MASTERING AND UNDERSTANDING CANDLESTICKS PATTERNS

2023年5月16日

To understand the price and candlestick analysis, it helps if you imagine the price movements in financial markets as a battle between the buyers and the sellers. Buyers speculate that prices will increase and drive the price up through their trades and/or their buying interest. Sellers bet on falling prices and push the price down with their selling interest.


☑️ If one side is stronger than the other, the financial markets will see the following trends emerging:

1 - If there are more buyers than sellers, or more buying interest than selling interest, the buyers do not have anyone they can buy from. The prices then increase until the price becomes so high that the sellers once again find it attractive to get involved. At the same time, the price is eventually too high for the buyers to keep buying.

2 - However, if there are more sellers than buyers, prices will fall until a balance is restored and more buyers enter the market.

3 - The greater the imbalance between these two market players, the faster the movement of the market in one direction. However, if there is only a slight overhang, prices tend to change more slowly.

4 - When the buying and selling interests are in equilibrium, there is no reason for the price to change. Both parties are satisfied with the current price and there is a market balance.

It is always important to keep this in mind because any price analysis aims at comparing the strength ratio of the two sides to evaluate which market players are stronger and in which direction the price is, therefore, more likely to move.


☑️ The size of the candlestick body shows the difference between the opening and closing price and it tells us a lot about the strength of buyers or sellers.

1 - A long candlestick body, that leads to quickly rising prices, indicates more buying interest and a strong price move.

2 - If the size of the candlestick bodies increases over a period, then the price trend accelerates and a trend is intensified.

3 - When the size of the bodies shrinks, this can mean that a prevailing trend comes to an end, owing to an increasingly balanced strength ratio between the buyers and the sellers.

4 - Candlestick bodies that remain constant confirm a stable trend

5 - If the market suddenly shifts from long rising candlesticks to long falling candlesticks, it indicates a sudden change in trend and highlights strong market forces.


☑️ The length of shadows helps in determining the volatility, i.e. the entire range of price fluctuations.

1 - Long shadows can be a sign of uncertainty because it means that the buyers and sellers are strongly competing, but neither side has been able to gain the upper hand so far.

2 - Short shadows indicate a stable market with little instability.

3 - We can often see that the length of the candlestick shadows increases after long trend phases. Increasing fluctuation indicates that the battle between buyers and sellers is intensifying and the strength ratio is no longer as one-sided as it was during the trend.

4 - Healthy trends, which move quickly in one direction, usually show candlesticks with only small shadows since one side of the market players dominate the proceedings.


☑️ For a better understanding of price movements and market behaviour, the first two elements must be correlated in the third element.

1 - During a strong trend, the candlestick bodies are often significantly longer than the shadows. The stronger the trend, the faster the price pushes in the trend direction. During a strong upward trend, the candlesticks usually close near the high of the candlestick body and, thus, do not leave a candlestick shadow or have only a small shadow.

2 - When the trend slows down, the ratio changes and the shadows become longer in comparison to the candlestick bodies.

3 - Sideways phases and turning points are usually characterised by candlesticks that have a long shadow and only short bodies. This means that there is a relative balance between the buyers and the sellers and there is uncertainty about the direction of the next price movement.

✅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.

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