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Understanding Candlesticks
The first step in reading price action is defining what each candle is communicating. This lesson establishes the three candlestick categories used throughout the series.
Every candle on a chart falls into one of three categories. This lesson defines all three using consistent, measurable criteria — so that every candle you ever look at has a clear answer.
Bullish Candle
- Body greater than 50% of the total bar
- Closes above the midpoint of the bar
- Small or no wicks on top and bottom
Bearish Candle
- Body greater than 50% of the total bar
- Closes below the midpoint of the bar
- Small or no wicks on top and bottom
Strong Bullish Candle
- Body greater than 50% of the total bar
- Closes in the top 30% of the bar
- Small or no wicks on top and bottom
Strong Bearish Candle
- Body greater than 50% of the total bar
- Closes in the bottom 30% of the bar
- Small or no wicks on top and bottom
The close is the key distinction. A strong candle does not just close in the top or bottom half — it closes in the top or bottom 30%. This is the single most important thing to internalise from this lesson.
Trading Range Candle
- Does not meet the criteria for bullish, bearish, strong bullish, or strong bearish
- Typically a small body with larger wicks
- Often overlaps with prior candles
- No clear momentum in either direction
Trading range candles make up roughly 80% of bars on any chart. Recognising this prevents the mistake of forcing directional interpretation onto non-directional price action.
No single candle is a decision
There is no single candle that should be traded the same way every time. Attempting to trade any one candle with the expectation of being consistently profitable is not a viable approach.
A strong bullish candle can represent a strong sell signal just as much as a strong bearish candle can be a buy signal. A strong bullish candle can sometimes be great conditions for sellers. This is covered in later lessons, where you will understand exactly why.
Classification is observation. The decision framework is context — and context is built throughout this series and the Price Action Mastery course.
Common Misreads
Classifying by direction alone
A close greater than the open candle (what most people call a bull candle) is not automatically bullish in our language. A large candle with a long upper wick closing below the midpoint is a trading range candle. Always check the close location first.
Overthinking candles
If a candle does not clearly meet the definition through a first impression, it is a trading range candle. Roughly 80% of bars on any chart are trading range candles and so if in doubt, traders will assume it is a trading range.
Treating classification as a decision
A strong bullish candle does not mean buy. A strong bearish candle does not mean sell. Classification is observation only. The same candle can signal completely opposite things depending on context.
What to take from this lesson
- Every candle on a chart is bullish, bearish, strong bullish, strong bearish, or a trading range candle.
- Classification is based on close location within the candle.
- Strong candles require a close in the top or bottom 30%.
- Roughly 80% of bars on any chart are trading range candles. Recognising this is as important as identifying the directional ones.
- No single candle pattern produces a consistent result when traded in isolation. Classification is observation, not a trade signal.
- Context determines meaning. The same candle can signal completely different things depending on where it appears in the context.
Coursework
Open a chart of any market — stock, index, or futures. Select a section covering at least 80 candlesticks, and classify every candle using the definitions from this lesson.
Task
- Classify every candle as bullish, bearish, strong bullish, strong bearish, or trading range
- Note where trading range candles cluster
Observations to record
- When price is moving higher, are there more strong bullish candles?
- When price pulls back, are those candles strong bearish — or trading range?
- How do traders respond to the same strong bullish candle early in a trend versus late?
- During sideways movement, do you see noticeably more trading range candles?
This work forms the foundation for every lesson that follows. This groundwork determines how quickly the concepts connect.
Annotation Checklist
- Bullish candle — body >50% of bar, closes above midpoint, small wicks
- Bearish candle — body >50% of bar, closes below midpoint, small wicks
- Strong bullish candle — body >50%, closes in top 30%
- Strong bearish candle — body >50%, closes in bottom 30%
- Trading range candle — does not meet criteria for any directional category
Lesson Review
Test your understanding before moving on.
What is the minimum body size for a candle to be classified as bullish or bearish?
Both bullish and bearish candles require a body greater than 50% of the total bar. This confirms the bar showed clear directional momentum from open to close.
Where must a strong bullish candle close within the bar?
A strong bullish candle must close in the top 30% of the bar — a tighter requirement than a regular bullish candle, which only needs to close above the midpoint. The same applies in reverse for strong bearish candles.
A candle opened on its low and closes below the midpoint with a long upper wick. How should it be classified?
Direction alone does not determine classification. Closing below the midpoint fails the bullish close criteria entirely. It is a trading range candle.
Approximately what percentage of bars on any chart are trading range candles?
Roughly 80% of bars on any chart are trading range candles or overlapping bars. Understanding this prevents the mistake of trying to force directional interpretation onto the majority of price action.
What separates a strong bullish candle from a regular bullish candle?
The close location (top 30%) is the most important differentiator for candle strength. Candle direction and trend context are irrelevant to the classification itself.
Which of the following correctly defines a trading range candle?
A trading range candle is defined by exclusion — if it fails to meet the criteria for any of the four directional categories, it is a trading range candle. They can appear anywhere on a chart, not only during sideways movement.
What is the primary input used to classify a candle?
A candle can be bullish or bearish according to traditional definitions and still be a trading range candle if it closes near the midpoint. Always check where the candle closed and the size of the body to confirm directional strength.