Daily Economics, Business and Finance Study
October 7, 2026 (KST) · Day 17
Today's topic: Candles Are Results, Not Causes — Reading OHLC, Trends, Support and Resistance
1. Review of yesterday's key points
Day 16 explained that volume, trading value and turnover measure participation and capital behind price moves but cannot alone prove buying dominance. Today we read candles summarizing those trades as **open, high, low and close (OHLC)**, then identify trends, support and resistance across multiple candles.
2. Today's core concept
One candle summarizes executed prices during a period.
- Open: The period's first execution price
- High: The period's highest execution price
- Low: The period's lowest execution price
- Close: The period's last execution price
Candles show where buyers and sellers interacted and where trading finished. But why those prices formed cannot be known from candles alone. Investigate earnings, filings, rates, flows, the order book and liquidity separately.
Today's three learning objectives are:
- Interpret candle bodies and wicks accurately using OHLC.
- Assess trends from multiple periods' highs and lows rather than one shape.
- Understand support and resistance as price zones where buying and selling recur, rather than exact prices.
3. Concept explained
3-1. The four prices in one candle
A daily candle compresses intraday trading into four numbers.
| Component | Meaning | Analytical question |
|---|---|---|
| Open | First execution price | Was there a gap from the previous close? |
| High | Highest intraday execution price | How high did buyers push the price? |
| Low | Lowest intraday execution price | How low did selling pressure take the price? |
| Close | Last execution price | Where within the intraday range did trading finish? |
A candle's body lies between its open and close; the wick or shadow extends beyond the body to the high or low.
- A close above the open produces an up candle.
- A close below the open produces a down candle.
- An open and close near each other may produce a small-bodied doji.
Chart color conventions vary. Korean services commonly use red for rises and blue for falls; overseas services often use green for rises and red for falls. Check open versus close first instead of memorizing colors.
3-2. Bodies show direction; wicks show intraperiod movement
The candle's full range is:
\[\text{Full range}=\text{High}-\text{Low}\]
Body size is:
\[\text{Body size}=|\text{Close}-\text{Open}|\]
Upper and lower wicks are calculated as:
\[\text{Upper wick}=\text{High}-\max(\text{Open},\text{Close})\]
\[\text{Lower wick}=\min(\text{Open},\text{Close})-\text{Low}\]
The general intuition is:
- Long up body: The close is substantially above the open
- Long down body: The close is substantially below the open
- Long upper wick: Price reached higher levels but failed to hold them
- Long lower wick: Price reached lower levels but rebounded
- Short body: Similar open and close suggest weak direction or balanced buying and selling
A long lower wick is not always bullish, nor a long upper wick always bearish.
A long lower wick in a downtrend fails as a reversal signal if the low breaks next day. A long upper wick in an uptrend followed by a high breakout on volume may simply reflect absorption of intraday selling.
Read candles alongside three factors:
- Location: Near an uptrend's high or a downtrend's low?
- Volume: Was trading heavier than usual?
- Follow-through: Did the next candle confirm or invalidate the signal?
3-3. Closing position reveals the outcome of intraday pressure
Calculate where the close lies within the day's range:
\[\text{Closing position}=\frac{\text{Close}-\text{Low}}{\text{High}-\text{Low}}\times100\]
- Near 100%: close near the high
- Around 50%: close near the range midpoint
- Near 0%: close near the low
Even a 10% intraday rise may surrender most gains if the close is near the low. Conversely, a sharp fall followed by a close near the high indicates buying at lower prices recovered much of the loss.
Closing mechanisms, auctions, closing orders and index rebalancing may affect the close. Do not infer long-term flows from a single closing price.
3-4. Gaps may reflect information arriving when trading is closed
A gap occurs when today's open is above or below the previous close.
\[\text{Opening gap rate}=\frac{\text{Today's open}-\text{Previous close}}{\text{Previous close}}\times100\]
Gaps often occur when after-hours earnings, filings or macroeconomic data are reflected all at once in the next opening price.
An upward gap does not necessarily mean all-day strength.
- Gap up, close near high: the new price zone holds
- Gap up, close below previous close: initial expectations reverse
- Gap down, quick recovery: bad news may be overpriced, or waiting buyers exist
- Gap down, close near low: selling pressure persists intraday
Distinguish mechanical adjustments for splits, ex-dividends and ex-rights from information-driven gaps.
3-5. Trends are sequences of highs and lows, not individual candles
A trend is the direction of prices over a period. The simplest approach examines meaningful swing highs and swing lows in sequence.
| Category | Price structure | Basic interpretation |
|---|---|---|
| Uptrend | Higher highs and higher lows | Buyers accept higher prices |
| Downtrend | Lower highs and lower lows | Selling emerges on each rebound |
| Sideways | Repeated highs and lows within a range | Balanced buying and selling; searching for direction |
A typical uptrend has:
\[\text{High}_2>\text{High}_1,\quad\text{Low}_2>\text{Low}_1\]
A downtrend is the reverse.
\[\text{High}_2<\text{High}_1,\quad\text{Low}_2<\text{Low}_1\]
Timeframe is crucial. The same stock may rise on a weekly chart, correct on a daily chart and rebound on a 5-minute chart. Always state the timeframe in your analysis.
Abandoning a long-term company thesis because of a 5-minute decline, or deferring short-term loss controls by citing a weekly trend, incorrectly mixes time horizons.
3-6. Support and resistance are zones, not lines
**Support** is a zone where buying emerged or selling eased and stopped a decline. **Resistance** is a zone where selling increased or buying weakened and stopped a rise.
Support and resistance may arise around:
- Prices with substantial historical trading
- Previous highs and lows
- Earnings-related gap zones
- Institutional average purchase prices
- Pending sales by holders seeking to recover losses
- Reference prices reflecting new information
- Psychological round numbers
Orders do not cluster at exactly one price. Instead of drawing one line at KRW 50,000, it is more realistic to consider, for example, a support zone of KRW 49,500–50,500 with some width.
When assessing a support break, distinguish a brief intraday dip, a close below support, accompanying volume and recovery in the next period.
3-7. Breakouts and role reversal
A breakout occurs when price rises above an existing resistance zone and holds. When former resistance subsequently acts as support, this is called role reversal.
Suppose a stock repeatedly stalled near KRW 50,000, then closes at KRW 52,000 on upward earnings revisions and heavy volume. Holding around KRW 50,000 during a pullback before rising again may indicate former resistance has become support.
Conversely, an intraday rise to KRW 52,000 followed by a KRW 49,500 close and further decline the next day may be a false breakout.
Conditions that improve breakout reliability include:
- Volume and trading value above recent averages
- A close above resistance
- Verifiable earnings or disclosure catalysts
- Lower volume on the subsequent pullback
- A renewed rise from former resistance after a pullback
- Confirmation from peers and the industry index
No condition guarantees success. A breakout is a hypothesis to test against subsequent prices, rather than a prediction.
3-8. Context matters more than candle-pattern names
Memorizing hammers, shooting stars, engulfing patterns or dojis does not create an investment edge. The same shape can mean different things depending on location and volume.
For example, a long lower wick may have different interpretations:
- Heavy volume at long-term support, followed by a high breakout next day
→ Possible absorption of selling and reversal - Low volume during a downtrend, followed by a low break next day
→ Failed temporary rebound - Immediately after a large post-earnings gap down
→ Price discovery in response to new information
Therefore, rather than Pattern name → Trade, use this sequence:
\[\text{Business and disclosure changes}\rightarrow\text{Price location and trend}\rightarrow\text{Volume and flows}\rightarrow\text{Follow-through confirmation}\]
4. A simple numerical example
The following are hypothetical company A's hypothetical daily candle data for learning. Prices are in KRW; volume is in units of 10,000 shares.
| Date | Open | High | Low | Close | Trading volume |
|---|---|---|---|---|---|
| Day 1 | 10,000 | 10,300 | 9,900 | 10,200 | 20 |
| Day 2 | 10,150 | 10,500 | 10,100 | 10,450 | 24 |
| Day 3 | 10,400 | 10,700 | 10,300 | 10,650 | 28 |
| Day 4 | 10,600 | 10,750 | 10,350 | 10,400 | 35 |
| Day 5 | 10,450 | 10,900 | 10,400 | 10,850 | 75 |
① Calculate the Day 5 candle
Day 5's full range is:
\[10,900-10,400=500\text{ KRW}\]
Body size is:
\[|10,850-10,450|=400\text{ KRW}\]
The upper wick is:
\[10,900-10,850=50\text{ KRW}\]
The lower wick is:
\[10,450-10,400=50\text{ KRW}\]
Closing position is:
\[ \frac{10,850-10,400}{10,900-10,400} \times100 =90\% \]
Day 5 has a long up body and closes at 90% of its intraday range, near the high.
② Check the trend
Highs and lows generally rose over Days 1–3.
- Highs: KRW 10,300 → KRW 10,500 → KRW 10,700
- Lows: KRW 9,900 → KRW 10,100 → KRW 10,300
This suggests the basic structure of a short-term uptrend.
On Day 4, the close fell to KRW 10,400, but its low of KRW 10,350 remained above Day 3's KRW 10,300 low. The previous swing low had not clearly broken.
On day 5, the stock closed at KRW 10,850, above the previous high of KRW 10,750, while volume rose to 750,000 shares, well above the average for the previous 4 days.
Average volume over the previous 4 days is:
\[ \frac{20+24+28+35}{4} =26.75\times10,000\text{ shares} \]
Relative volume on day 5 is:
\[ RVOL = 75\div26.75 \approx2.80\text{ times} \]
Thus, day 5 is an example in which a breakout above the prior high, a close near the day's high, and volume approximately 2.8 times the average occurred together.
③ This Still Does Not Establish a Buy Decision
These numbers alone cannot confirm a successful breakout. The following day needs to be checked as well.
- Does the KRW 10,700–10,750 range hold as support?
- Does the price resume rising after a pullback on lower volume?
- Do earnings or filings explain the volume increase on day 5?
- Does the price immediately return below KRW 10,700 without adverse news?
- Is the current share price excessive relative to company value and future expectations?
The chart tells us that the market tested a new price. Company analysis and subsequent trading must determine whether that price is justified.
5. Practical use in equity and company analysis
① Establish the Time Frame First
If your investment thesis concerns changes in company earnings over 1–3 years, start with weekly and daily charts to examine the broader trend, and use shorter time frames only when necessary. Do not interpret small intraday fluctuations as changes in long-term value.
It is helpful to state the time frame in your analysis notes, for example:
Weekly chart: uptrend; daily chart: 20-day correction; 60-minute chart: short-term rebound
② Separate Valuation from Trade Entry
- Financial statements, DCF and multiples: assess company value and expectations
- Charts and volume: examine when and how strongly the market prices in those expectations
Even a good company can produce a loss if purchased in a resistance zone that reflects excessive expectations. Conversely, a strong chart is difficult to judge as sustainable without supporting earnings and cash flow.
③ Make Scenarios Concrete with Support and Resistance
Suppose an analyst makes the following assessment.
- Normalized value range: KRW 48,000–58,000
- Current share price: KRW 51,000
- Support zone with heavy past trading: KRW 49,000–50,000
- Resistance zone after the earnings release: KRW 54,000–55,000
Conditional scenarios can then be developed as follows.
- Consider a phased entry if the earnings thesis remains intact in the support zone and the pullback occurs on lower volume
- If the price breaks above KRW 55,000, check volume and whether guidance has been raised
- If the price falls below KRW 49,000 while earnings estimates are lowered, revisit the investment assumptions
A support line does not itself prevent losses. Whether a price break means the investment thesis has deteriorated must also be defined.
④ Look at the Close and Follow-Through Rather Than an Intraday Breakout Alone
Thin order books and short-term orders can move prices easily during a session. Do not treat a brief move above an important price level as a confirmed breakout.
Check the following.
- Is the closing price above the breakout zone?
- Is trading value sufficiently higher than usual?
- Does the price hold on the next trading day?
- Does volume decline during the pullback?
- Do filings or earnings substantiate a new reason to buy?
⑤ Investigate the Cause of a Long Wick
On a day with a long wick, examine disclosures and market structure.
- Was there an intraday earnings release or rumor?
- Was there a large transaction or block trade?
- Did index rebalancing or options expiration have an effect?
- Were there regulatory or exchange-related factors, such as trading resuming after a halt or an investment-caution designation?
- Did a small number of orders distort the price because liquidity was low?
If you cannot identify the cause, do not attach unverifiable stories such as “large players accumulating” or “institutions unloading positions.”
⑥ Distinguish Stop-Loss Rules from Deterioration of the Investment Thesis
In short-term trading, a break below support can serve as a mechanical risk-management trigger. In long-term investing, a price decline alone does not establish that company value has deteriorated, but predetermined maximum losses and position sizes should still be respected.
In practice, it helps to separate three criteria.
| Criterion | Question |
|---|---|
| Price Criterion | Below which price does the short-term scenario become invalid? |
| Fundamental Criterion | Which assumption about revenue, margins, FCF or orders has failed? |
| Portfolio Criterion | Is the effect of a loss in one stock on the overall portfolio manageable? |
⑦ Check Whether Prices Are Adjusted
When comparing long-term charts, analysts often use adjusted prices that reflect corporate actions such as stock splits, reverse splits, dividends, rights offerings and ex-rights adjustments. Connecting unadjusted prices can create sharp chart moves unrelated to actual returns.
However, data providers may use different adjustment methods: total-return adjustments that include dividends, or price adjustments that reflect splits only. Use the same basis when comparing different stocks or data sources.
6. What to look for in filings
OHLC, candlesticks, volume, support and resistance are generally checked using price data from exchanges, brokers or reliable market-data providers. Company filings help identify the causes behind candlestick shapes and corporate actions requiring adjustments to historical prices.
Korean companies: DART and KIND
Financial Supervisory Service DART and Korea Exchange KIND for the following.
| Disclosure / Information | What to check | Connection to the Chart |
|---|---|---|
| Preliminary earnings, annual reports and quarterly reports | Changes in revenue, profit and cash flow | Fundamental basis for gaps and trend changes |
| Earnings forecasts and revisions | Guidance increases or cuts | Changes in expectations and causes of breakouts or breakdowns |
| Individual sales or supply contracts | Contract value, duration and termination conditions | Whether repricing is accompanied by volume |
| Rights offerings and bonus issues | New share count, issue price and record date | Dilution, ex-rights effects and price adjustments |
| Stock splits and reverse splits | Ratio, record date and trading-halt period | Need to adjust historical OHLC and volume |
| Cash and stock dividends | Dividend amount and ex-dividend basis | Mechanical price changes on the ex-dividend date |
| Convertible bonds and BWs | Conversion price, exercise price and potential share count | Potential supply in resistance zones |
| Treasury-share acquisitions and disposals | Period, quantity and method | Changes in buying demand or supply |
| Controlling-shareholder or executive ownership changes | Transaction quantity, price and purpose | Insider trading and changes in supply |
| Trading halts, resumptions and exchange actions | Reason and duration | Institutional causes of gaps and increased volatility |
Disclosure timing also matters. Depending on whether a filing is released during the session or after the close, it may be reflected in that day's candlestick or the following day's opening price.
U.S. companies: SEC EDGAR
SEC EDGAR for the following documents.
- 10-K·10-Q: Actual results, risk factors, capital structure and share count
- 8-K: Material events such as earnings releases, acquisitions or disposals, major contracts and management changes
- Form 4: Insider transactions by officers and directors
- Schedule 13D·13G: Changes in major shareholders' holdings and intentions
- S-3·424B: Stock and bond issuance and potential supply
- DEF 14A: Compensation plans, stock-based compensation and shareholder meeting proposals
- Stock split and dividend disclosures: Reasons for price adjustments arising from splits and dividends
Earnings may be released before the regular session, after the close or during trading. When interpreting daily opening prices and gaps in US stocks, also check whether prices have already moved in extended-hours trading.
Market data to check outside filings
| Market data | Purpose |
|---|---|
| Raw OHLC | Check actual transaction prices and gaps |
| Adjusted OHLC | Compare long-term returns and trends after accounting for splits, dividends and similar actions |
| Daily, intraday and weekly data | Examine trends across time frames |
| Trading volume and value | Assess participation in breakouts and reversals |
| VWAP and high-volume price levels | Identify average execution prices and areas of concentrated trading |
| Quotes and trade records | Examine intraday price impact and liquidity |
| Market and industry indices | Separate company-specific effects from common market factors |
| Short-selling, securities-lending and margin data | Supplement the assessment of investor flows and leverage risk |
| Extended-Hours Prices | Check how information is reflected after the close |
When using data, align the exchange, currency, time zone, session coverage and adjustment basis. Comparing charts on different bases can create nonexistent gaps or incorrect returns.
7. Key takeaways
- A candlestick condenses a period's open, high, low and close into a Result and does not directly explain the causes of price changes.
- The body shows the difference between the open and close; the wicks show the reach to the session's high and low.
- Long wicks, doji and long-bodied candles should not be interpreted on their own without their position, volume and subsequent candles.
- The close's position within the total range indicates how much of the session's rise or fall was retained.
- A trend is judged by the sequence of highs and lows, rather than a single candle.
- An uptrend generally has higher highs and higher lows; a downtrend has lower highs and lower lows.
- The same stock can have different trends on weekly, daily and intraday charts, so the analytical time frame must be stated.
- It is more realistic to view support and resistance as zones of repeated orders and trading than as exact single lines.
- Confirm resistance breakouts using the close, volume, catalysts and subsequent price retention, while always allowing for failure.
- Charts cannot calculate fair value or long-term FCF, so they should be combined with filings, financial analysis and valuation.
- For long-term charts, check the adjustment basis for corporate actions such as splits, dividends and share issuance.
8. Three review questions
Question 1
Hypothetical Company B has the following prices for one day.
- Open: KRW 20,000
- High: KRW 21,000
- Low: KRW 19,500
- Close: KRW 20,850
Calculate the full range, body size, upper wick, lower wick and closing position.
Question 2
A stock's meaningful swing highs increased from KRW 50,000 → 54,000 → 58,000, and its swing lows also increased from KRW 46,000 → 49,000 → 52,000. What is the underlying trend, and what else would you need to check before judging that it has reversed?
Question 3
Following its earnings release, Company C rose above the previous KRW 30,000–30,500 resistance zone to KRW 32,000 intraday, but closed at KRW 30,200. Volume was 4 times the recent average. Can this immediately be considered a successful breakout? What should you check the next day?
Answers and explanations
Answer 1
The full range is:
\[ 21,000-19,500=1,500\text{ KRW} \]
Body size is:
\[ |20,850-20,000|=850\text{ KRW} \]
The upper wick is:
\[ 21,000-20,850=150\text{ KRW} \]
The lower wick is:
\[ 20,000-19,500=500\text{ KRW} \]
Closing position is:
\[ \frac{20,850-19,500}{21,000-19,500} \times100 =90\% \]
The close exceeded the open and finished at 90% of the session's range, producing a bullish body and a close near the high. However, the long lower wick must be interpreted together with its location, volume and the next day's price action.
Answer 2
Because both highs and lows are rising, the underlying trend is an Uptrend. To assess a reversal, further changes in prices and fundamentals should be checked, such as a break below a meaningful prior swing low, a lower rebound high, a support breakdown on increased volume, or lowered earnings estimates. A single bearish candle cannot confirm a trend reversal.
Answer 3
It is difficult to call this a successful breakout immediately. Although the price moved above resistance intraday, the KRW 30,200 close returned inside the previous resistance zone. A long upper wick and heavy trading indicate substantial conflict between buyers and sellers, rather than confirming buyer dominance.
The following day, check these points.
- Does the stock reclaim the KRW 30,000–30,500 zone and hold there at the close?
- Does it break above the KRW 32,000 high again?
- Does heavy trading continue as the price falls below the resistance zone?
- Did earnings actually exceed consensus and long-term expectations?
- Were guidance, margin and FCF forecasts raised?
- Does subsequent trading clarify whether the increased volume reflected new long-term buying or short-term profit-taking?
Next Lesson — Day 18:
“Moving Averages Are Not Predictions — Understanding Average Prices, Trends, Bullish Alignment and Lag”