In the previous lesson, we introduced the main types of charts and established that throughout the Xcelerate Trade Academy, we will primarily use Candlestick Charts.
In this lesson, we will take the next step and learn exactly how a candlestick is built, what information it contains, and how to read the price movement represented within it.
There is no need to configure TradingView or reproduce anything on the platform yet. In the next chapter, we will set up the platform together and go through the tools and functions we need.
For now, focus exclusively on understanding how candles work and how the information inside them should be read.
What Does a Candlestick Represent?
A candlestick, or simply a candle, represents the movement of price during a specific period of time.
How much time each candle represents depends entirely on the selected timeframe.
For example:
on a Daily (1D) chart, one candle represents one trading day;
on a 4-Hour (4H) chart, one candle represents four hours;
on a 1-Hour (1H) chart, one candle represents one hour;
on a 1-Minute (1m) chart, one candle represents one minute.
If we are looking at a Daily chart of the S&P 500, for example, every completed candle contains the price activity of one trading day.
Change the timeframe, and the amount of time represented by each candle changes with it.
We will explore timeframes properly in the next lesson. For now, the important relationship to understand is:
Timeframe selected → Time represented by each candle
The Four Prices Inside Every Candle
Regardless of the timeframe we use, every standard candlestick contains four fundamental pieces of price information:
Open (O) – the price at which the period began.
High (H) – the highest price reached during that period.
Low (L) – the lowest price reached during that period.
Close (C) – the price at which the period ended.
Together, these four values are commonly referred to as OHLC: Open, High, Low, Close.
Let's take a simple example.
Suppose we are looking at a Daily candle with the following values:
Open: 5,000
High: 5,080
Low: 4,970
Close: 5,060
This tells us that the trading day began at 5,000. At some point during the day, price traded as high as 5,080 and as low as 4,970. By the end of the period, it closed at 5,060.
These four values summarize the essential price information for that period.
However, they do not tell us the exact sequence of every price movement that occurred inside the candle. For example, simply looking at a completed candle does not tell us whether price reached the High before the Low or the Low before the High.
This is an important distinction: a candle summarizes price activity within a period; it does not show every movement that occurred inside that period.
Later, when we begin working directly with TradingView, you will also be able to see these OHLC values for individual candles on the platform.
Completed vs. Active Candles
There is one more distinction to understand from the beginning.
A candle that is still developing within its selected timeframe is not yet complete.
Its High, Low, and current Close can continue to change until that period ends.
For example, on a 1-hour chart, a candle that begins at 10:00 continues developing until 11:00. During that hour, its body and wicks can change significantly as price moves.
Only once the period ends does the candle become completed and its OHLC values become final.
This is why we should be careful when interpreting the appearance of a candle that is still forming.
How a Bullish Candle Is Formed
A bullish candle is formed when the closing price is higher than the opening price.
Imagine that a trading period begins at a price of 100.
During that period, price moves both higher and lower. It may reach a High of 108 and a Low of 98 before eventually closing at 106.
We would therefore have:
Open = 100
High = 108
Low = 98
Close = 106
Because the Close is above the Open, the candle is bullish.
The sequence of price movements inside the period does not need to be a straight move upward. Price can move above and below the Open many times before the candle closes.
What determines whether the completed candle is bullish is simply the relationship between its Open and Close:
Close > Open → Bullish Candle
Bullish candles are commonly displayed in green, although, as we discussed in the previous lesson, candle colors can be customized.
How a Bearish Candle Is Formed
A bearish candle follows the opposite principle.
Suppose a period opens at 100.
During that period, price reaches a High of 103 and a Low of 92 before eventually closing at 94.
The candle contains:
Open = 100
High = 103
Low = 92
Close = 94
Because the Close is below the Open, the candle is bearish.
The rule is therefore:
Close < Open → Bearish Candle
Bearish candles are commonly displayed in red, although these colors can also be customized.
This distinction between bullish and bearish candles is one of the first things that should eventually become automatic when reading a chart.
The Body and Wicks of a Candlestick
Now that we understand Open, High, Low, and Close, we can look at the actual anatomy of the candle.
A candlestick consists of two main components:
The Body
The Wicks, also called Shadows
The Body
The body represents the distance between the opening price and the closing price.
On a bullish candle, the Open is at the lower end of the body and the Close is at the upper end.
On a bearish candle, the relationship is reversed: the Open is at the upper end of the body and the Close is at the lower end.
The size of the body gives us immediate visual information about how far price moved between the beginning and end of the period.
A large body shows a greater distance between Open and Close, while a small body shows that the two prices finished relatively close together.
This information becomes much more useful when interpreted within the broader market context.
The Wicks
The thin lines extending beyond the body are called wicks or shadows.
The upper wick extends from the body to the High and shows how far price traded above the Open/Close area before the period ended.
The lower wick extends from the body to the Low and shows how far price traded below the Open/Close area before the period ended.
Wicks therefore show us price levels that were reached during the period but were not maintained by the time the candle closed. The relationship between the body and the wicks can also tell us something about how price behaved during that period.
A large body indicates a greater distance between the Open and Close, while long wicks show that price explored levels beyond the body before closing back away from those extremes.
At this stage, however, we do not assign a trading signal to either one. Their meaning depends on context.
This can provide useful information about volatility, rejection, and the interaction between buyers and sellers.
However, a wick should never be interpreted in isolation.
A long upper wick does not automatically mean that price will fall, just as a long lower wick does not automatically mean that price will rise.
Its meaning depends on where it appears, the surrounding market structure, liquidity, timeframe, session, and the broader context.
This distinction will become increasingly important as we move deeper into technical analysis.
Reading a Candle as Price Movement
Instead of seeing a candle simply as a green or red shape, start thinking about it as a compressed representation of what price did during a specific period.
A bullish candle tells us that price ultimately closed above where the period began.
A bearish candle tells us that price ultimately closed below where the period began.
The High and Low tell us how far price traveled in either direction during that same period.
The body tells us the relationship between Open and Close.
The wicks show us the extremes that price reached beyond the body.
Together, these elements give us a compact representation of the price movement that occurred during that timeframe.
But there is an important distinction:
A candle tells us what price did. Context helps us understand what that movement may mean.
That is why we will never base our analysis on the appearance of a single candle alone.
Points or Dollars?
As we begin analyzing charts, you will frequently hear price movement described in points rather than simply in dollars.
This is especially common when trading indices.
For example, suppose a short position is opened at 3,920 and closed at 3,820.
Price has moved:
3,920 − 3,820 = 100 points
We would therefore say that the market moved 100 points in our favor.
This does not automatically mean that the profit was $100.
The monetary profit or loss depends on the instrument being traded, position size, contract specifications, and the value assigned to each point.
This distinction is important.
Points describe the movement in price.
Money describes the financial result of the position.
We will cover position sizing, contract values, and the calculation of profit and loss in greater detail later in the Academy.
For now, begin getting comfortable with expressing index movements in points.
Do We Use Candlestick Patterns?
Once you begin studying technical analysis, you will encounter many named patterns and formations.
Common examples include:
Engulfing Candle
Hammer
Shooting Star
Morning Star
You may also encounter broader chart formations such as Double Top and Double Bottom. These are chart patterns rather than individual candlestick patterns, but they are often discussed alongside candlestick formations in introductory technical analysis.
Throughout the Xcelerate Trade Academy, we will not use named candlestick patterns as our primary method for entering the market.
The reason is straightforward.
A candle or pattern viewed in isolation does not provide enough information to understand the complete market context.
The same candle can have very different implications depending on where it forms and what is happening around it.
Our strategy therefore places greater emphasis on factors such as:
market structure;
liquidity;
broader market context;
trading session;
confluence between multiple factors.
This does not mean candlestick patterns are useless.
It means that we do not treat the appearance of a named pattern as sufficient justification for entering a trade.
For us, the context surrounding the candle is more important than the name assigned to its shape.
How Should the Chart Look on Your Screen?
There is another practical detail that beginners often overlook: how much of the chart should actually be visible on the screen?
There is no universal number of candles that should always be displayed.
The objective is to maintain enough context to understand the market while keeping individual price movements clearly visible.
If you zoom out too far, candles become compressed and important details can become difficult to distinguish.
If you zoom in too far, you may see individual candles very clearly but lose the broader structure that gives those candles meaning.
Think of chart zoom as a balance between context and precision.
Zooming out gives us more context but less detail. Zooming in gives us more detail but less context. Our objective is to maintain enough of both to understand where price is and what it is doing.
A useful chart view should allow you to see:
the recent market structure;
relevant highs and lows;
individual candles clearly enough to analyze them;
enough historical context to understand the broader direction and current price location.
The appropriate zoom level will vary depending on the timeframe, instrument, screen size, and type of analysis being performed.
The objective is therefore not to find one "perfect" zoom setting.
It is to maintain a chart that is clear enough for execution and broad enough for context.
The Xcelerate Trade Perspective
Candlesticks are the basic visual language of the charts we will use throughout the Academy.
Understanding Open, High, Low, Close, body, and wicks allows us to read what happened to price during any given period.
But reading a candle correctly does not mean trying to predict the market from its shape.
A large bullish candle is not automatically a reason to buy. A large bearish candle is not automatically a reason to sell. A long wick is not automatically a reversal signal.
The information becomes useful when we place it within the broader market context.
As we progress, we will combine what candles tell us with market structure, liquidity, sessions, displacement, FVG, CHoCH, BOS, and the other elements of the Xcelerate Trade Strategy.
This is why our approach does not depend on memorizing dozens of candlestick patterns.
We want to understand what price is doing, where it is doing it, and what context surrounds that movement.
For now, focus on becoming comfortable with the anatomy of a candle and the four values behind it: Open, High, Low, and Close.
In the next lesson, we will introduce timeframes and understand how the same market can look very different depending on the interval we choose to analyze.
See you in the next lesson!