Becoming Sophisticated About Risk

Basic Candlestick Knowledge

By Richard Krivo, Course Instructor

12 August 2011 19:48 GMT

A question that beginning traders oftentimes have regards the understanding of what is meant by the bodies and wicks of each of the candlesticks represented on the charts.

A quick look at the example below will shed quite a bit of light on that issue…

Basic_Candlestick_Knowledge_body_chart_8_12_11.png, Basic Candlestick Knowledge

The white bodied candle above is a bullish candle. We can tell that since the closing price is higher than the opening price. (If this were a bearish candle it would be a different color and the closing price would be lower than the opening price.)

The upper wick , sometimes called a shadow, represents the highest price at which the pair traded during the time that this candle was open. The lower wick represents the lowest price at which the pair during the time frame that this candle was open.

Keep in mind that each candle represents the timeframe of the chart that you are using. So, if you are looking at a 4 hour chart, each candle on that chart represents how that pair traded over the 4 hour period covered by that candle…the high, low, open and close of price during that 4 hour period.

If you are looking at a Daily chart, each candle represents one 24 hour period running from 5 PM Eastern (New York) time on one day to 5 PM Eastern time the next day. On a 1 hour chart each candle represents 1 hour in the trading history of the pair and so forth through the various chart time frames.

As each chart time frame closes, the current open candle “closes” and a new open candle forms just to the right of the candle that just closed.

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