Hourly candle
What does one hour's record of open, high, low and close capture, and what does it silently leave out?
In plain words
An hourly candle compresses one hour of trading into four prices: the open (the first trade), the high and low (the extremes reached), and the close (the last trade). A fifth number, volume, usually sits alongside. Everything between those four points — the path, the pauses, the order of the swings — is discarded.
Why it matters
Risk measures built from hourly candles, such as realised volatility or the largest one-hour move, inherit this compression. Two hours can share identical open, high, low and close while one moved smoothly and the other whipsawed violently, and the candle shows no difference. Traders sizing positions off candle data are sizing off a summary, not the full tape.
In a real week: ETH, week of 4 May 2020
In the week of 4 May 2020, ETH opened at 209.86 and closed at 187.54, a weekly return of -10.64%. The extremes were 216.61 (8 May, 01:00 UTC) and 179.59 (10 May, 00:00 UTC), a range of 20.61%. Within a single hour the largest move was -8.42%, at 10 May, 00:00 UTC. The candles record that fall's start and end prices, but not the sequence or speed of trades inside that hour.
A common mistake
Reading an hourly candle as a story of how the hour unfolded. It is a summary of four prices; the order of moves between them is not stored, only partly inferable from the high and low timestamps.