session settings.

Its four values are:

• Daily open — the first represented traded price of the day
• Daily high — the highest represented traded price of the day
• Daily low — the lowest represented traded price of the day
• Daily close — the final represented traded price of the day

This course primarily works with daily candles for general stock research.

A weekly candle compresses the trading activity represented for an entire week into one OHLC candle.

The weekly open, high, low, and close summarize many daily intervals at once. A weekly candle can therefore hide much of the day-to-day path that price took during that week.

A monthly candle summarizes a much longer interval—an entire month of trading—in a single OHLC candle.

Monthly candles provide long-term perspective but far less detail about what happened within individual days.

1-minute, 5-minute, 15-minute, and hourly candles summarize shorter intervals within a trading day.

Shorter intervals produce more candles, but more candles do not necessarily mean more useful information for every research objective.

A candle is not final until its represented trading interval is complete.

While a candle is still forming:

• the high may increase
• the low may decrease
• the close changes with the latest represented trade
• the body can grow, shrink, or change direction

Consider a developing daily candle:

Open = $50.

Price trades up to $52 → the candle is currently an up candle.

Price later falls to $49 → the candle is currently a down candle.

Price finishes the session at $51 → the completed candle finishes as an up candle.

Any conclusion drawn while the candle was still forming would have changed as the interval progressed. This is why conclusions based on an unfinished candle are provisional.

Once the represented interval is complete, the open, high, low, and close become part of the historical record, subject to legitimate later data corrections or adjustments.

A completed candle is a fixed summary of a finished interval. A developing candle is not.

Lesson 1 introduced gaps: areas where price moves between trading periods without trading through all the intervening prices.

Example: previous close = $50; next represented open = $53.

The opening difference is $53 − $50 = $3.

A gap describes how the two intervals relate to each other. Do not call a gap automatically bullish or bearish.

The size of a gap can be expressed as a percentage of the previous close:

Gap % = (New Open − Previous Close) ÷ Previous Close × 100

Example: previous close = $50, new open = $53.

($53 − $50) ÷ $50 × 100 = 6%.

A positive value means the new open was above the previous close; a negative value means it was below. Neither value by itself creates a trading signal.

Gaps can occur for many reasons, including:

• earnings announcements
• company news
• economic news
• analyst actions
• industry developments
• market-wide developments
• overnight trading conditions

The chart records that a gap occurred. Do not claim the chart alone establishes the cause—identifying the reason requires research beyond the chart.

Lesson 1 explained that historical chart data may be adjusted for corporate actions such as stock splits and, depending on the provider, dividends.

Those adjustments affect historical candle prices: the open, high, low, and close of older candles may be restated on an adjusted chart.

Understand the provider's adjustment methodology before comparing historical candle levels with current prices.

Candles can differ depending on which trading sessions are included:

• pre-market
• regular session
• after-hours

The same symbol can therefore appear slightly different across chart configurations. A daily candle that includes extended-hours trading may show a different high, low, open, or close than one limited to regular hours.

A candle shows how price moved during an interval. It does not show how many shares or units changed hands.

Volume tells us how many shares or units were traded according to the applicable data convention, and it adds an important layer of context to price movement.

Lesson 3 will examine volume separately. Do not claim that high volume validates every candle or that a candle is meaningful only when volume is high.

Before interpreting any candle, establish its context. The following table organizes the questions a researcher should ask first.

A single candlestick objectively describes several pieces of information. Each describes the completed interval—none predicts the next one.

Just as important is what a single candlestick cannot establish, no matter how it looks.

The following process and checklist turn this lesson into a repeatable routine for reading any individual candle.

1. 1Identify the security.
2. 2Identify the chart timeframe.
3. 3Determine whether the candle is completed or still developing.
4. 4Record the open.
5. 5Record the high.
6. 6Record the low.
7. 7Record the close.
8. 8Determine whether the close is above or below the open.
9. 9Measure the body.
10. 10Measure the total range.
11. 11Observe the upper wick.
12. 12Observe the lower wick.
13. 13Compare the candle with surrounding price activity without assuming a prediction.
14. 14Record what additional context is needed.