What Is a Candlestick?
A candlestick is the fundamental building block of technical analysis charts. Each candlestick represents price action over a specific time period, displaying four data points: open, high, low, and close. The rectangular "body" shows the open-close range, while thin lines ("wicks" or "shadows") extend to the high and low.
How Candlesticks Work
A green (or white) candle indicates the close was higher than the open (bullish). A red (or black) candle indicates the close was lower than the open (bearish). The length of the body shows the strength of buying or selling pressure, while long wicks indicate rejection at those price levels.
Why It Matters for Traders
Candlestick patterns are the foundation of price action trading. Specific patterns like hammers, engulfing candles, and dojis signal potential reversals or continuations. Reading candlestick anatomy — body size, wick length, and wick-to-body ratio — provides immediate visual insight into market sentiment for any timeframe.
How Perps Traders Use This
For CEX perpetual futures, treat candlestick as context around entries, exits, and risk, not as a standalone signal. Pair it with funding, open interest, and liquidation heat so one indicator does not drive the whole book.
Formula and Worked Example
Example numbers only (not a live quote).
If your account equity is $10,000 and you risk 0.5% per idea, the cash risk budget is $50. With a stop 1% away from entry on a linear USDT-margined perp, notional size is about $5,000 before leverage optics. Size from stop distance first, then pick leverage that fits the margin mode.
Common Mistakes
- Treating a single print of candlestick as a trade signal without checking funding, open interest, and your liquidation price.
- Mixing venue conventions (coin-margined vs USDT-margined, cross vs isolated) and reading the wrong mark.
- Copying example numbers from a glossary into live size without checking the current book depth and fee schedule.
- Ignoring related terms that change the meaning of the print on a given day.
