Advanced Candlestick Analysis

Advanced Candlestick Analysis

In this article, I am going to discuss Advanced Candlestick Analysis. Please read the Price Action Analysis article before proceeding to this article. As part of this article, I am going to discuss the following pointers in detail.

  1. Advanced Candlestick Analysis
  2. What price action validates the resistance/support level?
  3. What price action disconfirms the resistance/support level?
Candlestick Analysis in Detail:

Each candlestick tells a story as they are a reflection of what buyers and sellers are doing or what the market is telling you. Use candlestick with support and resistance area

  1. Support tends to break in a downtrend
  2. Resistance tends to break in an uptrend
  3. Support and Resistance tend to break when there is a tight range at SR level
  4. The more/frequently test of support resistance is weakening this level and break the level

Then how to know whether the price will reverse from support or resistance or break level. I mean whether price confirms or disconfirm as support or resistance.

DISCONFIRMATION AND CONFIRMATION

At resistance we expect the price to reverse or supply exceed demand confirms the supply.

What price action validates the resistance level?
  1. Clear Rejection from resistance in the form of the pin bar or outside bar or engulfing bar
  2. Momentum loss when approaching resistance
  3. Unable to close above the resistance level
  4. Low volume candle when approaching resistance

CANDLE REJECTION

Single candle rejection (pin bar)

In an established downtrend any Clear Rejection from resistance in the form of the pin bar or outside bar or engulfing bar confirm the resistance level

CANDLE REJECTION

Single candle rejection (pin bar)

MULTIPLE CANDLE REJECTION

Better if multiple candlesticks are rejecting an area as this shows that price tried over and over but failed When multiple candles refuse to go UP or rejection from resistance they ultimately go down Below are some example of multiple rejection candle from an area

MULTIPLE CANDLE REJECTION

Advanced Candlestick Analysis Candlestick Analysis Candlestick Analysis in Detail

REJECTION CANDLE SHOULD CONFIRM BY FOLLOWTHROUGH CANDLE

The next candle should follow-through candle for validation of rejection candle

REJECTION CANDLE SHOULD CONFIRM BY FOLLOWTHROUGH CANDLE

Momentum loss is the key to reversal when approaching a key level
  1. Candle getting smaller and multiple colors with wicks signal that buyers or sellers are losing strength
  2. Even better when it finishes with long wick candles (for bullish reversal lower ling wick and fro bearish reversal upper long wick)

Below is the example of bullish reversal

Momentum loss is the key to reversal when approaching a key level

Price unable close above the resistance

Buyers trying hard to close above the resistance level, each time they failed shows supply coming and trying to dominate demand

Price unable close above the resistance

Volume

In an up-move, where the price is getting close to the upper trend line (resistance Line), and low volume appearing will tell you that the trend line is likely to hold for that moment in time because there is no effort to change the trend (you need buying to push through resistance).

The resistance area which needs demand pressure to penetrate it. Low volume tells us there is little demand and thus the line is likely to hold.

Volume Analysis of Candlestick What price action disconfirms the resistance?

What price action disconfirms the resistance?
  1. Candle spread and volume increasing when approaching the resistance level
  2. If price hug the resistance and hold it disconfirm the supply and shows the presence of
Candle spread and volume increasing when approaching the resistance level

In an up-move, where the price is getting close to the upper trend line (resistance Line), and low volume appearing will tell you that the trend line is likely to hold for that moment in time because there is no effort to change the trend (you need buying to push through resistance).

If the volume is high, with a widespread up, whilst the price is getting close to the upper trend line, we would expect to see the trend line broken due to the extra effort and the next day is level or even higher, then you would now be expecting higher prices. Any low volume down-day (potential test) will confirm this view

Candle spread and volume increasing when approaching the resistance level

If price hug the resistance and hold it disconfirm the supply and shows the presence of demand

  1. Price hold (unable to react) after a drive up
  2. The price will move up at resistance price form a tight trading range. Nevermore than 50% of the previous drive up. Tighter the better

The main characteristic of BUYERS overcoming SELLERS is the repeated inability of prices to REACT away from the danger point(resistance). Such hugging of the HIGH usually leads to a breakout. Persistently heavy volume hammering the HIGH usually says a break is Imminent

What price action disconfirms the resistance?

In the next article, I am going to discuss the Trendline Trading Strategy in detail. Here, in this article, I try to explain the Candlestick Analysis in detail. I hope you enjoy this article. Please join my Telegram Channel to learn more and clear your doubts. https://t.me/tradingwithsmartmoney.

2 thoughts on “Advanced Candlestick Analysis”

  1. Good information provided, my watch so far goes like this, this is like a village Shandy with goods and sellers and buyers. Demand and supply with its intrinsic volume creates the ups and downs and feel that volume is a great factor that influence .t.tpriwhich

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