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A candlestick chart consists of two axes. The horizontal axis shows the time divided into specific intervals and the vertical line shows the price or rather the ratio of two currency pairs. The following image is an example of a daily candlestick chart for USD/JPY. Every time interval on this chart represents one day.

Each time interval is represented by a shape that looks like a candle. That is why we call these charts candlestick charts.

The Structure of a Candlestick

The following image shows a sample candlestick and its components.

As you can see each candlestick or simply candle represents four key prices of the session or rather time interval: the open price of the session, the close price of the session, the lowest price of the session and the highest price of the session. To this point a candle chart is similar to a bar chart as it offers OHLC (open, high, low, and close). If you look at the image closely you will also find out that a candle defines three regions or parts. These are...

• Upper Shadow (or upper wick): The distance from the highest of Close and Open to the highest price of the session
• Real Body: The distance between Open and Close of the session
• Lower Shadow (or lower wick): The distance between the lowest of Close and Open to the lowest price of the session

The three parts of the candle help us recognize candlestick patterns. These three simple parts could provide us with valuable information about the market.

Candlestick Types

A candlestick could take three typical shapes.

• Bullish: The close is higher than open. We usually show a bullish candlestick with a hollow or white rectangle
• Doji: The close is equal to the open. A Doji looks like a cross or a T or an inverted T depending on the size of upper and lower shadow
• Bearish: The close is lower than the open. We usually show a bearish candlestick with a filled (usually black) rectangle

The following image shows different types of candlesticks.

Analyzing Candlesticks

I have developed a custom indicator for MetaTrader 4 that analyzes candlesticks and shows the size of upper shadow, lower shadow, and real body along with useful information about each candle. When you attach the indicator to a chart you see an image similar to the following one.

From programming point of view this indicator accepts one input which is the bar or rather the candle number. For example if the input is 0 then it shows information about the most recent candle on the chart.

The outputs of the chart for a viewer consist of four lines on an indicator window (see image):

• Black: represents the range of each candle (high minus low)
• Green: represents the size of the upper shadow
• Dodger Blue: represents the size of the real body
• Red: represents the size of the lower shadow

You also see some labels on the chart that show information about the indicated candle. For example if the input value is 0 then the information is about the newest candle. If the input value is 1 then you are looking at one candle prior to the newest candle and so on.

As a programmer you can pass one input to the indicator (which is the candle number) and get 4 outputs (numbered 0 to 3 respectively). The following names are meaningful to programmers only.

• Range
• UpperShadow
• RealBody
• LowerShadow

Download CandleParams Indicator [link]

Click here to download the compiled version of the indicator. You can place it in the "...\experts\indicators" folder and use it. The source code of this indicator is available to my paid students only. Click here for more information about my MQL4 course.

If you are not familiar with using custom indicators click here to watch a video.

Watch the video presentation of this lesson!

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