Understand the buying and selling pressure:
You see, every candlestick that is formed tells you a story about the battle between the bulls and the bears-who dominated the battle, who won at the end, who is weakening etc. All that is reflected in any candlestick you see. The length of the body of the candlestick as well as the shadow (or wick) tells you a story about the buying and selling pressure.
Look at the first green candlestick on the left chart, it’s a bullish candlestick right? Yes. But you can see that it has a very short body and very long wick (tail).
It tells you the sellers (bears) were dominant. If this candlestick was to form after hitting a resistance level, it will be considered a bearish signal even though it’s a bullish candlestick.
Now, you can apply the same sort of logic to all the other candlesticks above and read the story each one is telling you.
⦁ If the upper wick is very long, it simple tells you that there’s a lot of selling pressure. It means price opened and got pushed higher by the buyers but then at the highest price, sellers got in and drove it back down.
⦁ If the lower wick is long, it tells you that there’s a lot of buying pressure. Sellers drove the price down but buyers got in and drove the price back up.
⦁ If the lower wick is short, it tells your there’s very minimal buying pressure.
⦁ If the upper wick is short, it tells you that there’s very minimal selling pressure.
What about the length of the body of candlesticks?
⦁ The longer the body of the candle indicates very strong buying or selling pressure.
⦁ A short body of a candlestick indicates little price movement and therefore less buying or selling pressure.
⦁ Sometimes the candles will have no upper or lower shadows but with very long bodies. These are interpreted the same way as standard candlesticks but are an even stronger indication of bullish or negative market sentiment.
⦁ In the case of bullish candle, prices never decline below the open. In the case of bearish candle, price never trade above the open. See below:
⦁ Next WL – 2 …what if you combine more than one candlesticks? What does it show you?
You see, every candlestick that is formed tells you a story about the battle between the bulls and the bears-who dominated the battle, who won at the end, who is weakening etc. All that is reflected in any candlestick you see. The length of the body of the candlestick as well as the shadow (or wick) tells you a story about the buying and selling pressure.
Look at the first green candlestick on the left chart, it’s a bullish candlestick right? Yes. But you can see that it has a very short body and very long wick (tail).
It tells you the sellers (bears) were dominant. If this candlestick was to form after hitting a resistance level, it will be considered a bearish signal even though it’s a bullish candlestick.
Now, you can apply the same sort of logic to all the other candlesticks above and read the story each one is telling you.
⦁ If the upper wick is very long, it simple tells you that there’s a lot of selling pressure. It means price opened and got pushed higher by the buyers but then at the highest price, sellers got in and drove it back down.
⦁ If the lower wick is long, it tells you that there’s a lot of buying pressure. Sellers drove the price down but buyers got in and drove the price back up.
⦁ If the lower wick is short, it tells your there’s very minimal buying pressure.
⦁ If the upper wick is short, it tells you that there’s very minimal selling pressure.
What about the length of the body of candlesticks?
⦁ The longer the body of the candle indicates very strong buying or selling pressure.
⦁ A short body of a candlestick indicates little price movement and therefore less buying or selling pressure.
⦁ Sometimes the candles will have no upper or lower shadows but with very long bodies. These are interpreted the same way as standard candlesticks but are an even stronger indication of bullish or negative market sentiment.
⦁ In the case of bullish candle, prices never decline below the open. In the case of bearish candle, price never trade above the open. See below:
⦁ Next WL – 2 …what if you combine more than one candlesticks? What does it show you?