Candles: what one candle tells you
What you learn in 3 minutesA reader asked: "I see those little green and red sticks on the chart. What do they actually tell me about my money?" This lesson answers that. A candle is just four numbers for one slice of time: the open, the high, the low and the close. On USD/ZAR at around 18.4100, those four numbers decide what one rand of movement is worth to you. By the end you will read the body and the wicks without guessing.
One candle on USD/ZAR: four numbers, one rand value
| Step | Amount | Note |
|---|---|---|
| Open | 18.4100 | the first price of the slice of time |
| High | 18.4250 | the highest price in that slice |
| Low | 18.4000 | the lowest price in that slice |
| Close | 18.4200 | the last price of the slice |
| Body | 0.0100 | close 18.4200 minus open 18.4100 |
| Upper wick | 0.0050 | high 18.4250 minus close 18.4200 |
| Lower wick | 0.0100 | open 18.4100 minus low 18.4000 |
| Value of the body on 0.10 lots | R100.00 | 0.0100 × 0.10 lots × 100,000 per lot = R100.00 |
Your broker may quote a slightly different open or close, round the prices, and charge a spread or commission on top. Those charges vary between brokers, so check the fee schedule before you trade.
The mistake people make here
The common mistake is to treat a long wick as a promise that price will turn. A wick only shows that price went there and came back inside the same slice of time. It says nothing about the next candle. Instead, write down the four numbers first, then ask what the body and the wicks are made of. If the body is small and the wicks are long, the market disagreed with itself in that slice. Wait for the next close before you act on it.Check yourself
A candle opens at 18.4100, highs at 18.4250, lows at 18.4000 and closes at 18.4200. What is the body in rand on 0.10 lots?
Close minus open is 18.4200 − 18.4100 = 0.0100. On 0.10 lots that is 0.0100 × 0.10 × 100,000 = R100.00.
Using the same candle, what is the lower wick worth on 0.10 lots?
Open minus low is 18.4100 − 18.4000 = 0.0100. On 0.10 lots that is 0.0100 × 0.10 × 100,000 = R100.00.
If the close had been 18.4150 instead, what would the body be on 0.10 lots?
18.4150 − 18.4100 = 0.0050. On 0.10 lots that is 0.0050 × 0.10 × 100,000 = R50.00.