Basic structure of a candle
A candlestick chart is a chart made up of many candles, in which each candle represents a period (time cycle). For example: If you open a 4-hour candlestick chart, each candle has a duration of 4 hours, on a 1D chart, each candle is 1 day...
Note: My chart is set to white candlesticks, black candlesticks, and black candle wicks. You can customize the colors, so this is not important. According to common convention, bullish candles will be green, and bearish candles will be red.
In the picture above is the structure of a basic candlestick, including:
– Candle body: is the connection between the opening and closing prices of the candle.
– Candle shadow: is the connection between the highest/lowest price to the opening/closing price.
For bullish candles: the opening price will be lower than the closing price.
For bearish candles: the opening price will be higher than the closing price.
Note: Each candle can have a complete candle body and candle shadow, it can also have only the candle shadow or only the candle body... Because the shape of each candle is different and diverse, we need to Learn how to read the market through each candle and candle cluster.
How to read and understand each candle
Every candle is a battle between the Long side and the Short side, so reading and understanding candlesticks is very important in Price Action.
– About candle length: candle length is calculated by the distance between the highest price and the lowest price. The longer the candle, the stronger the volatility; the smaller the candle, the lower the volatility.
– About the candle body: the candle body is where you can see the results of the battle. If the candle body is white, the buyers win, if it is black, the sellers win. The longer the body, the stronger the force, the more overwhelming it shows.
– About candle shadows:
Upper candle shadow: represents the area where the price tried to push up but could not overcome. The upper shadow of the candle represents selling pressure; the longer the shadow, the stronger the selling force.
Lower candle shadow: represents the area where the price tried to decrease but failed. The lower shadow of the candle represents buying pressure. The longer the shadow, the stronger the buying force.
You can see the picture above is the order of the candles with decreasing buying/selling pressure. Please try to apply the reading comprehension section above and explain for yourself the reason for the ranking.
How to read and understand candle clusters
After reading and understanding each candle, you need to get used to reading and understanding each candle cluster. The market is always closely linked, so you need to read and understand and connect many candles together to see the whole picture.
Note: When reading and understanding a candle cluster, you need to put the candles in a comparative relationship.
For example:
At cluster 2 of candle number 1: after a previous downtrend, the first candle has 02 upper and lower candle shadows that are quite long and both are longer than the candle body, the candle body is small and white, showing:
With a small, white candle body, it shows that buyers have entered the market and temporarily stopped the downward trend. However, the bullish force is not clearly overwhelming because the upper candle shadow is still long. The selling force is the same, the sellers tried to push the price down but in the end they closed the candle white. It can be said that this candlestick shows the market's hesitation.
The next candle shows strong bullish force with a long candle body and no wicks, showing that buyers have overwhelmed sellers.
The following candle has a large candle body and completely overwhelms candle number 1, showing that the force overwhelmed the previous hesitation (the correlation between the two candles).
At cluster 2 of candle number 2:
The first candle is a bullish candle, but the increasing force is quite small, there are a few upper candle shadows showing that the sellers have participated in selling down, but it is not clear.
The next candle is a strong bearish candle with a long candle body (3 times longer than the previous candle), and there are very few lower shadows, showing that the sellers completely prevailed in the market.
Through the above two examples, you surely understand how to read candle clusters. In the case of 3 or 4 candles, you can absolutely do the same, remember to always compare the correlation between the candles to have the most objective view!
I believe that if many of you are having headaches because you cannot remember "textbook" models such as Morning Star, Doji Morning Star, Bullish Harami... then through this article, you can completely recognize them. the meaning of each candle and candle clusters logically without trying to remember something else.
Read and understand the candles in a light and simple way, make connections and find out what the market is trying to say!
A little fun: when reading candlesticks, there will be many cases where you don't understand what the market is doing, one stick goes up, one stick goes down, then one stick goes up :)) The market is often affected by sudden news. , when you don't understand the market, the simplest thing is to... ignore it. Please enter when you are sure. See you again in the next part.
