Chart Analysis · Lesson 2 · Beginner
Reading candlesticks: anatomy and single candles
You read every candle correctly (open, close, body, wick) and recognize who was in control during the candle.
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What the parts mean
OHLC is everything a candle says. The body from open to close measures strength, the wick from high to low shows where the market went and was rejected again. Green means close above open, the buyers dominated.
The long wick
A pin bar has a long wick out of a congestion. The extreme was rejected. Goodman BTC December 2021: open 54,000, low 41,000, close 49,000, a clearly rejected low.
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The key points at a glance
- The real body (open to close) measures strength, the wick shows rejected extremes.
- The close is the most important information, the high is maximum bull power, the low maximum bear power.
- A long wick out of a congestion (pin bar) shows a rejected level.
Deep dive
Why the close is the most important number on the candle
Of open, high, low and close, the close is the most telling. It shows who won the period once the intraday emotions have faded. Murphy calls closing prices the single most important price of all.
- Wait for the candle close outside a level.
- A wick through resistance that falls back is often a stop hunt.
- A long wick shows a level that was tested and immediately rejected.
Weighting body and wick correctly: the ratio is what counts
A large body shows conviction, a small body with long wicks shows indecision. The beginner mistake is to look only at the color: a green candle with a tiny body and a huge upper wick is a sign of weakness.
- A pin bar counts when the wick makes up at least two thirds of the candle.
- A body that engulfs the previous candle is an engulfing.
- A close in the top fifth of the range means: buyers had the upper hand.
- In isolation during quiet movement, the same wick is just noise.
Overrating single candles: the most common reading mistake
The smaller the timeframe, the more randomness sits inside a candle. On the 1-minute chart a single participant shapes the whole hammer, on the daily chart hundreds of thousands of decisions stand behind it.
- Always ask in which timeframe and at which level the candle appears.
- Do not place the stop razor-thin below the wick tip.
- Better at half the tail height, where the rejection begins.
Sources: Murphy, Elder, Goodman
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