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What really matters is that you understand what the candlesticks in front you
of you tell you about price structure, trend strength, buyer/seller dynamic
and the likely path for future price movements.
Before we start getting into the actual elements of candlesticks, it’s important
that you are in the right mindset.
Let’s think about price movements like a war between bulls and bears. Every
candlestick is a single battle in an overall war and the 5 elements of the
candlestick tell us who is ahead, who is pulling back, who is in control and
who has a better chance of winning the next battle.
Step 2: It’s all about context
This is a good starting point because it helps us avoid the closed mindset
thinking which limits many traders. Now we can start exploring the 4
elements:
The candle body is a great starting point because we can get a lot of
information from it.
The body shows how far price has traveled over the duration of the candle.
▪ Can you see a long wick with a body on the opposite side? This is often
showing a rejection
▪ When you have a small body in the middle of a candle with long wicks,
it means indecision
You can see that once we start combining the information that wicks and
bodies provide, we can practically analyze all candlestick formations.
The actual visual formatting of candlestick charts on trading platforms such
as MT4, Ninjatrader and JForex can differ, but the fundamentals of the 4
elements will equip you with the ability to understand all scenarios on the
charts.
Chart examples
Now that we have covered the individual elements, we can put things
together and see how we can use our knowledge to dissect price charts.
Example #1
Let’s follow price in the chart below and I share what we are seeing here in
the candlesticks:
▪ During the downtrend, the candlesticks are only red (bearish) and long
with very small or no wicks >> this shows strength
▪ At the bottom, we see a rejection. This is not enough yet to call a
reversal but on the next candle we then start seeing bullish candles
Example #2
Below we see a typical range behavior and we can see how the candles tell us
what is going on:
▪ Price trends lower on the left with strong bearish candles and no
bullish candles in between
▪ Then suddenly the bodies become smaller and the wicks longer,
showing that the momentum is fading
▪ Price trades back into a previous support and it now becomes
resistance and we see a small rejection candle
▪ At the support of the range, we see that candles are becoming smaller
and have more wicks, confirming the indecision. It also makes a break
of the support unlikely
▪ Just before the support breaks, price is only starting to make bearish
candles and we can see how momentum is picking up
Example #3
In the final example, we can see a classic pattern at the end of a trend. This is
also often one of the building blocks to the trading strategy which you can
learn in our pro area.
▪ During the uptrend, the candles are very long and have very small
wicks only
▪ Then suddenly we see two long wicks to the downside. This shows that
price tried to push lower but it did not yet have enough selling
pressure
▪ But the candles are becoming smaller and smaller after the failed sell-
off attempt which indicates that the trend is running out of steam
▪ Then suddenly we see a strong bearish candle which confirms the new
downtrend
Conclusion: No Need For Candlestick Patterns
With this article we want to show you that you do not have to remember any
candlestick formation to understand price. Quite the opposite. It’s very
important on your path to becoming a professional and profitable trader
that you start thinking outside the box and avoid the common beginner
mistakes. Learn how to understand how buyers and sellers push price, who
is in control and who is losing control.