Open High Low Close - Understanding Candlesticks

Summary

This video covers the essential concepts of candle charts used in trading, explaining how to read candles based on their open, high, low, and close prices. It distinguishes between bullish and bearish candles and discusses three key types: directional candles, reversal candles, and indecision candles. The video emphasizes the importance of analyzing the body and wicks of candles to identify price trends and reversals. Real chart examples are used to demonstrate how different candle types behave on various time frames, aiding viewers in making informed trading decisions.

Takeaways

• 📊 Every candle in trading has an open, high, low, and close, which are essential to understanding price movements.
• 📉 A bearish candle forms when the close is below the open, indicating downward price movement.
• 📈 A bullish candle occurs when the close is above the open, showing upward price movement.
• 🔍 The three main candle types are directional, reversal, and indecision candles, each reflecting different market behavior.
• 📉 A bearish directional candle moves in one direction for most of the period, often having a small wick compared to the body.
• 📈 A bullish directional candle trends upward for most of the period, with a relatively smaller wick compared to the body.
• 🔄 Reversal candles show a change in direction, where the wick is larger than the body, indicating that price reversed during the time period.
• ⚖️ Indecision candles have small bodies with longer wicks, indicating that price fluctuated but closed near the opening price, reflecting market uncertainty.
• 🔁 Understanding how candles form on different timeframes (e.g., daily or 15-minute) can provide deeper insights into price action.
• 🔎 Recognizing patterns like directional moves or reversals over consecutive days helps traders anticipate market behavior and adjust their strategies accordingly.

Q & A

What are the four key components of a candle in trading?

The four key components of a candle are the open, high, low, and close. These represent the opening price, the highest price, the lowest price, and the closing price within a specific time period.

How can you identify a bearish candle?

A bearish candle occurs when the closing price is below the opening price, indicating that the price moved downward during the time period.

How is a bullish candle defined?

A bullish candle is defined by the closing price being higher than the opening price, indicating that the price moved upward during the time period.

What is a directional candle and how can it be recognized?

A directional candle shows movement primarily in one direction throughout the time period. For a bearish directional candle, price opens, makes a high, and then moves lower to close. For a bullish directional candle, price opens, makes a low, and then moves higher to close.

What characteristics distinguish a reversal candle from other types?

A reversal candle has a large wick relative to its body. It shows a price reversal during the time period, meaning that the price moves in one direction and then reverses to close in the opposite direction.

What can a small wick relative to the body of a candle indicate?

A small wick relative to the body often indicates a directional candle where price movement is more stable and trends in one direction during the time period.

How do lower time frames relate to higher time frame candles?

Lower time frames contribute to the formation of higher time frame candles. For example, a daily candle might consist of smaller 15-minute candles showing the detailed movement of price throughout the day.

What is an indecision candle, and what does it signify?

An indecision candle occurs when the opening and closing prices are close to each other, with long wicks on both sides. It indicates a lack of clear direction in the market during that time period.

How does understanding open, high, low, and close (OHLC) improve trading?

Understanding OHLC helps traders interpret market behavior, identify trends, and make better decisions based on whether the price is moving upward, downward, or staying neutral within a time period.

What patterns might you expect after several directional candles in a row?

After several directional candles, such as three days of expansion, it’s common to see a reversal or consolidation, where price movement may shift direction or pause for a period of indecision.

Outlines

00:00

📊 Introduction to Candlestick Basics

This section introduces the basic components of candlesticks in trading: open, high, low, and close. It explains how the relative position of the open and close defines whether a candle is bullish or bearish. The segment also emphasizes the importance of understanding these components, as they form the foundation for various types of trading strategies.

05:01

📉 Explanation of Directional Candles

Here, the video focuses on the first type of candle, the directional candle, where price movement happens in one main direction throughout a specific time frame. Both bullish and bearish directional candles are discussed in detail, with emphasis on how the body and wicks of the candles behave, usually showing smaller wicks compared to the body.

10:02

🔄 Reversal Candles and Their Characteristics

This section delves into the second type of candle: the reversal candle. Reversal candles have larger wicks compared to the body, indicating that price moves strongly in one direction before reversing. The explanation includes how reversal candles are formed on lower time frames and how they signal a potential change in market direction.

🤔 Indecision Candles: Market Uncertainty

This part covers the final type of candle, the indecision candle. It explains that when the market opens and closes at nearly the same price, with large wicks on both sides, it signals a lack of clear direction in the market. Indecision candles suggest the market is uncertain, and this concept is illustrated using examples from different time frames.

🔍 Analyzing Market Behavior with Candles

In this section, the video dives into how different types of candles, such as directional, reversal, and indecision candles, can be used to anticipate market behavior. Examples are provided, illustrating how understanding the patterns formed by candles across different time frames helps traders make informed decisions.

📈 Applying Candlestick Patterns to Trading Strategies

This segment concludes by tying together the concepts discussed earlier, showing how traders can apply the understanding of open, high, low, and close candles to predict market movements. The importance of recognizing patterns, including periods of expansion and consolidation, is emphasized to refine trading strategies.

Keywords

💡Open

The 'open' refers to the price at which a security begins trading during a specified time period, such as a day, hour, or minute. In the video, the term is frequently used when explaining the structure of a candlestick in technical analysis. The open is a key point because it helps determine whether a candle is bullish or bearish based on whether the close price is above or below the open.

💡High

The 'high' represents the highest price that a security reaches during the specific time frame of the candle. It helps traders understand the peak level the price reached during that period. In the video, the high is discussed in the context of directional and reversal candles, showing how price may spike before reversing direction or continuing.

💡Low

The 'low' is the lowest price the security reaches during a given time period. It’s one of the four key points (Open, High, Low, Close) that form the structure of a candlestick. In the video, lows are particularly important in reversal and bearish directional candles, where price typically moves downward after hitting a high.

💡Close

The 'close' refers to the price at which a security stops trading at the end of a specified period, which can be crucial in determining the trend direction. If the close is below the open, it forms a bearish candle, while a close above the open creates a bullish candle. The video highlights the importance of the close in interpreting both short-term and long-term market movements.

💡Bullish Candle

A 'bullish candle' forms when the close price is higher than the open price, indicating upward price movement during the period. In the video, bullish candles are used to explain trends where the market moves in one direction, typically upward, showing buyer dominance. They are crucial in identifying upward momentum.

💡Bearish Candle

A 'bearish candle' is formed when the close price is lower than the open price, representing downward movement. The video uses bearish candles to describe situations where the market is predominantly selling, causing prices to drop throughout the time period, signaling a possible downtrend.

💡Directional Candle

A 'directional candle' is a type of candlestick where the price moves predominantly in one direction (either up or down) during the time period. The video focuses on this candle type to describe clear trends, with smaller wicks relative to the body, indicating strong, sustained price movement either upwards (bullish) or downwards (bearish).

💡Reversal Candle

A 'reversal candle' shows a change in the price direction during the time period, where the market initially moves in one direction (up or down) and then reverses to close in the opposite direction. The video explains how these candles signal potential turning points in the market, with larger wicks compared to the body, as seen in examples of both bullish and bearish reversals.

💡Indecision Candle

An 'indecision candle' occurs when the open and close prices are very close, with longer wicks on both sides, showing that neither buyers nor sellers dominated the market during the time period. The video uses this candle type to explain market uncertainty or consolidation periods, where price fluctuates but ultimately doesn't move far from the opening price.

💡Time Frames

'Time frames' refer to the different intervals (e.g., 15-minute, daily, monthly) used to analyze price movements in candlestick charts. The video frequently switches between various time frames to show how the formation of candles on shorter time frames (like 15 minutes) contributes to the structure of longer-term candles (daily or monthly), helping traders interpret trends across different time scales.

Highlights

Introduction to the video discussing Open, High, Low, Close of candles and how it applies to trading.

Definition of bearish and bullish candles based on the relation between the open and close prices.

Explanation of how every candle has an open, high, low, and close, which is essential for trading analysis.

The concept of a directional candle, where price moves in one main direction during the time period.

In a bullish directional candle, price opens, makes a low, trends higher, and closes at a high.

In a bearish directional candle, price opens, makes a high, trends lower, and closes at a low.

Smaller wicks relative to the candle body are common in directional candles.

A step-by-step walkthrough of how candles form on a lower time frame, focusing on how daily and 15-minute candles relate.

Reversal candles occur when price opens, trends in one direction, then reverses to close in the opposite direction.

A reversal candle often has a wick larger than the body, indicating significant price movement in both directions.

In the example shown, the daily candle shows price moving higher but then reversing, forming a bearish reversal candle.

Indecision candles occur when the price opens and closes close to the same level, indicating little market direction.

Examples of how indecision candles can form after a period of high volatility, where the market fails to find direction.

Discussion on the importance of recognizing patterns of three directional candles followed by either a reversal or consolidation candle.

Understanding the relationship between higher time frame candles and lower time frame movements helps traders anticipate market trends.

Transcripts

[Music]

how's it going everyone in this video we

are going to be talking about the Open

high low close and open low high close

of candles we'll first talk about

defining a bearish and bullish candle

and then we'll talk about the three

different types of candles that I focus

on let's get into the PDF but the first

thing you need to understand is that

every candle has an open high low and

close so for this specific time period

price went and the highest at WR was up

here making a high the lowest it went

was down here making a low and price at

the specific time opened right here and

closed here so if the close is below the

open then that is a bearish candle now

if the open is below the close that is a

bullish candle now every single candle

has an open high low close and it is the

foundation of trading let's talk about

the three different types of candles

that I focus on the first candle I focus

on is a directional candle and what that

means is price went one direction

throughout this time period for the most

part you can see we had an open we made

a high and then we continued lower for

the majority of this time period before

making a low and closing similarly with

a bullish candle moving in One Direction

we had an open we made a low

we continued in one direction for most

of this time period made a high and then

closed so what does this look like on

the lower time frames well for a bullish

directional candle we'll have an open a

low and then we'll continue or Trend in

one direction to make a high and then

close and the one thing to notice is

generally with directional candles this

Wick is smaller relative to the body

right it's how it's going to be now with

a bearish directional candle we'll have

an open we'll make a high above that

open and we'll have a continued move

down to then close once again a smaller

Wick relative to the body let's hop into

trading View and go over a few examples

of this so here we are in trading View

and the first candle we're going to take

a look at is this one right here so you

can see price opened made a high went

lower throughout the time period and

then closed here since the close is

below the open it is a bearish candle

now let's go take a look at what the

looks like on a lower time frame so down

here on the 15-minute chart in relation

to the Daily candle let's see how it

forms so the first thing we're going to

do is go ahead and Mark out this opening

price here at 1,800 so now that we have

that marked out let's play this through

and watch how the candle forms you can

see throughout Asia we kind of

accumulate here we make a high and then

we get displacement down right so open

high now if this candle's going to

continue lower I'd like to see this high

High left and to trade lower throughout

the day and you can see we're trading

lower we get New York open we go even

lower and you can see how this move

higher here is just to create the wick

of this daily

candle and there as we close the day you

can see we had an open we made a high we

went down we made a low and then we

closed the candle you can see every time

frame that has a candle there is a lower

time frame making that candle

on The Daily I like to use the 15minute

time frame let's go to a few more

examples so now if we're looking at the

daily chart here once again and we see

that price wretch above and then close

back inside here what am I anticipating

for the next day to be bearish so if I'm

bearish then I want to see what type of

candle well an open I low close cuz I

want to see a one directional move down

so do we get that we do so what does

this look like on a lower time frame so

you can see here this was the previous

day here is the new day open so we want

to see what open high low close and if

you notice right here what do we not

have we have an open our high is the

exact same price as the open we don't

currently have an upper wick on the

daily chart as we move ahead did we just

create the wick on the daily chart let's

see and then we get the continuation

lower so you can see open we made a high

one directional move make a low and then

close so let's continue this into the

next day if we're still bearish what do

we want to see open high low

close so as we continue this ahead into

the New York

session what do we get we get a move

higher sweeping these previous highs

around equilibrium of the previous day

and then displacement lower so open I

we'd want to see a move lower to make a

low and then close and here is where

I'll use projections or something else

to give me a projected

move and you can see it went far beyond

that projection we made an open high low

let's see if we close here or where we

go and we just close right in here

hopefully that makes sense open high low

close now this works on all time frames

for instance we are now looking at the

monthly candle using the daily chart as

the lower time frame candles so if we're

going to move higher we want to see what

open low high

close and you can see there we got our

open low high close then we open up the

new month and we make a move higher at

the start and then that leads us into

our next candle type so let's go back to

the PDF so the next candle type I focus

on is a reversal candle and so what this

looks like is we have an open a high a

low and close or an open low high close

and what do you notice about this Wick

relative to the body well the wick is

larger than the body you notice how with

the directional candle our Wick was

smaller than the body with the reversal

candle it is different so what's

happening on the lower time frames here

while we open we're making a move higher

so it's looking like a directional

candle up

and in this time period we went higher

and then price reversed all the way down

here to then close so price went up then

reversed or made a reversal candle

similarly open went down looking like a

bearish directional candle then reversed

to make a high close if we look at this

on a lower time frame open made a low

was looking like expansion down price

reversed to then make a high and close

so open low high close with a bearish

revers candle open high low close was

looking like a bullish directional

candle then price reversed so when you

see a wick that means on a lower time

frame price went up and then down let's

hop into the charts and go over a few

examples of these now back where we left

off with our previous example on CL

daily chart looking at the monthly open

high low close what do we notice about

this low here we barely made a low right

in the single daily candle we just kind

kind of moved higher so we have an open

high let's see what

happens so if you notice what happens is

we move higher and then price reverses

to go lower we have an aggressive move

out of a range and an aggressive move

back into a range let's see how this

month

closes and you can see we close as a

bearish reversal candle what happens at

the start of the next month we get an

expansion move down off of that reversal

now if we go back in replay what do we

notice about our first example in the

video this candle looks a lot like that

monthly candle right where we have an

expansion up price then moves open high

low close forming a bearish reversal

candle so then I can anticipate what a

bearish directional candle after that so

if we go down to the lower time frames

here so now down here on the lower time

frames if we watch this candle form you

can see it's pretty choppy but what

happens is price moves higher we make a

high

and then the most important part here is

we move lower and where do we

close we close back down here making a

bearish reversal candle so you can see

here price went higher reversed and then

closed below its opening price so let's

take another look at this example what

happens as we near the New York session

we get an aggressive move lower right so

right now it's looking like open high

low close right but this is where

Direction bias is important because if

I'm bullish and seeing an opposing move

down in New York I'm thinking a New York

reversal to make a what bullish reversal

candle what happens here we make a low

we get our change in the state of

delivery and then where do we go we go

higher so you see how this candle looks

open low high close right where we

finish off so let's go back to the PDF

and talk about the last candle type I

look for

now the last candle type I look for is

an indecision candle and what does that

mean means that price opens makes a high

or a low and then closes very close to

the opening price so you can see how we

have a longer wick on each side and the

body is fairly small that means

throughout this time period or candle so

for instance if this is a daily candle

it means that price really didn't go

anywhere through that day right because

it opened and closed relatively to the

same price so we look at an example of a

bullish one right here make a low make a

high make a low but the most important

things we open and close right next to

each other so there's no real Direction

in the market and similar thing here

with a bearish indecision candle the

open and closing prices are relatively

close to each other making a very small

body or not much Direction in the market

let's go into the charts and look at a

few examples of these so here we are on

a gold 15minute chart and we'll be

watching The Daily

candle you can see as we play this

through we don't really do a whole lot

right we're chopping around what are we

making a little broadening

formation and what happens well we just

sweep out both sides of the range so

right now we let this come back and

close where do we return to right around

the opening price right so larger wick

on each side and opening and closing

near each other so what does that show

there is no direction right now in the

market it's just kind of sitting around

so here in our next example what do we

notice about the previous range well we

had a very large previous range see that

500 points on inq so with a lack of news

or volatility following a range that is

very large a lot of times we get an

indecision

candle you can see there is no real

movement in the market and what happens

is we just come and make a high and a

low price can't go anywhere and we will

end up closing closing right around the

opening

price if you know what a Seek and

Destroy looks like or a broading

formation we'll just kind of get that

pattern right the price will take

external go back to equilibrium with

range so here we are on CL daily chart

and I just wanted to explain a few

things we went over the three candle

types and generally I don't like to see

more than three of those candle types in

a row so if we're getting 3 days of

expansion or a directional move then I

like to see a different candle type or a

reversal

consolidation so let's see so you notice

here we get 3 days of expansion right so

open high low close open high low close

open high low close right so the

following day what happens well what do

we print we sweep out previous day's low

and close inside but more importantly

open low on that sweep make a high and

then close so what are we printing a

bullish reversal candle so do we see a

reversal well let's see the next

days open low high close we're closing

over this previous bar you remember my

daily bias

video open low high close closing over

now do we get a third day we do open

high low close now what happens on this

next day following 3 days this isn't

great expansion but three up closed

candles we get a consolidation right so

you see how the opening price and

closing price are right next to each

other see what happens well now we sweep

previous day low into a fair value Gap

and what do we notice about this candle

open low high close and what is that

forming a bullish reversal candle and in

this case it's reversing from the

retracement to then continue higher and

there we get a move higher so hopefully

that shows you how you can add it to

other Concepts just the understanding of

open high low close and if you go down

to the lower time frames you kind of

already know what they look like for

instance here I know we opened we made a

high back at equilibrium of the previous

day then from there we found expansion

lower and then we closed in the lows

here we made a move higher to then go

lower and close so you can kind of start

to picture the lower time frames just

understanding the Open high low and

close now I hope you found this video

helpful if you did please consider

liking and subscribing and I'll see you

guys in the next one have a a good one