Reading the Tape
Day trading, from the plumbing up: what a candle actually records, what wicks mean, which patterns matter, why context decides everything, and how to test yourself before real money is involved. Every chart below is built to be poked at.
You pay the spread before the chart moves
Every trade starts inside the order book. Buyers post bids below, sellers post asks above, and the gap between the best of each is the spread — a cost you pay instantly, on entry and again on exit.
- Bid / Ask / Spread
- The bid is the highest price buyers will pay; the ask is the lowest sellers will accept. Wide spread = expensive to trade.
- Liquidity & volume
- How easily you can get in and out at your price. Thin stocks fake you out constantly — stick to high-volume names early on.
- Order types
- Market fills now at whatever the book offers. Limit fills at your price or better, or not at all. Stop becomes a market order when triggered; stop-limit becomes a limit order. Learn these cold before risking money.
- PDT rule (US)
- Under $25,000 in a margin account you get 3 day trades per rolling 5 business days. Cash accounts avoid it, but you wait on settlement.
Hover a row to see what resting orders at that price mean — or fire a simulated market order to see which side of the spread it lands on.
A candle is four numbers — drag them
Every candle compresses one time window into Open, High, Low, Close. The body is the open-to-close move; the wicks are everywhere price went and failed to stay. The body is what got accepted. The wicks are what got rejected.
Drag the O · H · L · C handles (or focus one and use ↑/↓). High and low stretch to contain the body automatically — a candle can't close outside its own range.
Wicks are the story of a fight
A long wick means price probed a level and got pushed back. Who pushed — and where the candle finally closed — is the information. Shaded amber below is the rejected ground.
Body position beats wick length alone: a close pinned near the high after a long lower wick is far stronger than the same wick with a mid-range close. Ask where did it close? before how long is the wick?
The eight worth knowing
There are a hundred named patterns. These eight cover single-candle rejections, two-candle momentum shifts, and three-candle reversals — the rest add noise, not edge. The amber box marks the pattern inside its context.
The same hammer, two different trades
This is the part most people skip. Patterns are only signals at locations. Below, the identical hammer — same open, high, low, close — appears twice. One is worth a plan; one is worth nothing.
- ✓Forms at a level price has respected three times (amber dashes)
- ✓Volume spikes to ~2.5× average — real interest at the low
- ✓Clear prior downtrend to reverse
- ✗Mid-range — nothing above or below for it to reject
- ✗Volume is average — nobody showed up
- ✗No trend to reverse; chop in both directions
- Support / resistance — horizontal levels where price previously reversed. Intraday, the prior day's high/low, the premarket high/low, and round numbers matter most.
- Trend — higher highs and higher lows, or the reverse. Trade with it until it clearly breaks.
- Volume confirmation — a reversal candle on 5× average volume is real interest; on thin volume it's usually noise.
- Higher timeframe first — daily → 15m → execute on the 5m/1m. Never the reverse.
Sizing is the actual job
Entries get the attention; sizing decides survival. The formula: shares = (account × risk%) ÷ (entry − stop). Widen the stop and the share count shrinks — the dollars you can lose stay pinned.
- Fixed risk per trade — 0.5–1% of the account, maximum. That's per loss, not per position size.
- Think in R — R is your risk unit. Risk $100, make $200: that's +2R. Track everything in R so trades of different sizes are comparable.
- Minimum 2R targets — at 2:1 reward-to-risk you can be wrong 60% of the time and still profit.
- Daily max loss — hard stop at 2–3R, then walk away. Revenge trading destroys more accounts than bad analysis.
Test it before you fund it
A tutorial can't give you an edge — only your own logged data can show whether you have one. Write a falsifiable rule, replay it 100 times, and do the arithmetic before a single real dollar moves.
The trade log — one row per replay trade
| Date | Ticker | Setup | Entry | Stop | Exit | R | Rules followed? |
|---|
Expectancy — the only number that decides
Expectancy = (Win% × AvgWin) − (Loss% × AvgLoss), in R. Positive means the rule makes money over many trades. Move the sliders and watch 100 simulated trades of your system unfold.
TradingView Bar Replay or ThinkOrSwim OnDemand. Step forward candle by candle — no peeking at the future. Log every trade.
Real time exposes hesitation, chasing, and fills worse than your backtest assumed. Replay lets you cheat unconsciously; live paper doesn't.
Real money changes your decisions in ways paper can't simulate. Discover that at $2 of risk, not $200. Scale only after stats match paper.
If expectancy goes negative at any stage, go back a stage — never push forward to “win it back.”