Read Candles Like a Pro: Spot Bullish, Bearish and Trend Shifts
- Learn to read candlestick structure using open, high, low and close
- Identify bullish and bearish momentum through closing price comparison
- Interpret market movement effectively across different timeframes
- Decode buying and selling pressure by analysing candle wicks and bodies
Transcript
CA Manish Singh:
Hello everyone, and welcome to Chapter 3. Today we will learn how candlesticks are formed, the key components of a candlestick, how to identify bullish and bearish candles, and what these candles indicate about price movement.
What This Chapter Covers: The Building Blocks of Candlesticks
CA Manish Singh:
Once you understand how a candle is constructed, you can connect its structure to its meaning. Take a simple example. If a candle opens at ₹100 and closes at ₹110, the price has moved from 100 to 110 during that period. That move reflects buying interest within that range and an overall upward bias.
In simple terms:
Opening price: ₹100
Closing price: ₹110
That is the most basic structure of a candlestick.
Understanding Timeframes and Why They Matter
CA Manish Singh:
Candlesticks are always linked to the timeframe you select. If the move from 100 to 110 happens in a 5-minute candle, it means:
At the start of the 5-minute period, the price was ₹100.
At the end of the 5-minute period, the price was ₹110.
Within those five minutes the price may have gone higher than 110 or lower than 100. It might have reached 115 at the top or dipped below 100 before closing at 110. All of that activity is captured inside a single candle. What you finally see on the chart is a summary of all trades within that timeframe.
On a 1-minute chart, each candle represents one minute of price action. For example, the 3:00 pm candle might:
Open: 25,432
Close: 25,440
If you switch to a 5-minute chart, candle size and shape change. A single 5-minute candle for the same period might:
Open: 25,432 at 3:00 pm
Close: around 25,455 after five minutes
Earlier, on the 1-minute chart, the same window may have ended near 25,440. This difference comes from the timeframe you choose.
Key point: When the timeframe changes, the size, the shape, and the interpretation of the candle also change.
Green vs Red Candles – The Battle Between Bulls and Bears
CA Manish Singh:
Now let us define when a candle becomes green and when it becomes red.
Consider the level 25,456. If the next candle:
Opens at 25,456, and
Closes above 25,456
It becomes a green candle, indicating bullish movement. For example:
Open: 25,456
Close: 25,471
That is green because the close is higher than the open.
For a red candle, assume the previous candle:
Open: 25,457
Close: 25,470
The previous closing price is about 25,470 (or 25,471 depending on rounding). If the next candle closes below that previous close, it forms a red candle, indicating bearish movement. For example:
Open: 25,472
Close: 25,460
In short:
A green candle forms when the current candle closes above the previous candle’s close.
A red candle forms when the current candle closes below the previous candle’s close.
Understanding Bodies and Wicks
CA Manish Singh:
Many candles have a thin line extending above or below the coloured body. This is called the wick.
Example of a green candle:
Body: between 25,445 and 25,450
Upper wick: extends to 25,451
This tells us that during that timeframe the price reached 25,451 but did not close there. Sellers came in at higher levels and pushed the price back towards the body by the close.
Definitions:
Body: the filled or coloured portion; the range between the open and the close.
Wick: the thin line above or below the body; shows how far the price travelled beyond the open and close; records the high and low of the period that did not hold into the close.
If the open is 25,444 and the close is 25,445, but during the candle the price also moves up to 25,451, then the movement above the body, between 25,445 and 25,451, is represented by the upper wick.
A wick suggests the price visited that level, but supply or demand at that point pushed it back towards the body before the candle closed.
Summary and Takeaways
A green candle is bullish; a red candle is bearish.
Green forms when the current close is above the previous close.
Red forms when the current close is below the previous close.
The body shows where the market opened and closed.
The wick shows additional price movement that did not hold into the close.
Timeframe selection changes what each candle means.
These are the basics of how candlesticks are formed. Please revise this chapter, as these concepts will be used repeatedly in the chapters that follow.
Disclaimer: Investments in securities markets are subject to market risks. Read all related documents carefully before investing.