How Candlesticks Are Formed: The OHLC Explainer
- Rise
- May 4
- 2 min read
Updated: May 6
Before you can read a stock chart, you need to understand the building block of every chart: the candlestick. Each candle tells you everything that happened in a given time period (1 minute, 1 hour, 1 day, etc.).
OHLC = Open, High, Low, Close
Open: The price when the period began. High: The highest price reached during the period. Low: The lowest price reached during the period. Close: The price when the period ended.
The Candle Body
The rectangular part of the candle represents the distance between the Open and Close. If the Close is HIGHER than the Open, the candle is green (bullish). If the Close is LOWER than the Open, the candle is red (bearish).
The Wicks (Shadows)
The thin lines above and below the body are called wicks or shadows. The upper wick shows how high the price went before pulling back. The lower wick shows how low the price went before recovering. Long wicks indicate rejection.
Key Candle Patterns I Watch For
Doji: Open and Close are almost equal. Indecision. Often signals a reversal at support/resistance. Hammer: Small body at the top, long lower wick. Buyers rejected the lows. Bullish signal at support. Shooting Star: Small body at the bottom, long upper wick. Sellers rejected the highs. Bearish signal at resistance. Engulfing Candle: A large candle that completely engulfs the previous candle. Strong reversal signal.
How I Use Candlesticks for Options Trading
I look at daily and weekly charts to identify support and resistance levels, then sell CSPs just below support. I’d rather sell a CSP after seeing a hammer candle at support than before. Don’t overthink it — the big picture matters more than any individual candle pattern.
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