Candlestick Basic Components

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This will be a quick crash course to help you understand how candlestick works. The in depth about patterns of candlestick will be in a separate post. Due to the versatile of the candlestick they can tell us a lot about the market condition.

Candlestick was invented by Munehisa Homma a rice trader in Japan in the 18th century and popularized in the Western world by Steve Nison who wrote the Japanese Candlestick Charting Techniques.

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Any candlestick you come across will always carry these informations: Open/Close/High/Low. The different between these 4 factors will decide what type of candlestick we’ll see on the chart.


When a candle’s high or low is different from the open and close, the candle will have wicks/shadows. it’s the thin line on top and bottom of the candle, the length of the wick is depended on the trading range and the open and close of the trading period.
A candlestick chart without indicators.The different colors depict different directions. You could see it is rather intuitive, green means up red means down, the size of the candle is also the range of the trading period.
A bearish candle without any wick. The stock trade from 13.5 to 11.40 in the first hour of trading.Notes how big the opening candle is comparing to the rest, showing sign of profit taking/panic selling which usually happen at the open. A day trader can enter on the 2nd candle that open and close below the first one, this is called Opening Range Breakout trading (ORB).



A candlestick can tell you how strong a move is, base on the body. If the candle’s body is small and thin, then we can say it’s not a strong move in that direction and that neither Bears or Bulls is in control. If the candle body is big ,the movement in that direction is strong and more likely to carry momentum. In the example above you can see the bearish candle at the open showing a heavy sell pressure and ended up determining the direction of the day.

When the Close and the Open of the trading period is the same (or close to each other), it results in a Doji candle as you can see also in the example above the 2nd candle after market open. The Doji candle show sign of uncertainty in the market and a balance of power between buyer and seller, after that the buyer lost the fight. The job of a trader is to notice these balances and imbalances, this is how we make money, wait for one side to win and get in on that side.
In the example below it’s just the opposite, Bears attacked the stock and drove the price down to 15.38. The Bulls then stepped in and with two trading days turned the table around.

Doji candle showing sign of indecision and Bears losing their power. the next day we have a confirmation that the Bull is in control (the green arrow). You can get in the next day or the day after for extra safety.

Now you know what’s inside a candle and what sort of information they can tell you, try and scroll through chart and look for patterns even if you don’t know anything about patterns yet, you should be able to see “something interesting” in the way the candles move. After all, everything you see on the chart will be a representation of human behavioral psychology on money, and those behaviors are repeated over and over again because we’re creatures of habit. The human’s brain is also naturally wired to spot patterns, so give it a try.

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