CANDLEWORK

The Reference · Definition

Trading, meaning.

Every field defends itself with vocabulary, and this one has more than most. What follows is what the word actually means, what the core objects on a chart actually record, and — the part usually skipped — what the vocabulary quietly leaves out.

01 · The Word

A course, not a decision.

The word arrived in English around 1300 from the Middle Low German trade, meaning a track or a course — the same family as tread, which is what you do to make one. For its first two centuries it meant a path, and then a habitual course of action. Only in the late 1400s did it settle into commerce.

tradaOld SaxonA footstep. The mark left behind by having walked somewhere.
tradeMiddle Low GermanA track or course — a route worn in by repetition rather than laid out in advance.
tradeEnglish, c. 1300A path, then a customary way of doing something, and only later the exchange of goods.

That older sense is the more accurate one for what this section describes. Trading is a course you follow repeatedly, not a decision you make once. A single position tells you almost nothing; the shape of a hundred of them tells you nearly everything. Most of the vocabulary below exists to describe that repetition rather than any individual bet.

02 · The Distinction

Trading and investing are different bets.

The two words get used interchangeably and they should not be. The difference is not the holding period, though that is the usual shorthand — it is what you are relying on.

Investing

  • You own a claim on something's future earnings
  • You are paid for holding it — dividends, interest, growth
  • Your bet is that the underlying thing produces value
  • Time is generally working for you

Trading

  • You take a position on price movement
  • You are paid only if price moves your way before you close
  • Your bet is on the movement, not the thing
  • Costs accrue every time you act

Both carry risk of loss, and neither is the more sophisticated. But the distinction matters for reading anything written about either, because advice written for one is routinely quoted at people doing the other.

03 · The Object

What a candle actually records.

The candlestick is the base unit of this vocabulary, and almost every other term is defined against it. It is worth being precise about what it does and does not contain.

One candle summarises one period of time using exactly four numbers: where price opened, the highest it reached, the lowest it reached, and where it closed. The thick body spans open to close. The thin wicks reach out to the extremes that were touched but not held.

HIGH CLOSE OPEN LOW Upper wick — the highest price reached, then given back Body — the distance between open and close Lower wick — the lowest price reached, then recovered CLOSED BELOW OPEN CLOSED ABOVE OPEN
Anatomy of a candle · original diagram

Three things the candle does not record, all of them routinely assumed: the order in which the high and low were reached, how much was traded at any price, and anything at all about what happens next. A candle is a receipt. It is evidence of what occurred, not a signal about what follows.

The timeframe is a choice, not a property of the market. The same afternoon becomes one candle on a four-hour chart and two hundred and forty on a one-minute chart — different-looking pictures of identical history.

04 · The Vocabulary

Twelve terms, plainly.

These recur in almost everything written on the subject. Defined here as practitioners use them, with no claim attached to any of them.

CandleOne period of price, in four numbers: open, high, low, close.
WickThe thin line above or below the body. Marks a price that was reached during the period but not held at the close.
TimeframeHow much time one candle represents. A choice made by the reader, not a fact about the market.
SpreadThe gap between the buying and selling price at any moment. A cost paid on entry regardless of what happens afterwards.
SlippageThe difference between the price expected and the price actually received. It tends to widen exactly when it is least welcome.
LiquidityHow readily something can be bought or sold without moving its own price.
LeverageBorrowed exposure, letting a position control more than the capital behind it. It scales losses exactly as it scales gains, and is capped by regulators in many regions.
Position sizeHow much is committed to a single trade. The one part of the process fully under the trader's control.
DrawdownThe fall from a peak to the trough that follows. Recovering one always demands a larger percentage than the percentage lost.
R-multipleA result stated as a multiple of what was risked on it, rather than in currency. Makes outcomes of different sizes comparable.
Support & resistancePrice areas where buying or selling has previously shown up. Descriptions of the past, not forecasts.
ConfluenceSeveral separate signals pointing the same way at once. Agreement between indicators is not evidence that any of them work.

05 · The Frame

The timeframe is a decision.

Nothing on a chart is more quietly consequential than which timeframe is on screen, because the same history produces genuinely different-looking pictures — and each one invites a different story.

1mOne candle per minute. Costs are paid often; noise dominates.
1HOne per hour. A trading day becomes a handful of shapes.
1DOne per day. A year fits on a screen.
1WOne per week. Decades become legible; detail disappears.

A move that looks like a decisive break on a one-minute chart may be an unremarkable wick on the daily. Neither view is wrong and neither is more real — but a claim made on one timeframe cannot be checked on another, and disagreements about a chart are very often disagreements about scale that nobody has said out loud.

The other thing scale changes is cost. Shorter timeframes mean more positions, and every entry pays the spread. Frequency is the one variable that reliably increases what you spend.

06 · The Operator

The part the vocabulary doesn't name.

Every term above describes the market. None of them describes the person reading it — and the documented failure modes of that person are better understood than any pattern on the chart.

Loss aversionA loss registers roughly twice as strongly as an equivalent gain. The practical effect is holding losers too long and closing winners too early — precisely inverting what any plan intended.
Sunk cost fallacyStaying in because of what has already been spent. What is gone cannot be recovered by committing more to the same position, but it feels as though it can.
Gambler's fallacyBelieving that a run of one outcome makes the opposite one due. Independent events have no memory, and neither does price.
ApopheniaFinding structure in noise. A chart is unusually good at supplying it — the eye assembles a pattern before any judgement is made about whether one exists.
Confirmation biasRemembering the times a signal worked and quietly discarding the times it did not. It is why an unwritten method always feels more reliable than a written one.
Survivorship biasSeeing only the accounts that lasted. The people who stopped are not posting, so the visible sample is the surviving one, not the representative one.

This is the honest reason position sizing gets more attention here than entries. The chart is not the hard part. Every item above operates on the person, most of them below the level of noticing, and none is fixed by learning another pattern name.

07 · The Limits

What the vocabulary hides.

Named patterns feel like knowledge because they are named. But a pattern name is a description of past behaviour and the crowd psychology behind it — it is not a mechanism, and it is not a forecast. No pattern predicts future prices.

This site publishes no win rates, no back-tested returns, no "this works 73% of the time," and no income claims of any kind — that is a standing editorial rule, not a hedge. No source can support such a claim, so we make none. Every chart and figure shown across this section is a simulated illustration, never real market data or performance.

Two things that are arithmetic rather than opinion, and worth carrying: costs are certain while outcomes are not — the spread is paid on every entry whether the idea was good or not — and drawdowns are asymmetric. Losing 50% leaves half the capital, and half must double to get back, so recovery needs a 100% gain. The deeper the hole, the worse the arithmetic gets. This is why position sizing matters more than entries.

Trading carries substantial risk of loss and most active traders lose money.

06 · Common Questions

Straight answers.

What does trading mean?

Taking a position on the price of something with the intention of closing it again, usually over a short horizon. The word came into English from the Middle Low German trade, a track or course, and meant a path long before it meant commerce. That older sense still fits: trading is a course followed repeatedly, not a single decision.

What is the difference between trading and investing?

Investing generally means owning a claim on something's future earnings and being paid for holding it. Trading means taking a position on price movement and closing it again. The real difference is what you rely on — the thing producing value, or the price moving within your window. Both carry risk of loss.

What is a candlestick?

A summary of one period in four numbers. The body spans the open and close; the wicks reach the highest and lowest prices touched. Its colour shows only whether the close finished above or below the open. It records what happened, not what happens next.

Do candlestick patterns predict price?

No. Patterns describe past behaviour and the psychology behind it. No pattern predicts future prices, and this site publishes no win rates or performance claims of any kind.

Why does a loss need a bigger gain to recover?

Percentages work against a shrinking balance. A 50% loss leaves half the capital, and half must double to return to the start — a 100% gain. The asymmetry worsens the deeper the drawdown, which is why controlling position size matters more than choosing entries.

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