Every candlestick tells a story of war. Buyers vs. sellers. Bulls vs. bears. While beginners see random green and red boxes, professionals read each candle like a battle report: who attacked, who defended, who won. The body shows the outcome. The wicks show the rejected extremes. This is the language of price—and learning to read it is the difference between guessing and knowing.
Welcome to Lesson 1
You've mastered the foundational concepts. You understand the mechanics. But here's the reality check:
Knowing WHAT moves price means nothing if you can't READ price movement.
The Professional Difference: Retail traders look at candle color (green or red). Professional traders look at candle anatomy (body size, wick length, open-to-close relationship). A small green body with a long upper wick is bearish, not bullish. Reading OHLC data transforms random candles into precise signals.
Lesson Chapters
1Chapter 1: The Evolution of Candlestick Charts⏱️ ~2 min
While various charts exist (Bar, Line, Heikin Ashi), the candlestick chart is the default choice for modern traders worldwide.
The Historical Origin
Candlestick charting originated in 18th-century Japan, where rice traders used this method to predict future prices.
The Journey West:
- 1700s: Used by Japanese rice traders
- 1980s: Introduced to Western markets by Steve Nison
- 1990s: Adopted by institutional traders
- 2000s+: Industry standard for forex, stocks, futures
Why Candlesticks Dominate
Line Chart:
- Shows only closing prices
- Smooth but lacks detail
Bar Chart:
- Shows OHLC with tick marks
- Functional but less intuitive
Candlestick Chart:
- Shows OHLC with visual emphasis
- Color-coded (instant recognition)
- Body shows open-to-close range
- Wicks show high-low extremes
- Superior visual communication
Professional Insight: Candlesticks aren't just pretty visuals—they're compressed data packets. One candlestick communicates: direction (color), conviction (body size), volatility (total range), and rejection (wick length). No other chart format delivers this much information in one glance.
2Chapter 2: The Anatomy of a Candlestick⏱️ ~3 min
Every single candlestick is composed of two primary parts: the Body and the Shadows (or Wicks).
The Body (Real Body)
The body is the thick, rectangular part of the candlestick. It represents the price range between the Open and Close price.
Body Size Indicates Conviction:
Long Body (50+ pips):
- Strong directional move
- Clear winner (buyers or sellers)
- High conviction
- Likely to continue
Medium Body (20-50 pips):
- Moderate directional move
- Winner established
- Normal market activity
Small Body (5-20 pips):
- Indecision or consolidation
- Close price near open price
- Potential reversal or continuation
No Body (Doji):
- Perfect indecision
- Open equals close
- Market at inflection point
- Warning signal at extremes
The Shadows (Wicks or Tails)
The shadows are the thin lines extending above and below the body. They represent the highest and lowest prices reached during the timeframe.
Upper Shadow (Upper Wick):
- Shows the High price reached
- Represents rejected upside
- Long upper wick = sellers pushed buyers back
- Indicates resistance
Lower Shadow (Lower Wick):
- Shows the Low price reached
- Represents rejected downside
- Long lower wick = buyers pushed sellers back
- Indicates support
Wick Length Reveals Rejection:
No Wicks:
- Complete dominance by one side
- Very strong directional conviction
Long Wicks (30+ pips):
- Strong rejection of those price levels
- Indicates major support/resistance
- Often signals reversal
3Chapter 3: The Four Prices - OHLC⏱️ ~3 min
The four price points contained within every candlestick are known as OHLC—the foundation of all technical analysis.
Open (O)
Definition: The price at which the first trade took place when the new period began.
Location:
- Bullish candle: Bottom edge of body
- Bearish candle: Top edge of body
Close (C)
Definition: The last price traded before the period ended.
Location:
- Bullish candle: Top edge of body
- Bearish candle: Bottom edge of body
Why Close Matters Most:
- Breaks of key levels confirmed by candle close
- Close above resistance = bullish breakout
- Close below support = bearish breakdown
- Close is commitment, wick is exploration
High (H)
Definition: The highest price traded during the entire period.
Location: Very tip of the upper shadow (wick)
What It Shows:
- Maximum bullish reach
- Overhead resistance if rejected
- Potential target for breakouts
Low (L)
Definition: The lowest price traded during the entire period.
Location: Very bottom of the lower shadow (wick)
What It Shows:
- Maximum bearish reach
- Underlying support if rejected
- Potential target for breakdowns
OHLC Data Summary
| Price | Location | Significance | Professional Use |
|---|---|---|---|
| Open | Edge of body | Starting price | Baseline for period |
| Close | Opposite edge | Most important | Confirms breaks |
| High | Top of upper wick | Maximum bullish reach | Resistance levels |
| Low | Bottom of lower wick | Maximum bearish reach | Support levels |
4Chapter 4: Bullish vs Bearish Candles⏱️ ~2 min
The color and shape of the candlestick tell you the outcome of the battle between buyers and sellers.
The Bullish Candle (Up Candle)
Visual Characteristics:
- Color: Typically Green or White
- Condition: Close Price is HIGHER than Open Price
- Body: Open at bottom, Close at top
What It Means: Buyers (Bulls) were in control. They pushed price higher.
Conviction Levels:
Strong Bullish (Large Body, No Upper Wick):
- Close near the High
- Buyers dominated completely
- Very bullish signal
Weak Bullish (Small Body, Long Upper Wick):
- Close barely above Open
- Strong seller rejection (long wick)
- Warning: May reverse
The Bearish Candle (Down Candle)
Visual Characteristics:
- Color: Typically Red or Black
- Condition: Close Price is LOWER than Open Price
- Body: Open at top, Close at bottom
What It Means: Sellers (Bears) were in control. They pushed price lower.
Conviction Levels:
Strong Bearish (Large Body, No Lower Wick):
- Close near the Low
- Sellers dominated completely
- Very bearish signal
Weak Bearish (Small Body, Long Lower Wick):
- Close barely below Open
- Strong buyer rejection (long wick)
- Warning: May reverse
Reading the Shadows
Long Upper Shadow + Small Body:
- Buyers pushed high, sellers rejected
- Signal: Bearish rejection (Shooting Star)
- Likely: Reversal to downside
Long Lower Shadow + Small Body:
- Sellers pushed low, buyers rejected
- Signal: Bullish rejection (Hammer)
- Likely: Reversal to upside
No Shadows (Marubozu):
- Complete one-sided domination
- Signal: Very strong trend continuation
5Chapter 5: Summary, FAQs & Quiz⏱️ ~3 min
Summary
The Japanese Candlestick is the essential tool for technical analysis. Each candlestick provides four crucial prices: Open, High, Low, and Close (OHLC).
Key Principles (0/3)
Frequently Asked Questions
Q1: What is a Doji candle and what does it signify?
A Doji is a candlestick where the Open and Close prices are virtually identical, resulting in a tiny or non-existent body. It signifies market indecision.
Significance:
- At trend extremes: Major reversal warning
- In trend middle: Usually just consolidation
- Requires confirmation: Wait for next candle
Q2: Why is the Close price the most important of the OHLC?
The Close represents the final consensus and the last traded price before the next period begins.
Professional Use:
- Confirm breakouts: Close above resistance = valid break
- Validate patterns: Engulfing patterns require specific close relationships
- Set trend bias: Higher close = upward momentum
The Rule: Don't trust wicks—trust closes. A wick above resistance followed by close below = rejection, not breakout.
Quiz
On a bullish candlestick (Green/White), where is the Open price located?
The thin lines extending above and below the main body are known as the:
What does a long bearish body without any lower shadow signify?
A candle with a very long upper shadow and a small body typically suggests:
Which OHLC price is most important for confirming breakouts?
Call to Action
You can now interpret the conversation between buyers and sellers embedded in every candle.
Decode the Market's Visual Language
Practice reading candlestick anatomy on a demo account. Learn to identify OHLC data, interpret body vs. wick relationships, and understand the psychology behind each candle.
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Proceed to Lesson 2: Introduction to Trends (Uptrend, Downtrend, Sideways)
Prerequisites
This is a foundational lesson - no prior price action knowledge required. Basic forex concepts recommended.
Ready to master candlesticks? Understanding OHLC is the foundation of all technical analysis and price action trading.
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