B4Trading Tamil

All About Candlesticks

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 Table of contents
1.What Is A Candlestick?

2.How to Study Candlestick?

4. Use a candlestick to 3.How To Read A Candlestick?

analyze a chart

5. The Six Candlestick Analysis Principles

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 01

What Is A Candlestick?
All About Candlesticks

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 1.What Is A Candlestick?
• The candlesticks are reflections of what buyers
and sellers are doing. To what extent they move
the price depends on the strength of the
move. Candles tell you who is in control, but do
not tell you about the strength of the buyer or
sellers behind the move. A candle with volume
shows that.

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 02

How to Study Candlestick

All About Candlesticks

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 High High

Close Open

Bullish Candlestick Bearish Candlestick

(increasing) (Decreasing)

Open Close

Low Low

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 Bullish Candlestick (increasing)
• This is nothing but when the current candle close is above the
previous candle close.
• This is not Bullish candle, because the current
candle closes below the previous candle closes.
Close
• This is called the inside candle.

Close Open Close

Close

This is a bullish candle, price

that closes above the previous Open
Open candle. Open

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Bearish Candlestick (increasing)
• This is nothing but when the current candle close is below the
previous candle close.
• This is a bearish candle, because the current
candle closes below the previous candle closes.

• This is also called the inside candle.

This is a bearish candle, price
that closes below the previous
Open Candle close. Open
Open

Close Open Close Close

Close

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

1. Pro Tip : We (retailers) can’t move the market, so every

candle shows what smart money trying to show. So their
move, trap or genuine, is only validated by volume.

2. Pro Tip : CANDLESTICK shows half the information, the other

half is shown by volume.

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Example :
➢ INCLUDING VOLUME :

➢ WHAT IS TELLING US ? • The range of the second

candle is smaller than the
• SENIMATE = BULLISH. range of the first candle.

• 2 consecutive candles • The volume of the second

close higher than the candle is greater than the
high. volume of the first candle.

• Now let's add volume • Consider why the volume is

to this candle. greater than the first
candle.

Volume

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

How could the spread be narrowed if the volume

represented buying ?

• Either the professional traders are selling into the buying, with a possible reversal
in the near future.

• There is a trading range to the left, and the professional traders are prepared to
absorb the selling from traders locked into this old trading range. I mean, a break
out may happen.

• Let’s understand with a chart

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

Volume

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 03

How to Read a Candlestick

All About Candlesticks

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 Generally, we have to consider 3 types of bodies.

01 02 03

Wide Candle Average Candle Narrow Candle

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Step 1 - Find The Body Of Your Timeframe.
The candle body shows a lot of information, such as:

a. A Long Body Is Showing Strength.

b. A Narrow Body Shows Weakness.

c. When Consecutive Bodies Become Larger And Larger, It Shows An

Increase In Momentum.

d. When Consecutive Bodies Become Smaller And Smaller, It Shows

Slowing Momentum.

e. If Up Or Down Moves With A Greater Than Average Body Candle, It

Shows Volatility Is High.

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 How To Compare This !

• Current Candlestick With Respect To The Previous Candle,

• Current Candlestick With Respect To The Same Swing,

• Current Candlestick With Respect To The Previous Swing.

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Step 2 – The Length Of Wicks (Shadow)

• Larger wicks indicate that price moved A lot during the

candle's duration but was rejected, indicating the presence
of supply or demand.

• At major support and resistance levels. As the candlewick

becomes larger, it indicates volatility. This generally
happens after long trending phases before A reversal
happens from support and resistance levels.

• One more thing: the longer the shadow, the more likely
prices will move in the opposite direction of the shadow.

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• Long wick candles do not always signal a reversal. If the wick of a
rejected candle is engulfed by a subsequent move, it fails. It is called
"reverse rejection.“

• If it appears in between the trend, it shows trend cont. (as a small

pullback in a smaller time frame).

• While a single long wick indicates possible prices moving in the

opposite direction of the wick, a cluster of multiple wicks indicates
that prices are likely to move in the same direction of the wick
created and if the body closes the direction of the trend.

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Step 3 – The Ratio Between Wicks And Bodies :

➢ Understanding the relationship between the open and close

when compared to the high and the low of the current bar

• The open price tells us where the balance between buyers and
sellers was at the beginning of that period.

• The close price tells us where the balance point was at the end
of the period.

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 100 • The Price opens and drives low and is rejected by
97 Buyers and drives up, but closes near the high price.
retrace more than 75% of the move, that means
Sellers try to sell, But Buyers are still in Strength.
90
• Sentiment : Bullish or Rejection from Buyers.

100 • The Price opens and drives low and is rejected by

Buyers and drives up, But closes in the middle of the
95 candle. retrace more than 50% of the move, that
means buyers and seller are both Equal.
90
• Sentiment : Neutral.

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100 • The Price opens and drives low and is rejected by
sellers and drives up. but closing near to the low
price. Retrace only 25% of the move, that means
92 Buyers try to Buy, But Sellers are still in Strength.
90
• Sentiment : Bearish or Rejection from Sellers.

100 • The Price opens and drives up and is rejected by

sellers, then drives low and is rejected by buyers,
96
again drives up and closes near to the open price.
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90 • Sentiment : Indecision.

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Step 4 – Volume Contains : Widespread Candle

01 02

Price Action :
Strong bullish market sentiment. The price
action has risen sharply higher and closed at
or near the high of an up candle.

Average

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Volume Action :
• The associated volume should, therefore, reflect this strong
sentiment with a "STRONG" volume. As we can see in the above
example,
01 • If the volume is above average (effort vs result), then this is what we
should expect to see as it validates the price.
• The professional trader is following the move higher and everything
is as it should be.

• If the volume is below average or low, this is a warning signal. The

price is being marked higher, but with little effort. The move is not
02 genuine.
• If we are in a position, we look to exit. If we are not in a position, we will
wait for the next signal to see when and where the professional
trader will take this market.

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Step 4 – Volume Contains : Narrowspread Candle

01 02

Price Action :
Weak Market Sentiment

Average

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Volume Action :

• A Narrow Spread candle should have low volume – again, effort vs result.

• Narrow spread candle with high volume, If the volume had represented
buying, how can the spread be narrow ?

• There are only two possible explanations for a Narrow spread up candle on
a very high volume.

i. Either the professional trader is selling into the buying [see the end of a
rising market]

ii. The Professional traders are prepared to absorb the selling from traders
locked into this old trading range.

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 04
How to Read a Chart
using Candlestick
All About Candlesticks

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 Q&A
First Read The Direction of The Current Candle
with respect to The Previous Candle.

That means, the relationship of each bar’s

high/low relative to the previous bar. What does
it tell us ?

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 01 02 03

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 01

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02
 03

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 05
Six Principles for
Candlestick Analysis :
All About Candlesticks

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Principle Number 1: 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 importantly, it's where
professional traders enter.

Principle Number 2: If no wick is created, then this signals strong market

sentiment in the direction of the closing price. There are professional
traders present.

Principle Number 3: A wide body represents strong market sentiment, and

a narrow body presents weak market sentiment. Professional traders are
either watching for a continuous move or entering in the opposite
direction.

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Principle Number 4: A candle of the same type will have a completely
different meaning depending on where it appears in a price trend.
beginning of a trend, middle of a trend, end of a trend, 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 by 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 5: 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 6: When a particular timeframe DON’T make sense, then

move to the next higher time frame for the big picture.

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