Candles, bars and timeframes

After this lesson you can read any candle on any chart, and you'll know why no timeframe is the "true" one.

One dataset, many lenses

Everything on every chart comes from a single source: the tape, the running record of actual trades you met in School I. A chart is just that record summarized into boxes of time. Nothing gets added along the way; the summarizing throws detail away in exchange for shape.

A candle summarizes one box of time with four prices: where it opened, the highest trade, the lowest trade, and where it closed (together with the volume traded, which is course 4's subject). The thick part of the candle, the body, spans open to close; the thin wicks reach to the high and the low. On most charts a candle that closed above its open is drawn hollow or green, and one that closed below its open is drawn red.

That's the whole encoding, and it's worth decoding a few:

• Opened at the low, closed at the high, small wicks. Buyers were in control from start to finish of that window.
• Long upper wick, close back near the open. Price rallied and sellers met it, and the rally got offered back. Someone used that strength to sell.
• Long lower wick, close back near the top. Sellers pushed it down, buyers absorbed what was offered, and by the close most of the decline had been taken back.

Every one of these is School I's auction, compressed. When you read a candle, you're reading who was more urgent during that box of time, and how the fight ended.

Timeframes

The same tape can be cut into 5-minute boxes, hourly boxes, daily boxes, weekly boxes. A daily candle contains dozens of 5-minute candles; a weekly contains five dailies. Zooming out smooths the picture at the cost of detail, and zooming back in gives the detail back along with the noise. No level of zoom is more true than the others. They're the same data at different resolutions, useful for different jobs.

The practical convention this Academy runs on: daily charts for decisions, weekly charts for context. The teaching lineage this curriculum stands on (O'Neil, Weinstein, Minervini) worked on daily and weekly charts, and trends there last long enough to manage without sitting at the screen. School I's course on costs also told you what trading every wiggle does to an account. Intraday charts are real and some professionals live on them. They're also where the costs and the stress concentrate, so here they come later, or not at all, and either way by choice.

One trap to name before it forms: switching timeframes until the chart agrees with you. The daily looks bad, so you zoom to the hourly, which looks better, and now the trade is "confirmed." That's interviewing witnesses until one of them says what you wanted to hear. Pick the timeframe for the job before forming the opinion, and let School VII explain why the other order feels so natural.

Check yourself

1. A daily candle opened at €48, ran to €52, and closed at €48.30. Describe the day's fight. (Buyers rallied it four euros; sellers took nearly all of it back by the close. The long upper wick is the visible evidence.)
2. What extra information does a weekly chart contain that the dailies it's built from lack? (None — it's the same data with detail removed. What it offers is perspective, at the price of resolution.)
3. Why does this Academy default to daily charts? (The lineage's methods live there, and trends there last long enough to manage without sitting at the screen. Fewer decisions also keeps the costs down.)

The idea this lesson installs

Every candle is a summary of an auction you already understand.

Next: Course 2 — "Trend anatomy: the four stages." (Candlestick charting itself is centuries old — Japanese rice traders drew them long before Wall Street did.)