Candles and timeframes

Welcome to Module 2. Before you can read the market, you need to read a chart. Almost every futures trader uses candlestick charts, so that is where we start.

A candle tells a 4-part story

Each candle covers 1 slice of time, like 1 minute, 5 minutes or 1 day. It answers 4 questions about that slice:

• Open: where price started
• Close: where price finished
• High: the highest price reached
• Low: the lowest price reached

Body and wicks

The thick part of the candle is the body. It runs from the open to the close. The thin lines above and below are the wicks. They show how far price traveled beyond the body before pulling back.

A green candle closed higher than it opened. A red candle closed lower. Think of each candle as a receipt for what happened in that slice of time.

What candles hint at

• Big bodies show strong conviction in 1 direction.
• Small bodies show indecision.
• Long wicks show price was pushed away from a level. A long lower wick means sellers tried and buyers fought back.

A single candle rarely tells the whole story. Look at where it forms, especially near the key levels in lesson 6.

Picking timeframes

The same market looks very different on a 1-minute chart and a daily chart. Most day traders use 2 or 3 timeframes, each with a job:

• A higher timeframe for direction. A 15-minute or 1-hour chart shows the trend and the big levels.
• A lower timeframe for entries. A 1-minute to 5-minute chart shows exactly when to act.

Start with the higher timeframe. Decide whether the market is trending up, trending down or moving sideways. Then drop to the lower timeframe to time your entry in that direction.

Keep it simple

2 or 3 timeframes are enough. Watching 6 charts at once usually means getting conflicting signals and freezing. Pick your set, use it every day and get to know how your market moves on it.

Practice

Open a chart of NQ or MNQ. Switch between 1-minute, 5-minute and 1-hour views. On each, find the open, high, low and close of the latest candle. Then note the direction on the 1-hour chart. Do this for a few days and it will become automatic.