Candles: what one candle tells you

Two readers look at the same EUR/USD candle. The first sees only that it closed higher than it opened and calls the slice a rise. The second writes down four prices in order: open 1.0850, high 1.0880, low 1.0830, close 1.0860. The second reader is not more optimistic or more cautious. The second reader is simply working from the numbers the candle contains.

The first reading is not wrong about direction. The close is above the open, so the slice did end higher. The trouble is what the first reading cannot say. It cannot say how far price travelled against the close, and it cannot say whether the high came before or after the low. Those gaps are where most beginner confusion starts, because the shape is remembered as a colour rather than as a set of prices.

The second reading costs nothing extra to produce. It is four numbers written once, in a fixed order. Every later step on this course, from comparing brokers to working out a cost in KSh, depends on having those four numbers rather than an impression of them. Practise the second reading until it is the only one you do.

The body and the shadows measure different things, and mixing them hides information. The body is the distance between the open and the close. It shows the net result of the slice. The full range is the distance between the low and the high. It shows everything the market covered, whether or not price stayed there.

Take the candle already given. The body is 1.0860 minus 1.0850, which is 10 pips. The range is 1.0880 minus 1.0830, which is 50 pips. Two candles can share a 10-pip body and have very different ranges. A 12-pip range means price moved little. A 50-pip range means price moved a great deal and then returned. The body alone cannot tell those two slices apart.

A useful habit is to state both figures before saying anything about the shape. Say the body is 10 pips and the range is 50 pips. Then say the upper shadow is 20 pips and the lower shadow is 20 pips. The four numbers add up: 20 plus 10 plus 20 equals 50. If your figures do not add up to the range, one of them is wrong, and the arithmetic will tell you so before the market does.

A candle covers one fixed slice of time, and the slice is chosen by the chart, not by the candle. Change the setting and the same market produces a different candle with a different open, high, low and close. A one-hour candle and a one-day candle over the same period are not the same object, even when they share a closing price.

This matters when two people describe the same market and disagree. One may be reading hourly candles and the other daily candles. Neither is lying. They are reading different slices, so their four numbers differ. Before comparing any two readings, establish the slice each one covers.

The slice also decides how much a candle can tell you about order. On a daily candle you cannot see whether the high came before the low. Both happened inside the day, and the candle records only that both occurred. Finer slices can show the sequence, but they also produce more candles and more noise. Choose the slice that matches the question you are asking, and say which slice you used.

A candle describes movement in pips. Converting that movement into KSh needs two more facts: the pip value for the position size, and the rate used to convert the quote currency into shillings. Neither fact is inside the candle. The candle gives the pips, and the rest comes from the broker and the exchange rate.

On one standard lot of EUR/USD, one pip is worth 10 units of the quote currency. If those 10 units convert at KSh 130, one pip is KSh 1,300. The 10-pip body is therefore KSh 13,000, and the 50-pip range is KSh 65,000. Those figures describe movement, not profit. They are the same whether the slice ended higher or lower.

Brokers differ in how they round prices, whether they add a commission, and what conversion rate they apply to the shilling. So the KSh figure will vary between brokers, and it will also vary with the exchange rate on the day. Write the pip figures first, then the shilling figures beside them, and label which is which. A number without its unit invites a mistake later.

One candle is a slice, not a trend. The same four numbers can sit in a quiet market or in a violent one, and only the surrounding candles show which. Compare the range of the candle you are reading with the ranges of the ten before it. A 50-pip range is unremarkable in a busy week and striking in a still one.

Comparison also guards against a common error: treating a single shape as a signal. A long upper shadow does not mean price will fall next. It means price reached that high and did not close there. What happens next is a separate slice with its own four numbers, and it has not been written yet.

The honest use of a candle is description. It tells you what happened in one slice, in four numbers, with no opinion attached. Description is enough to compare brokers, to size a position and to record what you saw. Anything beyond description is a forecast, and a forecast is not contained in the candle.