What does a single candle actually encode?

You met candlesticks in Markets Foundations — body, wicks, four prices. Now we slow down and squeeze all the information out of one candle, because a candle is the densest summary of a trading period in common use, and most people read only its colour.

Four prices, two shapes

Every candle compresses a period into OHLC — open, high, low, close — and draws them as two shapes:

• The body — open to close. Where the period started and where it finished.
• The wicks — the stretch above the body up to the high, and below it down to the low. Where price travelled but could not stay.

Colour is only a comparison: close above open (usually green or white), close below open (red or black). Colour tells you nothing about size — and size is where the information lives.

The three ratios that matter

Instead of memorising pattern names, read any candle with three questions:

1. How big is the whole range (high − low) compared with recent candles? Fix the comparison first: the median range of the last 20 sessions is a workable default, and any rule you write down and keep is better than an impression. A range three times that says the period was unusual: a lot of repricing. It does not by itself say many people were involved: a thin order book can produce a wide range on very little trading. That is what the volume pane is for.
2. How much of the range is body? Because it is a ratio, it carries no units: a 70% body means the same thing on a $9 stock and a $900 one. A body filling 80% of the range means one side spent most of the period moving in one direction. A body filling 10% means the period ended roughly where it began after a lot of travel.
3. Where does the close sit inside the range? Near the top, near the bottom, or in the middle. The close matters because it is the last price both sides had to agree on.

Ten sessions drawn to make those three questions answerable at a glance. Two of them — the marked pair — share exactly the same high and the same low and close in opposite directions, which is the quickest way to see that the extremes are not where the information is.

A worked example

Take an illustrative daily candle on a stock trading around $100:

• Open $100, High $104, Low $99, Close $103.50.

Range: $5. Against a recent median range of, say, $1.60, that is roughly three times normal — wide by the rule fixed above. Body: $3.50, or 70% of the range. The close sits $0.50 below the high, in the top 10% of the range. Read it out loud: the session opened at 100, sellers managed a brief dollar dip, buyers carried it to 104, and it finished near the top. No prediction — just an accurate account of the day.

Now change one number: Close $100.20. The body is tiny, both wicks are long, and the honest sentence becomes: price travelled 5% and the day agreed on nothing. Two candles with identical extremes describing completely different sessions. That is why the body-to-range ratio does more work than colour.

What one candle cannot tell you

• The path. A high of $104 doesn't say whether that happened at the open, at lunch, or a minute before the close. Only a smaller timeframe shows the order of events inside the candle.
• The reason. Earnings, a rumour, an index rebalance, one large fund finishing an order — the candle records the result, never the cause.
• What comes next. Traders watch candle shapes as descriptions of what just happened. Nothing about a shape obliges the next period to do anything.
• Anything, when all four prices are equal. On an illiquid name a daily candle can print O=H=L=C — a single trade, drawn as a horizontal line with no body and no wicks. The ratios are undefined, and the print is a fact about the order book, not the day.

One more caveat, about the prices themselves. On a stock the open and close are auction prints and the session boundary is set by the exchange, so all four numbers describe a real, agreed period. On something trading nearly around the clock — spot FX, crypto — the boundary is a convention: open and close are wherever the vendor's clock cut the day. Measured on our own data over 260 sessions: Bitcoin's median gap between one day's close and the next day's open is 0.00%, because there is no gap to have, while Apple's is 0.34%. Move the cut and the same 24 hours yields a different body, sometimes a different colour. The extremes shift far less. So read the three ratios on one source and one convention.

In the data

Below are two real daily bars: Apple's last session before its 2020 four-for-one split and the first one after it. Each carries the four traded prices and a fifth number, the adjusted close.

The adjusted close is not a price anyone traded. It is the close restated for every split and dividend since, and there is no adjusted open, high or low to go with it. A candle built from three traded prices and one adjusted close mixes two scales, and its body-to-range ratio is arithmetic on numbers that do not belong together. So read the ratios on the traded prices, as every candle chart draws them. If you need a history comparable across a split, divide the adjusted close by the close for that day and apply that one factor to all four prices.

Try it now

1. Take the marked pair on the schematic above. Compute all three ratios for each and write the two sentences out. Nothing differs between those bars except where the session started and where it settled.
2. Now four prices nobody arranged. In the month of daily candles below, pick the widest-range session and compute the same three ratios for it.

Then fold the same chart to Weekly with the BARS switch and find your session inside its week. Recompute the three ratios on that weekly bar. They will not agree with the daily ones, and neither reading is wrong: a session with a 5% body can sit inside a week with a 70% body. That is the point — the ratios describe the period you chose, not "the market".

3. Describe that session in one plain sentence a non-trader would understand — what happened, not what follows. One caution about the scale you read it on: candles are drawn on raw closes and the line view on adjusted ones, and the three ratios only mean anything on the raw prices the candles carry.