- Body, wick and close position — what each is evidence of
- The three properties of a bar that actually carry information
- Why bar-reading only works in context, never in isolation
Candlestick literature contains dozens of named patterns, most of which have no demonstrable edge on their own. What does carry information is simpler and older: the spread of a bar, where it closed within that spread, and how both compare with recent bars. Learn that and the named patterns become obvious special cases.
The three properties
- Spread (high − low)Question it answers: How much disagreement was there?Interpretation: Wide = a fight, or one side overwhelming. Narrow = agreement, or absence of interest.
- Close positionQuestion it answers: Who ended the session in control?Interpretation: Close near the high = buyers finished on top. Near the low = sellers did.
- Relative to prior barsQuestion it answers: Is this normal for this instrument?Interpretation: A wide bar only means something if the recent bars were narrow
WIDE + CLOSE HIGH WIDE + CLOSE LOW LONG LOWER WICK NARROW RANGE
│ ┌─┐ ┌─┐
┌┴┐ │ │ │ │ ┌┴┐
│ │ │ │ └┬┘ └┬┘
│ │ └┬┘ │
│ │ │ │
└┬┘ │ │
│ │ │
buyers took the day sellers took the day rejected lower prices no disagreement
demand overwhelmed supply overwhelmed demand appeared at the balance, or
supply demand low and held nobody homeContext is not a caveat — it is most of the information
A wide-range bar with a long lower wick closing near its high. Same bar, three places on the chart.
- After a long decline, at a prior support level
- high information
- In the middle of a 10-week range
- near-zero information
- After a long advance, on the third such bar
- ambiguous — possibly climactic
The handful of formations that are worth knowing
- Pin bar / hammerWhat it is: Long wick rejecting one extreme, close at the other endOnly meaningful when: It occurs at a tested level, with above-average volume
- EngulfingWhat it is: A bar whose range swallows the previous bar's, closing oppositeOnly meaningful when: It appears after a run in the opposite direction, not mid-range
- Inside barWhat it is: Entire range inside the previous bar'sOnly meaningful when: Several stack up — that is volatility contraction, a coil
- DojiWhat it is: Open and close nearly equalOnly meaningful when: It follows a strong directional move — indecision after conviction
- Wide-range climax barWhat it is: Exceptional spread on exceptional volumeOnly meaningful when: It ends an extended move — often the last act, not the first
Published back-tests of candlestick patterns in isolation generally find weak and unstable results. That is not because the patterns are meaningless — it is because a pattern stripped of location and volume has had its information removed before the test began.
Two working rules. First, never take a bar pattern that is not at a level you had marked in advance. Second, a pattern that requires you to squint is not one — the whole point of a rejection bar is that it is obvious.
Effort versus result — the seed of everything later
Volume is effort. The resulting price movement is result. When the two disagree, something is absorbing the effort — and that disagreement is the core of both volume spread analysis and Wyckoff.
- Very highPrice result: Wide bar, closes at extremeReading: Effort produced result — the move is genuine
- Very highPrice result: Narrow bar, closes mid-rangeReading: Effort met resistance — someone large is taking the other side
- Very lowPrice result: Wide barReading: No participation — likely to be retraced; common in illiquid names
- Very lowPrice result: Narrow bar in a baseReading: Sellers exhausted — the constructive kind of quiet
- ☐Is it at a level I marked before today?
- ☐How wide is it compared with the last twenty bars?
- ☐Where did it close within its own range?
- ☐What was the volume relative to its average?
- ☐Did effort produce result, or was it absorbed?
- ☐What came immediately before — a run, a range, or nothing?
In one screen
- 1Spread, close position and comparison to recent bars carry the information; names are shorthand.
- 2Location and volume supply most of a bar's meaning — the shape supplies little.
- 3High volume with no price progress means absorption: accumulation at lows, distribution at highs.
- 4Never act on a bar pattern at a level you had not marked in advance.
Check yourself
Nothing is scored or stored — the explanation after each answer is the point.
A stock prints its heaviest volume in months, but the bar is narrow and closes mid-range. What is the most likely explanation?
Which factor contributes most to whether a hammer/pin bar is worth acting on?