LESSON 1
CANDLESTICK BASICS
WHAT DOES CANDLE CLOSING MEAN?
A candlestick closes when the clock for its selected timeframe reaches zero. For example, a one-minute candle becomes complete at the end of that minute, and a new candle immediately begins. If it closes above its opening price, it finishes as a green candle; if it closes below its opening price, it finishes as a red candle. Waiting for the close confirms the candle’s final direction because its color, body, and wicks can continue changing until the timer runs out.
Candlesticks are one of the easiest ways to see what price is doing. Each candlestick tells a short story about the battle between buyers and sellers during a specific period of time.
A candlestick can represent one minute, five minutes, one hour, one day, or any other timeframe selected on the chart.
WHAT DOES A CANDLESTICK SHOW?
Every candlestick contains four important prices:
• Open — The price when the candle began.
• High — The highest price reached during the candle.
• Low — The lowest price reached during the candle.
• Close — The final price when the candle finished.
THE CANDLE BODY
The thick portion of the candlestick is called the body. It shows the distance between the opening price and the closing price.
A larger body usually means that buyers or sellers moved price with greater strength.
A smaller body can mean hesitation, weaker momentum, or a temporary balance between buyers and sellers.
GREEN CANDLESTICKS
A green candle means price closed higher than it opened.
This tells us buyers controlled that candle—but one green candle alone does not automatically mean a trade should be taken.
We still wait for the candle to close and look for confirmation from the surrounding price action and our trading system.
RED CANDLESTICKS
A red candle means price closed lower than it opened.
This tells us sellers controlled that candle—but one red candle alone does not automatically mean price will continue lower.
The candle must close before its information is complete.
THE STORY MATTERS MORE THAN THE COLOR
Candlesticks should never be judged only by whether they are green or red.
We also examine:
• The size of the candle body
• The length of its wicks
• Where the candle closes
• The candle’s location on the chart
• Volume and momentum
• The candles that appeared before it
A candle becomes more meaningful when we understand the complete market story surrounding it.
KEY TAKEAWAY
Every candlestick provides four pieces of information: the open, high, low, and close.
The body shows the movement between the opening and closing prices. Green generally represents buyer control, while red generally represents seller control.
Most importantly, we wait for the candle to close before making a decision.
L&M Trading Solutions™ Academy
Educational content only. Nothing in this lesson is financial advice or a recommendation to buy or sell any security.
LESSON 2
WHY CANDLE CLOSING MATTERS
A candlestick is not complete until its selected time period ends. Before the clock reaches zero, its body, color, high, low, and wicks can continue changing.
A candle that appears strongly green during the minute can reverse and close red. A candle that looks like it has broken above resistance can also fall back below that level before it closes.
This is why an unfinished candle cannot provide final confirmation.
INTRABAR MOVEMENT
INTRABAR movement is everything price does while a candle is still forming.
During that time, price may move rapidly in both directions. The candle may temporarily appear to confirm an entry, only to change direction before the clock runs out.
Reacting too early can cause a trader to enter on movement that never becomes a confirmed signal.
THE DIFFERENCE BETWEEN A TOUCH AND A CLOSE
Price touching or briefly moving through an important level is not the same as closing beyond it.
• A touch shows that price reached the level.
• A break shows that price moved through the level temporarily.
• A close beyond the level provides stronger confirmation that buyers or sellers maintained control through the end of the candle.
A close does not guarantee what the next candle will do, but it provides more reliable information than an unfinished candle.
FALSE BREAKOUTS
A false breakout happens when price moves beyond an important level but cannot remain there.
For example, price may move above resistance during the candle and appear ready to continue higher. Before the candle closes, sellers may push it back below resistance.
Entering before the close could trap a trader in a move that was never confirmed.
CONFIRMATION DOES NOT MEAN PREDICTION
Waiting for a candle to close does not predict the future or remove risk. It simply allows us to make a decision using completed information.
We may enter slightly later, but we gain confirmation that the candle finished in the direction we observed.
OUR CANDLE-CLOSE RULE
L&M Trading Solutions™ engines and scanners are designed around candle-close confirmation.
We wait until the candle is complete before acting on an entry signal. We then evaluate the completed candle together with market structure, momentum, volume, trend conditions, and the system’s other confirmation requirements.
KEY TAKEAWAY
Do not make a decision based only on what a candle appears to be doing while it is still forming.
Let the clock reach zero. Let the candle close. Then evaluate the completed information.
Waiting for confirmation requires patience—but patience can help prevent premature entries and reduce exposure to false breakouts.
L&M Trading Solutions™ Academy
Educational content only. Nothing in this lesson is financial advice or a recommendation to buy or sell any security.
LESSON 3
UNDERSTANDING CANDLESTICK WICKS
The thin lines extending above and below a candlestick’s body are called wicks. They are sometimes called shadows.
Wicks show the highest and lowest prices reached while the candle was forming. They reveal where price traveled—even if it did not remain there when the candle closed.
THE UPPER WICK
The upper wick extends from the top of the candle’s body to the candle’s highest price.
A long upper wick shows that buyers pushed price higher, but sellers pushed it back down before the candle closed.
This may indicate:
• Selling pressure
• Resistance above price
• Buyer momentum beginning to weaken
• Rejection of a higher price
An upper wick is not automatically a short signal. Its meaning depends on its location, the surrounding candles, volume, momentum, and market structure.
THE LOWER WICK
The lower wick extends from the bottom of the candle’s body to the candle’s lowest price.
A long lower wick shows that sellers pushed price lower, but buyers pushed it back up before the candle closed.
This may indicate:
• Buying pressure
• Support below price
• Seller momentum beginning to weaken
• Rejection of a lower price
A lower wick is not automatically a long signal. It must be evaluated within the complete market picture.
SMALL OR MISSING WICKS
A candle with very small wicks shows that price remained relatively close to the candle’s opening and closing range.
A strong green candle with little or no upper wick may show that buyers maintained control into the close.
A strong red candle with little or no lower wick may show that sellers maintained control into the close.
This can suggest strength, but the next candle still requires careful observation.
WICKS AND FALSE BREAKOUTS
Wicks commonly appear when price briefly breaks an important level but cannot remain beyond it.
For example, a candle may push above resistance and then close below it, leaving a long upper wick. This shows that the breakout was rejected during that candle.
A candle may also push below support and then close above it, leaving a long lower wick. This shows that buyers rejected the lower price.
WHY THE CLOSE STILL MATTERS
A wick continues growing and changing until the candle closes.
What appears to be a long rejection wick during the candle could become part of a large candle body before the clock reaches zero.
We wait for the candle to close before judging the wick because only then do we know its final size, shape, and relationship to the candle’s body.
WICKS DURING CHOP
Frequent wicks on both sides of candles can indicate that buyers and sellers are repeatedly pushing price back and forth.
When this happens near the same price area—especially around VWAP—it may indicate indecision or market chop.
This environment can produce false signals and premature entries, so extra patience may be necessary.
KEY TAKEAWAY
Wicks show where price attempted to move but could not necessarily remain.
• Upper wicks can reveal rejection from higher prices.
• Lower wicks can reveal rejection from lower prices.
• Wicks on both sides can reveal hesitation or two-way pressure.
Never use one wick by itself as an entry signal. Wait for the candle to close and evaluate the wick together with structure, momentum, volume, and the surrounding candles.
L&M Trading Solutions™ Academy
Educational content only. Nothing in this lesson is financial advice or a recommendation to buy or sell any security.
LESSON 4
UNDERSTANDING MARKET CHOP
Market chop occurs when price moves without a clear, dependable direction.
Instead of consistently advancing higher or lower, price repeatedly changes direction. It may move sideways, cross the same levels, or create short bursts that quickly reverse.
Chop is not a failure of the market or the trading system. It is a real market condition—and recognizing it can be just as important as recognizing a trend.
WHY CHOP IS DIFFICULT
Choppy markets can appear active without offering dependable follow-through.
Price may temporarily look ready to break higher or lower, only to reverse moments later. This can create false breakouts, conflicting signals, repeated dashboard changes, and premature entries.
The objective is not to force every market into a trade. The objective is to recognize when conditions do not provide a clear advantage.
STRAIGHT-LINE CHOP
Straight-line chop occurs when price moves sideways inside a relatively narrow range.
Candles repeatedly overlap, and price may cross the same area many times without producing meaningful progress.
Common signs include:
• A nearly horizontal price range
• Repeatedly overlapping candle bodies
• Small candles with limited progress
• Price crossing VWAP in both directions
• Breakouts that quickly return to the range
This type of chop may look quiet, but entering inside the range can expose a trader to repeated reversals.
MONEY CHOP
Money chop occurs when price makes enough movement to attract traders but repeatedly reverses before a move can develop.
It may produce convincing green and red candles, larger price swings, and what appear to be strong entry opportunities. However, the movement lacks dependable continuation.
Common signs include:
• Strong-looking candles in both directions
• Quick breaks followed by sharp reversals
• Entries that initially work but rapidly stall
• Long wicks and frequent rejection
• Repeated changes in short-term momentum
Money chop can be especially dangerous because it looks tradable. It invites participation but may repeatedly take small amounts of money from traders who chase each move.
LOW-DIRECTION CHOP
Low-direction chop occurs when price drifts without strong participation or momentum.
Price may slowly lean higher or lower, but the movement lacks the strength needed for dependable continuation.
Common signs include:
• Low or weakening volume
• Flat or weak ADX
• Small candle bodies
• Slow price movement
• Limited separation from VWAP
A slight directional lean is not always a trend. Without sufficient strength and participation, the move can stall or reverse easily.
DASHBOARD-FLIP CHOP
Dashboard-flip chop occurs when market conditions repeatedly change from bullish to bearish and back again.
The dashboard may alternate between green, yellow, and red because the underlying market is also changing rapidly.
This is the heartbeat of an undecided market—not necessarily a defect in the trading system.
Common signs include:
• Indicators changing direction repeatedly
• Conflicting information across dashboard rows
• Momentum strengthening and weakening quickly
• Price moving above and below VWAP
• Long and short setups appearing close together
When the dashboard repeatedly flips, the market may be warning us that neither buyers nor sellers have established control.
VWAP-GLUE CHOP
VWAP-glue chop occurs when price remains close to VWAP and repeatedly crosses it.
Instead of using VWAP as support or resistance, price becomes attached to it. Buyers and sellers continue fighting around the same area without creating separation.
Common signs include:
• Frequent VWAP crossings
• Candles closing on alternating sides of VWAP
• Overlapping bodies and wicks around VWAP
• Breakouts that return to VWAP
• Little sustained price progress
When price is glued to VWAP, patience is often more valuable than participation.
WHY SIGNALS MAY DISAPPEAR DURING CHOP
L&M Trading Solutions™ systems are designed to consider market conditions—not simply produce as many entry labels as possible.
During chop, entry signals may be reduced or suppressed because the market is not providing sufficient confirmation.
Fewer signals during poor conditions can be a sign that the system is performing its protective role.
WHAT SHOULD A TRADER DO?
When chop is identified:
• Slow down and observe.
• Do not chase every candle.
• Wait for price to separate from the range or VWAP.
• Look for improving volume and momentum.
• Require a completed candle and confirmed structure break.
• Accept that no trade may be the correct decision.
A market can remain choppy longer than expected. Traders do not need to predict when chop will end—they can wait for the market to demonstrate that conditions have improved.
KEY TAKEAWAY
Not all price movement creates a high-quality opportunity.
Straight-line chop moves sideways. Money chop tempts traders with sharp but unreliable movement. Low-direction chop drifts without strength. Dashboard-flip chop reflects an undecided market. VWAP-glue chop repeatedly pulls price back toward the same area.
Recognizing these conditions can help traders remain patient, protect their capital, and avoid forcing trades when the market has no dependable direction.
Sometimes the strongest position is no position.
L&M Trading Solutions™ Academy
Educational content only. Nothing in this lesson is financial advice or a recommendation to buy or sell any security.
LESSON 5
OPTIONS BASICS
An option is a contract connected to an underlying asset, such as QQQ, SPY, or an individual stock.
Options have expiration dates and can change value very quickly. Before placing an options trade, a trader should understand whether the contract is a call or put, its strike price, expiration date, premium, and bid-ask spread.
WHAT IS A CALL?
A call option generally gains value when the underlying asset moves higher, although other factors also affect its price.
Buying a call means the trader expects the underlying price to rise before the option expires.
Simple example:
If a trader believes QQQ may move higher, the trader might purchase a QQQ call.
If QQQ rises, the call may increase in value. If QQQ falls, remains flat, or does not rise quickly enough, the call may lose value.
WHAT IS A PUT?
A put option generally gains value when the underlying asset moves lower, although other factors also affect its price.
Buying a put means the trader expects the underlying price to fall before the option expires.
Simple example:
If a trader believes QQQ may move lower, the trader might purchase a QQQ put.
If QQQ falls, the put may increase in value. If QQQ rises, remains flat, or does not fall quickly enough, the put may lose value.
WHAT IS THE STRIKE PRICE?
The strike price is the price level assigned to the option contract.
For example, a QQQ 735 call has a strike price of $735. A QQQ 735 put also has a strike price of $735.
The strike price helps identify the specific contract being purchased. It is not the price paid for the option.
WHAT IS THE EXPIRATION DATE?
Every option has an expiration date. This is the date when the contract expires.
Options with very little time remaining can lose value rapidly. A contract may expire worthless if it has no remaining value at expiration.
Zero-days-to-expiration options—commonly called 0DTE options—expire on the same trading day. They can move extremely quickly and involve substantial risk.
WHAT IS THE PREMIUM?
The premium is the quoted price of the option.
Most standard equity and ETF option contracts represent 100 shares. Therefore, an option quoted at $0.75 generally costs:
$0.75 × 100 = $75
An option quoted at $1.20 generally costs:
$1.20 × 100 = $120
Brokerage fees may also apply.
For a purchased call or put, the entire premium paid can be lost if the trade fails or the contract expires worthless.
WHAT ARE THE BID AND ASK?
The bid is the highest price a buyer is currently offering for the option.
The ask is the lowest price a seller is currently willing to accept.
The difference between them is called the bid-ask spread.
Example:
• Bid: $0.72
• Ask: $0.76
• Spread: $0.04
A smaller spread generally makes it easier to enter and exit near the displayed market price. A wide spread can increase the cost and difficulty of the trade.
IN THE MONEY, AT THE MONEY, AND OUT OF THE MONEY
These terms describe the strike price in relation to the underlying asset’s current price.
• In the money means the option currently has intrinsic value.
• At the money means the strike price is close to the underlying price.
• Out of the money means the option currently has no intrinsic value.
An out-of-the-money option may look inexpensive, but it may also require a larger or faster price move to gain value.
ONE CONTRACT MEANS 100 SHARES
One standard option contract generally represents 100 shares of the underlying asset.
This multiplier is why a small change in the quoted option price can create a noticeable gain or loss.
If an option moves from $0.75 to $0.85, that is a $0.10 change:
$0.10 × 100 = $10 per contract
Before fees, five contracts would produce a $50 change in value.
OPTIONS DO NOT MOVE EXACTLY LIKE THE STOCK
An option’s price is affected by more than the direction of the underlying asset.
Important factors include:
• The size and speed of the price movement
• Time remaining before expiration
• Implied volatility
• The strike price
• The bid-ask spread
A trader can correctly predict direction and still lose money if the move is too small, occurs too slowly, or is offset by changes in time value or volatility.
KEY TAKEAWAY
• Calls are generally used when expecting an upward move.
• Puts are generally used when expecting a downward move.
• The strike identifies the contract’s price level.
• The expiration date determines how much time remains.
• The premium is the option’s quoted price.
• One standard contract generally represents 100 shares.
• The entire premium paid for a purchased option can be lost.
Understand the contract before placing the trade. Never purchase an option simply because its premium appears inexpensive.
L&M Trading Solutions™ Academy
Educational content only. Options involve substantial risk and are not appropriate for every investor. Nothing in this lesson is financial advice or a recommendation to buy or sell any security.
LESSON 6
HOW TO BUY AND SELL AN OPTION
This lesson explains the basic steps for purchasing a call or put and later closing that position.
The exact buttons and layout vary by broker. Practice in a simulated or paper-trading account before risking real money.
Step 1: OPEN THE OPTIONS CHAIN
Search for the underlying asset you want to trade, such as QQQ, SPY, or an individual stock.
Select “Options” or “Option Chain” to display the available contracts.
The chain will normally show:
• Expiration dates
• Strike prices
• Calls
• Puts
• Bid and ask prices
• Volume and open interest
STEP 2: SELECT THE EXPIRATION DATE
Choose the date on which the option will expire.
Always verify the expiration carefully. Different expiration dates can contain identical strike prices but have very different premiums.
Options with less time remaining can lose value more rapidly. Same-day, or 0DTE, options expire that day and involve substantial risk.
STEP 3: CHOOSE A CALL OR PUT
Choose a call when your plan is based on the underlying asset moving higher.
Choose a put when your plan is based on the underlying asset moving lower.
Before continuing, verify that you selected the correct side of the options chain.
STEP 4: SELECT THE STRIKE PRICE
Find the strike price required by your trading plan.
Do not select a contract only because its premium looks inexpensive. A very inexpensive contract may be far out of the money, have little trading activity, or require a large price move.
Confirm all three details:
• The underlying symbol
• The expiration date
• The strike price
STEP 5: CHECK THE BID-ASK SPREAD
Review the option’s bid and ask before opening the order ticket.
Example:
• Bid: $0.72
• Ask: $0.76
• Spread: $0.04
A narrow spread generally provides better pricing and easier execution. A wide spread can make entering and exiting more expensive.
Also examine the contract’s volume and open interest. Low trading activity may make the contract more difficult to trade.
STEP 6: CHOOSE “BUY TO OPEN”
To purchase a new call or put position, select:
BUY TO OPEN
This means you are purchasing an option to open a new position.
Do not accidentally select “Sell to Open.” That is a different transaction that can create obligations and risks beyond simply purchasing an option.
STEP 7: SELECT THE NUMBER OF CONTRACTS
Enter the number of contracts you intend to purchase.
Remember that one standard contract generally represents 100 shares.
Example:
Option premium: $0.75
Number of contracts: 2
$0.75 × 100 × 2 = $150
The estimated cost is $150, plus any applicable fees.
A buyer can lose the entire premium paid, so confirm that the total amount is within the risk allowed by the trading plan.
STEP 8: SELECT THE ORDER TYPE
A limit order allows you to specify the highest premium you are willing to pay.
Example:
• Bid: $0.72
• Ask: $0.76
• Limit price: $0.74
The order will fill only at $0.74 or lower. A limit order controls the price but does not guarantee that the order will be filled.
A market order prioritizes immediate execution but does not guarantee the execution price. In a fast-moving option or one with a wide spread, the final price may be significantly different from the price displayed.
STEP 9: REVIEW THE COMPLETE ORDER
Before submitting the order, stop and verify:
• Correct underlying symbol
• Correct call or put
• Correct expiration date
• Correct strike price
• Buy to Open
• Correct number of contracts
• Correct limit price
• Acceptable total cost
A few seconds of review can prevent an expensive ordering mistake.
STEP 10: SUBMIT AND CONFIRM THE FILL
Submit the order only after every detail has been verified.
An order being submitted does not mean it has been filled. Check the order status.
• Working or Open means the order has not filled.
• Filled means the purchase was completed.
• Partially Filled means only some contracts were purchased.
• Canceled means the order is no longer active.
Never assume that you own the option
HOW TO EXIT THE POSITION
When you already own a call or put and want to close it, select:
SELL TO CLOSE
This sells the contracts you previously purchased and closes the position.
Confirm:
• The correct option contract
• Sell to Close
• The number of contracts being sold
• The limit price
If you own two contracts and sell only one, one contract will remain open.
Do not assume that closing the stock chart automatically closes the option. The option position must be closed through the broker’s order system.
VERIFY THAT THE POSITION IS CLOSED
After submitting the exit order, check its status.
The position is not closed until the order shows that it was filled. A working or partially filled exit order may leave some or all of the position exposed to market movement.
Check the positions screen and confirm that the quantity is zero.
DO NOT IGNORE EXPIRATION
Options require special attention as expiration approaches.
Depending on the contract, its value, and the broker’s policies, an option may expire worthless, be exercised, or be handled by the broker before the market closes.
Never assume that the broker will manage the position exactly as expected. Learn the broker’s expiration, exercise, and same-day risk policies before trading.
BEGINNER ORDER CHECKLIST
Before entering:
• Symbol verified
• Expiration verified
• Call or put verified
• Strike verified
• Spread checked
• Contract quantity verified
• Buy to Open selected
• Limit price reviewed
• Total cost understood
Before exiting:
• Correct position selected
• Sell to Close selected
• Contract quantity verified
• Limit price reviewed
• Order fill confirmed
• Remaining position quantity checked
KEY TAKEAWAY
Opening a purchased option generally uses “Buy to Open.”
Closing that purchased option generally uses “Sell to Close.”
Always verify the symbol, expiration, strike, call or put, quantity, order type, and total cost before submitting an order.
After submitting, confirm the fill. The trade is not opened or closed until the broker reports that the order was executed.
L&M Trading Solutions™ Academy
Educational content only. Options involve substantial risk and are not appropriate for every investor. Broker interfaces and policies vary. Nothing in this lesson is financial advice or a recommendation to buy or sell any security.