Lesson 3: Candlesticks
Here at FoundryStrat, we like candlesticks to represent price. We think it's what price behaviour really looks like (without the voodoo)
Why candlesticks matter
Candlesticks are often taught like spells:
“If you see this shape, price must do that.”
That’s nonsense. Candlesticks don’t predict the future. They describe what just happened between buyers and sellers.
If you understand that, candles become useful instead of confusing.
The anatomy of a candlestick
Every candlestick tells four things:
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Open – where price started
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High – the highest price buyers pushed to
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Low – the lowest price sellers pushed to
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Close – where price settled
The body shows agreement. The wick shows rejection. That’s the whole story. It's clean and simple and intuitive.
What candles really represent
Candles show:
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Effort (is a candle elongated or compressed) - we'll talk about volume in another lesson, but combined with volume, you can really see strong/weak effort
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Emotion - big wicks for example show the market is swinging around and may lack conviction in the direction.
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Acceptance or rejection of price - this can give key indicators of where price might head next.
Long body → strong conviction
Small body → indecision
Long wick → price was rejected
They are a behavioural snapshot, not a signal generator.
Context beats patterns
A candle means nothing on its own. Please remember this. There's many people out there saying, 'buy the break of the hammer', or 'there's a shooting star, you can sell the break', (both types of candles formations)
but you need more than just a single or group of candles.
The same candle:
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At support
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In a trend
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After a strong move
…can mean completely different things.
Rule to remember: Location matters more than shape.
The only candle types worth caring about
There's many books out there that cover candles. If you want to go really deep into this subject, You can look at the Encyclopaedia of Candle Stick Charts by Thomas Bulkowski but honestly, it's not necessary. There's a few that are worth figuring out and familiarising yourself with....
Doji – indecision
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Open and close are similar
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Neither side is in control
Dojis matter most:
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After a strong move
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At key levels
They warn of potential change, not certainty.
Hammer / Shooting Star – rejection
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Long wick, small body
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Price tried to move and failed
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Hammer: rejection of lower prices
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Shooting star: rejection of higher prices
Power comes from:
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Location
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Prior trend
Engulfing candles – momentum shift
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One candle fully overtakes the previous one
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Shows a decisive change in control
Bullish or bearish depending on direction.
Engulfing candles work best:
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After pullbacks
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At important levels
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In trending markets
Why most candlestick books fail
They:
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Teach dozens of patterns
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Ignore context
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Encourage overtrading
Markets don’t care about named patterns. They care about who is in control.
How to actually use candlesticks
Use candles to:
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Confirm rejection at levels
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Assess conviction
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Time entries within a bigger idea
Do not use candles to:
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Predict reversals blindly
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Trade in isolation
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Override structure or trend
Remember that candlesticks refine decisions, they don’t create them.
A simple candle framework
When you see a candle, ask:
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Where is it happening?
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What came before it?
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Who won this battle: buyers or sellers?
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Does this align with the bigger trend?
If the answers aren’t clear, wait.
What’s next
Now that you can read price behaviour, the next step is understanding structure over time.
This is where most people start to actually improve.
👉 Next lesson: Trend & Market Structure – Trading with the market, not against it