How to Study Candlestick

How to Study Candlestick

In this article, I am going to give you a brief introduction to Candlestick. As part of this article, we are going to discuss the following two important pointers.

  1. What is candlestick
  2. The 6 principles for analyzing candlestick
What is a candlestick? 

The candlesticks are the reflections of what buyers and sellers are doing. What extent they move the price and the strength behind the move. CANDLES TELL YOU who is in control but do not tell you about the strength of buyer or sellers behind the move, candle with volume shows that

What is a candlestick? 

  • Open price tells us where the balance between buyers and sellers at the opening of that period
  • Close price tells us where the balance point was at the end of the period
  • High price shows that sellers entry (resistance)
  • Lower price shows that buyers entry(support)
  • The body is the difference between open to close, over the period of time
  • The range indicates the difference between low to high of the candle

Bullish CANDLESTICK When close is higher than open
Bearish CANDLESTICK When close is lower than open

With the proper understanding of CANDLESTICK, you can predict what about to happen in the near future

#Pro tips, we (retailers) can’t move the market so every candle shows what smart money trying to shows. So their move trap or genuine is only validated by volume
#Pro tips, CANDLESTICK shows half information, another half information shows by volume

Example

Introduction to CANDLESTICK

WHAT IS TELLING US?

SENIMATE= BULLISH, 2 consecutive higher close candle. Let’s add volume to this candle

If the volume had represented buying, how can the spread be narrow?

2nd candle range smaller than 1st candle
2nd candle volume greater than 1st candle
Think why volume is greater than 1st candle?

Let me explain to you
NARROW SPREAD CANDLE WITH HIGH VOLUME. Two possible explanations

If the volume had represented buying, how can the spread be narrow?
  • Either the professional money is selling into the buying, possible reversal on near future
  • There is a trading range to the left and the professional money is prepared to absorb the selling from traders locked into this old trading range. I mean break out may happen

Let’s understand with chart

Understanding Candelstick

If the next bar is down closing near its lows this confirms the professional selling

Candlestick Overview

Low volume down candle close middle or top, it shows that smart money testing supply and no more supply available 2nd candle was buyer’s volume if the next candle closes above the current candle

6 PRINCIPLE FOR ANALYSIS CANDLESTICK

Principle Number One: The length of any wick, either to the top or bottom of the candle is ALWAYS the first point of focus because it instantly shows, strength, weakness, and indecision, and most important where SMART-MONEY enter

Principle Number Two: If no wick is created, then this signals strong market sentiment in the direction of the closing price. SMART-MONEY active there

Principle Number Three: A wide-body represents strong market sentiment and a narrow body present week market sentiment Narrow body with the heavy volume either Smart Money observing for continuous of move or Smart Money enter on the opposite direction

Principle Number Four: A candle of the same type will have a completely different meaning depending on where it appears in a price trend. Start of trend or middle of the trend or end of the trend or at support or resistance or in the consolidation phase. Candlestick should analyze the context of the move. You should never try and read the market looking at one day’s action in isolation. Always read the market phase-by-phase and then read the latest day’s action into the phase

Principle Number Five: Volume validates price. First, see what CANDLESTICK is telling then validated by volume, is It validating or not with the CANDLESTICK price action

Principle Number SIX: When a particular timeframe DON’T make sense then move to the next higher time frame for the big picture or lower timeframe for the microstructure of move

What next?

In the next article, I am going to discuss the Price Action Analysis in detail. Here, in this article, I try to give a brief introduction to candlestick and I hope you enjoy this article.

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