Ticker&TapeHow to read candlesticks and bars
Every chart is built from the same four prices for each period: the open, the high, the low and the close. Candles and bars are just two ways of drawing them.
The four prices
On a daily chart each candle or bar is one day; on a weekly chart each one is a full week.
- Open: the first trade of the period.
- High: the highest price reached.
- Low: the lowest price reached.
- Close: the last trade of the period. Traders watch it most because it shows where the battle between buyers and sellers ended.
Anatomy of a candle
A candlestick has a body and two wicks (also called shadows). The body spans from the open to the close. The wicks are thin lines that reach up to the high and down to the low.
If the close is above the open, the candle is an up candle, usually drawn green or hollow. If the close is below the open, it is a down candle, usually red or filled. A tall body means a strong move in one direction; a small body means indecision.
Bars show the same thing
An OHLC bar is a vertical line from the low to the high, with a small tick on the left for the open and a tick on the right for the close. Many traders in the O'Neil tradition prefer bars because they put the focus on the range and the close rather than on colors. On Ticker&Tape you can switch between candles and bars; use whichever you read more easily.
Where the close lands
The most useful thing to read on any candle or bar is where the close sits inside the day's range.
- Close near the high: buyers were in control into the end of the session. On a breakout day, this is what you want to see.
- Close near the low: sellers won the day, even if the stock was up earlier. A breakout that closes near the low is a warning.
- Close in the middle: a draw, often during quiet, sideways action.
- Long upper wick: the stock rallied but was sold back down, a sign of supply overhead.
Context matters more than one candle
Single-candle patterns with exotic names get a lot of attention, but on their own they are unreliable. A candle means much more when you read it together with volume and its place on the chart: at the pivot of a base, at the 50-day line, or after a long run. A strong close on heavy volume at a buy point is meaningful; the same candle in the middle of nowhere is not.
Common mistakes
- Trading single candle patterns without looking at volume or the bigger chart.
- Judging a day by whether it closed up or down instead of where it closed in its range.
- Ignoring long upper wicks that keep appearing near the same price.
Key points
- Every candle or bar shows the open, high, low and close.
- Where the close lands in the range tells you who won the day.
- Read candles together with volume and their location on the chart.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. A stock breaks out and is up 6% at midday, but closes near the low of the day. How should you read it?
Where the close lands in the day's range shows who won. A breakout that closes near the low is a warning, even if the stock was up earlier.
2. What does a long upper wick tell you?
The upper wick reaches the high. A long one means the price got there but sellers pushed it back down before the close.
3. Why shouldn't you trade single-candle patterns on their own?
The same candle means a lot at a pivot on heavy volume and very little in the middle of nowhere. Context matters more than one candle.
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