How to Read Candlestick Charts

hello everyone and welcome to our sessions on Japanese candlesticks my name is Merlin Rothfeld excited to be with you today one of my favorite topics in trading is actually looking at candlesticks and when we look at those on a price chart it's rather simple we see all these colored little bars out there but what do they actually tell us well I'm gonna start off by going back through history and looking at how these came to be why they're so important and why they are so much more than just reading price it's really a behavioral analysis tool and we can start to understand how buyers and sellers are thinking and the emotions behind that that gives us a competitive advantage now we're streaming live out there today so we'll be watching your chat as it comes through here today so please feel free to keep on typing in your chat and questions as we go and I'll try to get to all those now as a quick little precursor here of course you've got a disclaimer there I'm gonna do like a car in one of those car sales guys and read through it very very quickly no I'm not I'll just let you guys read it at your own leisure so let's go and start off with a basic example something we all remember from our elementary school or camp days a tug of war battle well when we look at Japanese candlesticks I want you guys to understand that it's basically a tug of war battle every candle starts out at an even point there's no winner there's no loser but as that battle progresses and you look here we've got two guys on the left-hand side we got two lovely ladies on the right-hand side you know we can start to base our assumptions about what's gonna happen and oh and lo and behold we go here and we get back to Ellen there you go you see all of a sudden the guys are just crushing it right there pulling they're getting the girls almost all the way past that line so they're just about to win but the battle is not over yet and for whatever reason whatever circumstance those girls just dig deep they plant those heels and all of a sudden they start pulling and pulling and pulling and they start to win this battle and at the end of it all when the bell rings when the whistle blows the girls have won this battle so regardless of what your preconceived notions were going into this battle there was a period of time where the men were winning there was a period of time where the women won but ultimately the end of all this the ladies won and that tells us a little bit about the psychology going into that situation so that's kind of how we're gonna focus on this I want you to think of it as a battle a war between participants now in the real world it's not about you and me or you know any other specific trader it's all of us combined so how did it all start well we can go way back to the early days here this is what's called the Dojima rice market and really in 1710 is when they went from went to a futures market because used to be kind of a actual hand on rice type of market until 1710 and then it went to a futures type of exchange and this is a classic picture we found of the Dejima rice market now one of the traders that emerged from that and it really is kind of known as the father of Japanese candlesticks is a gentleman by the name of Hama mana heesu again I put on there the father of Japanese candlesticks I'm pretty sure he's actually an honorary samurai by the way just for those who want to know because he was so good at Japanese candlesticks and trading they made him an honorary Samurai and I don't know about you but I'm thinking honorary samurai should be able to swing a sword pretty good but that meant maybe he could 17:24 to 1803 was his life span there and I want to bring up a quote here that some of you might attribute to another famous investor out there there's one that people look at Warren Buffett say that's Warren Buffett's phrase no it's Hama mana heesu and he says when all are bearish there is cause for price to rise when everyone is bullish there is cause for price to fall and this goes back to kind of the Warren Buffett one where he says when there's blood in the streets that's when you want to be buying and when everyone's getting really excited that's when you want to get out pretty much says the same thing right but just a couple hundred years earlier so let's walk through the very basics now some of you might be familiar with Japanese candlesticks some of you might be brand new to this it's okay we'll start off at the very basics that I'm gonna show you some more common patterns and then I'll show you actually unreal charts what these formations look like so we'll start off with this basic illustration here which really shows us a bar chart this is not a candlestick chart quite yet now every bar of information really gives us five pieces of information and of course you're looking at this going I only see four words on each one well the left hash mark there represents where it opened you can see the low you can see the high and you can see the right hash mark is where it closed that so those are your four pieces but there's one more which would be the range and that's simply the distance between the high and the low those five components are what make up all bars and candles and they give us a good insight - what's going on with price and psychology now if it opened lower or sorry if it closed higher than it opened then you're gonna see an example of what we have on the left here which is a bullish candle which would be a white real body and then if it closed lower than it opened you'd have a black real body now the way the Japanese candlesticks were traditionally done were in black and white nowadays it's changed to red and green which is somewhat ironic because Trading is pretty much a male-dominated world and is definitely changing and happy to see that but still predominantly men or traders out there and it's red and green which I believe something like 19 percent of men are colorblind - red and green could we have picked different colors all right the real body is the piece that was just colored in here and that basically takes the difference between where it opened and where it closed and based off what those numbers are it will either make it white or black or red or green now the white candle obviously is going to be green for up and your black candle would be red meaning it closed lower than where it opened those are the very very basics of candles so we can start by looking at this chart here doesn't matter what security this is over what time frame it is but you guys can see we've got a lot of black and white candles there and very clearly when we get a nice streak of black candles out there it gives us that the kind of negative connotation we feel like there's a downside move there do you see somewhere there's a lot of white candles in a row and that leads us tonight's bullish moves well most platforms now will look like this with mostly red and green candles now of course we can change these to fit our color scheme at home I like to use black and white candles simply because it's easier for me to see because I'm part of that 19% who's colorblind now let's break up the individual candles right you got a basic understanding they represent buyers out there they represent sellers and we get five pieces of information here is where we want to start to focus on the psychology of candlesticks so here we've got two candles one showing buying pressure one showing selling pressure and you're wondering well why why does that one on the Left show buying pressure well if you'll notice the candle on the left is a white candle meaning that it opened at the bottom of that white box and closed at the dead high so that's that's kind of bullish right but it more important is what happened during that range so take a peek at this during this timeframe let's say each cake this candle represents one day of training you can see the price was aggressively selling off at one point this was a giant black or red candle because it would sold all the way down to those lows but going back to our tug of war analogy this is just like what we saw the opening of this presentation the buyers came back in and for whatever reason you could explain it till you're blue in the face doesn't matter the buyers came back and push this up all the way to the high of the day very positive so if we go back to a simple analogy of you have you and your significant other are in an argument and you're fighting about something you can pick whatever topic it is what's the most important word to have in that argument it's the last word and if you're like me it's usually I'm sorry or you know have some flowers but really the last word in this Japanese candlestick is in this case was buyers pushing it up there the power and that's the momentum at that point in time on the right side of your screen you see the inverse of that where at one point we had a string of buyers pushing this thing up right it was a nice green candle it was a white candle depending on which colors you use I'll use red and green from here on out it was a nice green candle and who knows why but the sellers came back in and not only sold it all the way back down the word opened but even lower and closed at the dead low this is a sign of a very very bearish pressure out there and depending on where these candles happen where they show up on a price chart can give us some high probability trading factors so let's look at these six candlesticks out here normally I would do is I would ask you guys to you know quiz and say oh which one you thinks the most bullish which I think is most bearish well I'm gonna just read through these and kind of explain them briefly number one is probably the most bullish right it opened at the dead low there's no tail at the bottom of it so open to the dead low close at the dead high very very strong candle out there number two while you look at this one you go oh well it's red so it's got to be actually kind of bearish right no it's actually rather bullish because remember just like the example we just looked at even though the body is red right number two meaning it closed lower than where it opened it still closed at the higher end of its range and if I asked you who had the last word in that it was the buyers because it was at one point an all red candle all the way down to this low but for some reason those buyers pushed it back up meaning the momentum was there at the end therefore rather positive number three is it's pretty bullish right it's similar to number one but it has topping and bottoming tails that's a tail as this little part here means it went down to that price at some point and it reached this high price at some point so you call those tails wicks or shadows depending on who's instructing or using the candlesticks number four is actually rather bearish even though it's a green candle psychologically we go green positive good well not necessarily again this is like what we looked at a couple slides ago where you have a lot of selling pressure coming in at the end pushing it down to near the lows of the session therefore it's bearish now number five and number six I would say are almost the same they represent indecision very small real bodies right you can see number fives got that small red body even though it's red it still didn't have much of a change from where it opened it to where it closed same thing with number six that's called a doji where it opens and closes at the same price the only thing that separates five and six is the range so we had a lot more volatility during that number five whereas number six was almost non-existent barely even moved and those can also give us clues as to potential market direction so let's talk about that number six for a second that's the doji out there what is a doji well a doji is simply a candle that opens and closes it's just about the same price doesn't have to be exact but a lot of people do their true technicians say it's got to be the same price well when you're trading something like the SP and it's trading in you know two thousand plus it's kind of hard to get it to close exactly the same as where it opened so we like to say ballpark pretty close and you notice that we have three different representations of it out there you see one is just like a little tiny plus sign you have the middle in there it's got some big ranges to it then you have the one on the far right which is called a dragonfly doji and I'll explain some of the differences between those as we progress so let's go into some of the more popular doji patterns and again if you have any questions feel free to send those in here and I'll go over them gravestone doji is one of the more popular ones now a gravestone doji is simply something that opens and closes at about the same price that's the classic definition of oh gee now for it to be a grave stone doji it opens and closes at the low or very very near the low and has a long topping tail now by itself this really doesn't help us make a trade location location location you'll hear that heard all through real estate you hear with Japanese candlesticks as well if this candle was at the top of a nice sharp uptrend then it's going to give me a good probability that prices are going to be moving to the downside so this is a gravestone doji which denotes selling pressure and maybe a more bearish environment going forward well what does the opposite look like well here we have a dragonfly doji which looks exactly the same just upside down you have price as open and closing just about equal that's right near the high and you have that long bottoming tail there now again location is key if we had this happen at the top of an uptrend that's really not that important to us if it's at the bottom of a downtrend and especially if we go back to online trading Academy's core strategy and talk about it into a demand zone now we really have something that gives us some teeth to work with to a potential upside move now what are some of the other ones out there these are all called spinning tops and really all the spinning top is is a very short compressed range a narrower range candles what they like to call them or NRC's generally what that means is you have a lack of emotion so it stays in a very short trading range you don't have much price movement maybe you X some small wicks or shadows tails above and below but really it's not a lot going on and it generally represents indecision now indecision can frequently be found in areas of consolidation so I've got an illustration here and you'll see in that red oval there there's a lot of little tiny spinning tops and it's really where price was just going sideways again doesn't matter what security this is you'll find spinning tops a lot in sideways congestion but you can also find them at err at points where price is accelerated aggressively and all of a sudden it just kind of stops those become great trading opportunities for me as well because that indecision could lead to buyer's or seller's remorse if you will and we could see a reverse price direction so those are your spinning tops of course we've got the tiny little narrow ranges we also have these big colossal giant ones these are it says long candle I just think the term the name is terrible out there I like to call them expanded range candles really large ranges meaning we've moved a lot in whatever time period this is whether it's 1 minute 5 minute daily weekly monthly doesn't matter but a really large candle now obviously that represents a large price move a wide range you generally don't have wicks with these meaning it's gonna be closing near the highs and opening opening your lows closing to the highs and vice versa what this represents is a lot of emotion a lot of times you see these expanded range candles or long candles after major announcements right it could be an earnings announcement could be some press release coming out but there's a lot of emotion there and generally it's coupled with a lot of volume that's what's driving the price so we can see on this chart here's a couple examples of them you see some really large expanded range candles now again it doesn't have to close at the dead low or open at the dead high but it it makes it more powerful if it does and these four examples that I have here you'll see that all of them have some topping and bottoming tails so nothing with candlesticks is going to be perfect it's a little bit of an artistic flair there meaning it's kind of slightly subject to your artistic view on this one and I'll show you some examples of what I mean my artistic view here shortly but all right so now let's go to some of the more popular ones here we have the bullish harami which in Japanese means pregnant and you can see by the illustration on the right hand side you've got price drifting down you've got a nice big black or red candle and then the next candle is going to be most likely green it's preferably going to be an up candle but it doesn't have to be but it is going to fit within the previous range so as you guys can see here on the screen you've got this black candle and this entire cannon including the tails should fit within the real body of the previous candle that is really the definition of a bullish harami so you've got the downtrend the first candle is definitely a Down expanded range candle the second candle may be a little narrower range one preferably to the upside and it is completely in golf by the first day there so we can make a little modifications this is where I think Japanese candlesticks get rather humorous because you have the bullish harami and then you have oh the bullish Rami cross well what changed you'll notice all the change was the second day instead of it having a body now it's just a cross it's a doji so it doesn't make it any more powerful or less powerful but I wanted to include that here so you guys can heat you may have heard some of these terms out there all the bullish harami cross are just the bullish urami so how does this look on a price chart well we can see very clearly here we've got two decent examples now I know if some of you are masters of steepness ins book on Japanese candlesticks which of course is kind of the the Bible for most people out there that like to look at Japanese candlesticks you'll say well that first one on the left side isn't exactly a Jaramillo why not well if you notice I'm gonna have the the cursor illustrated over here on the left hand side you'll see we've got this you can call that expanded range candle this black candle right here and then we have this little doji it's like it's a basing a bullish around me cross but technically you'll notice that the tail in the doji is just slightly outside of the highs of that expanding range piano so technically you could argue that's not a rummy but hey it's close enough for government work I'm gonna call that one a hurrah me because you notice it was drifting down we also have this similar situation here we had price drifting down and then you have this hurrah me here even though it has a long tail on it it still fits completely within this expanded range candle and the next day we get basically three days worth of upside move so there you see some bullish haraam ease on a price chart now the I would say the sibling of her ami is just the exact opposite right her ami is a big down day and we have bearish mommies as well what will cover both those but you have a big down day followed by a small little update well what if we have a small down day followed by a gigantic up day these are called engulfing patterns so this is a bullish engulfing pattern what some would refer to we talk about that in Rexel teas is kind of an outside day and really what we're looking for here is a market that's been trending down so remember key is location location location if you have an engulfing pattern in the middle of consolidation it doesn't mean much if it's trending down we've got a nice downtrend in that first candle it's kind of a smaller little doji pattern perhaps but it's a you know a negative down day and then the second candle is this really big candle it completely engulfs meaning it eats up the entire previous day worth of trading that is an example of a bullish engulfing this is a great pattern from a reversal perspective we see quite frequently what it represents is a change in emotion a change in sentiment so we have that big expanded range candle their prices most likely and I say mostly it's not like a 90% but you have a greater than 50% probability that's going to move into the upside because where's the momentum where is that tug of war being one who's winning the buyers were winning that day and that momentum most likely will continue for how long who knows but it's there at that moment and that's what's important so here's a great example of a bullish engulfing pattern you notice that going into this this engulfing pattern here we had pretty much a month of just almost constant sell-off one month of just almost it all down and then all of a sudden we had a big bullish engulfing pattern and it rallied for the better part of another month in this case went from 225 all the way up to about 255 so you're looking at a $30 move about a 12 13 percent move in a month on this stock and what caused it emotion how can we spot that emotion by that bullish engulfing pattern that formed on that one now here are some of the more obscure ones not not obscure you'll see them regularly on price charts but it's just wanted to get you some wider scope as far as the different candlestick so we're using out there here is one called a bullish doji star now let me take a step back here real quick and say that you can torture yourself with Japanese candlesticks so you can basically come up with a name for any candlestick by itself a name for any two candlesticks together and a name for any three Japanese candlesticks together I think Steve missins book is three or four hundred pages of exactly that and I think it was kind of throwing darts and saying well let's put this one next to this one and we'll call that well that's the abandoned baby that's the falling window some of them are just kind of outlandish so what I'm covering you are the basic ones that have some meat to them and really some substance regards to probability and I'm hoping that I'm explaining psychology enough here so you can see why it's so important then not only we watching what's going on with price but the behavior behind price what is causing that emotion to stir and as if you know the kind of true truth about financial markets the institutions make money off of the novice investors so if I can get the emotions of the novice investor and track that then the probability is greater in my favor so let's take it back another look at this bullish doji star all this represents is again an emotional spike in this case it's a spike to the downside and you can see we've had this big weird downtrend the second to last candle here is a long expanded range candle and then the second one there gaps below the first candle gap meaning that there's air space between these two they're not they don't overlap at all that is a huge sign of sentiment all right it's an emotional spike now of course if we had volume on here that might actually help with our confirmation but that second and the final candle there the doji shows it should be short should be compressed now again I mentioned there's two candles everyone wants to say there's two candles here well you want to add a third one now it's no longer a bullish doji star it's a bullish Morningstar because in the morning you wake up and in theory this is where this price will be headed for the short-term same thing right we've got that downtrend expanded range candle it gaps down forming kind of a little island out there got that compressed narrower range and all of a sudden the third candle gaps up again leaving this gap here that is a very bullish sign called a bullish more bullish morning doji star we've got three candles and I got four words there wish they would keep it down to three all right so now we'll go to a Morningstar right so it's no longer a doji down there on the second candle it's simply a small little I guess you could call it a spinning top but this would be called a bullish Morningstar so really not much of a difference the only thing that would have changed here is that little tiny candle in the middle of the very bottom one so we've got a question says does it doesn't have anything to do with supply and demand theory not that it has anything to do with it but in conjunction with so if we take the supply and demand theory and we are looking over let's say to the left hand side of our charts and we're spotting an area that we say man I really feel like there's institutional demand here I can see it on the price chart right that's kind of the basis of core strategy and if I can find those areas where there's a good deal of demand and all of a sudden I get a bullish doji star Morningstar right into that demand zone does that make this Candlestick even stronger hallelujah it does absolutely so by themselves they're good but if you can use them and line them up with demand or supply depending on whether you want to go long or short then that really adds value to them so by themselves I think Japanese candlesticks are great using conjunction with supply and demand makes them exponentially better because of the supply zones and the demand zones are where the buyers and sellers really are and if the candles line up with those then we have a very high probability trade great question all right so let's go to my personal favorites out there this is one that I look for all the time I actually run scans and filters on some of the platforms I'm looking for for this candle this is called a bullish hammer formation of course we could flip this upside down and this could also be a bearish hammer formation but we'll talk about that in a second is called a shooting star how do we identify it well you remember at the very beginning I talked about candles that have you know it in one sense this looks positive because it's a white candle but if you even if that was a black top on it or read it still be bullish why because notice where we were we were trending down right so as it was in the middle of a nice big downtrend we had a small real body at the upper end of that training range meaning at some point this whole candle was black or red it was negative it was down and the buyers came back in and pushed it all the way up near the top now as I mentioned the color of that body whether it's red or green isn't really important I personally would prefer it's green because it really shows some positive sentiment but it doesn't really matter the longer shadow should be at least twice the length of the body that's kind of key here you want to have a very small narrow range for a hammer formation near the top and little to no upper shadow so you don't want anything up here at the top this is a tiny little and that's okay but you don't want to have this kind of sitting in the middle the real body is sitting in the middle that would barely be just nothing but a doji or spinning top so where do these form well again for me when I see them at the bottom of a downtrend of course we don't know that the downtrend is over but if I can spot it into an area of demand that makes it a very high probability trade so you notice the the candle in the middle here that's circled in red that is a hammer formation now unfortunately there's nothing for us to look to the left and see an area of demand on this one so I don't know if it coincides with an area of demand but you can see that clearly the next day nice bullish up move right it had a great move and actually for the next couple days shot up significantly over the next four days well notice on the hard right edge we have another one on the right now that one actually formed a hammer information after an aggressive sell-off in price and it actually came down to those previous loads that you see in the middle of the screen so now I start to feel more confident about this specific candle now the only caveat to this is they are lagging right if I wanted to trade this candle on the right edge that the cursor is spinning around right now if I were to buy it now I'm gonna be buying up here to the top which looks to be on this chart right around 77 okay I'm gonna call that 77 but could I have bought down here at 75 50 yeah possibly right I need to break down this candle and see where that actual demand zone was and see if there is an entry point so candlesticks can be lagging right so if you buy this hammer formation for example you're leaving some money on the table so I always number-one I'm looking for supply or demand zones to make the trades and if I get a great candle forming I might add to a position based off of that Japanese candlestick formation so here's a the inverse of that right we looked at the Morningstar well here's an evening star right in the morning you get up in the evening you go to sleep this is an example of that we have an uptrend going on so you got a nice upward rally in the market or the security whatever it is that first day is going to be a long white day right an expanded range candle if you want second date gaps above that first day's close so it's gapping outside and forming maybe a doji or spinning top and then that third day gaps down and proceeds to sell off great high probability reversal formation out there and of course we could change this very quickly all we have to do is make that top pattern there that which was a doji we just make that into our Sun a spinning top just make it across now it's a bullish evening doji star why because the doji not much has changed here but you guys can see that the basic psychology is the same now we looked at bullish engulfing how about a bearish engulfing formation some that you probably have seen in the last couple months here in our markets same thing right we've got the uptrend going on so for it to be a bearish engulfing we want to be in the midst of a nice big uptrend this is a potential reversal formation so we've got the uptrend happening that first candle a small little spinning top if you want could be a doji as well the second one gaps up above it completely engulfs it you know that this black candle here completely eats up that previous day that is a bearish engulfing and there's a good chance this could be moving more to the downside again to go to a yoga session if this was into an area of supply all of a sudden my confidence in this trade is gonna be much much higher I'm looking for the extra little probability to put in my favour now we talked about the bullish harami here is an example of a bearish harami formation it's just the opposite right we're looking at an uptrend prices are moving to the upside here you've got a nice expand arranged candle which really brings in a lot of new buyers that's what caused that expanded range candle there that white one or most cases gonna be green the second part gaps down a little bit narrower range candle kind of shows a little bit of consolidation some pressure there that really shows indecision well if you had a big uptrend and let's just think of it from a psychological perspective if you've had a big uptrend in price and all of a sudden you get this really big expanded range candle I think that we could agree that it might have exhausted itself and that's generally the principle behind the sarami formation is you've had an up move you get this nice big surge and that forms that first big candle there that could be retail investors piling in acting emotionally the next day because most the buyers have already body gaps down a little bit and hesitates if momentum was truly strong what should it do it could gap down and then continue to rally but in this case it stays compressed shows a small little range there which represents indecision so really that that is not art to open a short position or to sell out necessarily it's really about waiting to see what happens on the next candle if we start to see new lows being made okay great shorting opportunity but it could very easily start to rally back up that second candle there just represents indecision a hesitation moment after a big thrust to the upside now if we just tweak this a little bit and we take that and we make it a doji now you see we've got a bearish harami cross going back to our quick naming of different candlestick formations out there and there again there's thousands of different ones so my personal favorite was the hammer formation and that goes very well with its kin the bearish shooting star it's basically the same thing as a hammer just upside down now what we're looking for here is a security or market that is trending up you've got a small real body generally at the bottom of the trading range the color of that body is not important in this case you see it's white right it could be could be green could be red whatever color does that important if it's a shooting star I would prefer it to be red meaning it close at the dead low but it's up to up to the eye the beholder there again real small body the bottom of the range the color is not important the long upper shadow is what is important I love when I see really long topping tails on shooting stars it represents more emotion because remember how did this pattern form at some point it opened it rallied all the way up to this high so it was a giant green candle and then the sellers had that last word pushed it down and it closed near the session lows so it's very negative now if we look at this on price charts and you guys can see here we've got a couple of them out there and there's only I would say two that I thought that for me would be very important the one on the left it is a shooting star but do you see it's not it's not a high like I'm not this one doesn't really do it for me it is a shooting star technically because it's after a big rally but the candle before it kind of erases the power of it to me yes it did follow through and had a great sell-off but you know we're all what they call it the Monday Morning Quarterback so you can who can all after the fact make assessments about it this one here in August was pretty decent but notice it was it rallied up and was just going sideways so I probably would not have been looking at that one as a short entry this one here though I'm a little bit more inclined to look at these two on the right side you can see that they weren't quite new highs but they kept rolling up into this area of overhead supply you see for four days whatever time frame this candle is it really just kept hitting these highs right around $84 so the fact that it shot up and kept getting crushed back down for four consecutive days is actually very bearish this would have been a great trade of course in hindsight we can see there was a significant move out of it but all I was doing was eluding me to the behavior and psychology of the buyers and the sellers this right side is a great example of that psychology most people would look at this and say well nothing's really happening absolu there is those buyers were trying to push this up because the momentum was up and they kept getting crushed day one they got slammed back down day two slam back down day three they really got crushed they tried to rally on day four again got slammed back down day five again got slammed so if you don't see that selling pressure out there the fact that sellers are unloading for whatever reason you need glasses this is a clear example of that cycle psychology the market place pushing thing to the downside and really set up nicely for this big sell-off alright so that was a very very quick overview out there you know maybe in future sessions we can talk more about strategy and tactics on this but what I wanted to emphasize here is that this is not a standalone trading instrument this is a decision support tool so if we're out there looking at price charts and you see a great shooting star or greater ami fantastic mark it down make a note look over to the left look and see if there's any area of supply or demand which could make that pattern more significant likewise if you have an area of demand that you've already mapped out and that's kind of the way that I operate is I will look for good areas of demand good areas of supply on my normally traded instruments and I've got those levels mapped out and if I see a candlestick formation start to form in that zone well now it makes that trade even better for me because I'm again using the candles which is retail generally retail and behavioral psychology and the institutional levels which is looking at the supply and demand zones put those together make myself some great trades it should be designed as an odds enhancer meaning if we take the whole spectrum of things that we're using to build our trades start with number one which is price looking at supply looking at demand mapping out those zones then we start to add in qualifications our odds enhancers generally look at how price move what the characteristics of it look like and that is our odds enhancers this is one additional one add on candle six you might even use some technical indicators but again they should not be the foremost decision-making piece why well partly because they're lagging indicators right they are reactionary they're showing you what happened between buyers and sellers and that could give us clues as to what might happen going forward but again it's a reflection of actions that have happened in the past really that window into psychology so Donnie great question he says when using support or resistance is it best to use the body or the wick the wick remember if we have a support zone and you have let's say a hammer formation that has come down into or so it demands on you have a catalyst come down into that demand zone if the body's in the demand zone but the tail goes down below the demands on that demand zones violated is no longer good so if you have a formation that is the bottom of tail tips down and just kisses your demand zone and then starts to rally up well you should be in the trade because it hit your demand zone right that's point number one but all of a sudden that day ends or that bar ends and it's a really big hammer hammer formation could you add to that trade could you put on a little bit more there I think so and that's how I operate I'm trying to use supply demand first get that trade and then if the end of that if the candle forms and it looks like a high probability that's going to move to even further in the decision in the direction that I decided then I'm going to add more to it if it does transpire that way so I'm gonna use the wicks out there great question Donny all right that will do it for this session that was a quick overview again we do talk a lot more about these in another session so I would encourage you guys to check out the OT Academy website not just for candlesticks for basic basic investment methodology as well there's a lot of free videos out there to encourage you to send them in and if you like this video share with your friends there's also down at the bottom at ot Academy a little feedback page we'd love to get your feedback out there and send in ideas you want for some new topics until then guys happy trading and I will see you on our next session with OSI Academy

Channel: Online Trading Academy

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Keywords: online trading academy review, online trading academy, online trading academy denver, online trading academy reviews yelp, online trading academy reviews 2017, is online trading academy a scam?, candlestick, technical analysis, candlestick charts, candlestick pattern, candlestick chart, stock trading for beginners, stock trading for beginners 2019, binary options strategy 2018, candlestick patterns for swing trading, trade school, stock market news, day trading, trading stocks

Id: FsqoV1aVrUc

Length: 36min 32sec (2192 seconds)

Published: Thu Mar 29 2018