Module 5. Candlestick Chart Patterns & Price Action

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Price action is the interpretation of charts and the process of finding order in what the graphical representation of a security is telling us. Price action is strongly based on candlesticks and their swings. Chartists don't only use technical indicators to analyse charts, they also use candlestick analysis, the patterns that candlestick can form and when combined with support and resistance levels can be a potent tool. This is what we'll explore in this module. Unfortunately, interpreting candlesticks is not straightforward and can be read differently by different traders, but once you've spent a bit of chart time studying them there may be no going back...

It's maybe a good idea to go over Charting in Module 1. This will refresh your knowledge on the basics of charting. Candlestick formations can tell the trader a lot about supply and demand of a market within one individual period. A 1-minute chart will be full of 1-minute period candlesticks, a 1-day chart will be full of 1-day period candlesticks, etc... Each candlestick tell chartists whether buyers or sellers “won” that particular period and how much control each had in that period.

Candles are formed by data accumulated during that specific period - opening price, closing price, the high of the session and the low of the session are all recorded. As can be seen below, the body represents the opening and closing price and the end of the wick and leg (also called shadows) represent the high and low of the period (or session). A hollow body means the stock closes higher than its opening price - and opening price will be represented by the body bottom and closing price represented by the body top. A filled body indicates the period closes below its opening price, so the bottom of the body represents closing price and the top of the body represents opening price.


Contents: 
  1. Candlestick Patterns & What They Mean (Reading Trader Sentiment)
  2. Candlestick Reversal Patterns
  3. Candlestick Reversal patterns (ii)
  4. Candlesticks - Chart Gaps
  5. How Candlesticks can Confirm Support and Resistance
  6. Candlestick Glossary


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Price action is the interpretation of charts and the process of finding order in what the graphical representation of a security is telling us. Price action is strongly based on candlesticks and their swings. Chartists don't only use technical indicators to analyse charts, they also use candlestick analysis, the patterns that candlestick can form and when combined with support and resistance levels can be a potent tool. This is what we'll explore in this module. Unfortunately, interpreting candlesticks is not straightforward and can be read differently by different traders, but once you've spent a bit of chart time studying them there may be no going back...

It's maybe a good idea to go over Charting in Module 1. This will refresh your knowledge on the basics of charting. Candlestick formations can tell the trader a lot about supply and demand of a market within one individual period. A 1-minute chart will be full of 1-minute period candlesticks, a 1-day chart will be full of 1-day period candlesticks, etc... Each candlestick tell chartists whether buyers or sellers “won” that particular period and how much control each had in that period.

Candles are formed by data accumulated during that specific period - opening price, closing price, the high of the session and the low of the session are all recorded. As can be seen below, the body represents the opening and closing price and the end of the wick and leg (also called shadows) represent the high and low of the period (or session). A hollow body means the stock closes higher than its opening price - and opening price will be represented by the body bottom and closing price represented by the body top. A filled body indicates the period closes below its opening price, so the bottom of the body represents closing price and the top of the body represents opening price.


Contents: 
  1. Candlestick Patterns & What They Mean (Reading Trader Sentiment)
  2. Candlestick Reversal Patterns
  3. Candlestick Reversal patterns (ii)
  4. Candlesticks - Chart Gaps
  5. How Candlesticks can Confirm Support and Resistance
  6. Candlestick Glossary


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