Let’s make it simple
A classroom door closes. Was it the wind, a teacher or someone leaving? Seeing the door move does not tell you the reason. Price charts have the same limit.
Understand the idea
A person who bought earlier may later sell to take a gain or cut a loss. A short seller closes a short position by buying back. These actions can contribute to market movement, but a candle alone cannot identify which action occurred.
The source book discusses trapped traders and profit taking. These can be possible explanations, not facts visible in OHLC data. We do not know every entry price, order, position size or reason.
Avoid statements such as "all buyers must sell at this line" or "institutions definitely caused that wick." Write "one possible explanation" and list an alternative. Short selling and leverage have risks outside this beginner course; we do not practise them with money.
Read exact candle values
| Candle | Open | High | Low | Close |
|---|---|---|---|---|
| A | 10 | 14 | 9 | 13 |
| B | 13 | 17 | 12 | 16 |
| C | 16 | 19 | 15 | 18 |
| D | 18 | 19 | 15 | 16 |
A small worked example
After three UP candles, a DOWN candle appears. Perhaps some holders took gains. Perhaps new information changed prices. Perhaps both happened. The candle records the prices, not the private reasons.
Your turn
Make two columns: FACT and POSSIBLE EXPLANATION. Put "close fell from 18 to 16" in FACT. Add two different explanations without calling either proven.
Compare your exercise with a model response
Fact: the close fell. Possible explanations include gain taking or new information; neither is proven by OHLC.
Pause & think
Check your understanding
Write an answer, then compare it with the explanation. This is self-study, not an automatically graded test.
Compare all three answers to unlock the review button.
Fictional examples. Education only; no pattern guarantees a result. Course information