3.19 Interpreting Sentiments by Individual Candlesticks of a Chart

candlestick charts with bullish, bearish and confused situation of trading markets .
 
So, how do crack Forex traders size up the market just looking at an individual candlestick of a candlestick chart?
 
In the next few lessons you will come across a lot of heavy names for different candlestick patterns and to be frank that may become quite confusing. Well, we are here to make that simpler for you. Each candle on a chart is a reflection of the market sentiments – each candle on the chart may be saying something to you and how do you listen to it? The answer to that lies in the sizes of the body of the candle and its wicks. Let’s have a quick view of what the different combinations of different sizes of the bodies and wicks may mean:
 
Candlesticks to measure market sentiments.
 
 

Size of the candle body

 
The length of the candle body gives an indication of the buying or selling pressure. 
 
If we see a long green candlestick it indicates that the closing price was much higher than the opening price, showing that the bulls (buyers) had the upper hand.  On the other hand a long red candle shows that the prices at close were much below the open, a sure sign that the bears (sellers) had wrested the battle from the bulls.
 
When prices have not moved much we would see small candles, red or green.  This indicates that the bearish and bullish forces were more or less evenly matched, and neither could drag the price away significantly in their favor.
 

Size of the candle wicks

 
The length of the candle wicks provides a clue to the extent of the trading range.  See the diagram below.
 
Since the wicks depict the highs and lows of the trading session, candlesticks having long wicks or shadows indicate that prices deviated significantly from the open or close, and that a considerable see-saw battle was seen between the bulls and bears. Small wicks on the other hand are an indication that prices ranged only in a small band around the open and close.
 

Summary of candlestick shapes vs. market sentiments

 
But let’s make it easier to remember by once again classifying the broad candlestick types into different kinds of market action. Look at the chart below.
 
Various shapes of candlesticks - summary. 
 
  • Candle 1 is a long green one. Clearly the bulls won the game.

 

  • Candle 2 is a long red one. Here, obviously the bears had the upper hand.

 

  • Candles at 3 show small red or green candles. Bears and bulls were about evenly matched, and neither could get the upper hand.

 

  • Candles at 4 show long lower wicks. These mean that there was a see-saw battle in which the bears pushed down the prices significantly but the bulls made a comeback to claw back the price towards the close.

 

  • Candles at 5 show long upper wicks. Here the bulls had the upper hand for some time and managed to push up prices, but then the bears wrested control and pushed back the prices.

 

  • Candles at 6 show long wicks at both ends of the candles. These were obviously royal battles of offensives and counter-offensives, but neither the bulls nor the bears could achieve a net favorable result, causing a stalemate around the open or close price.
 

 

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