In this article, I am going to discuss Advanced Candlestick Analysis in Trading. Please read the Price Action Analysis article before proceeding to this article. As part of this article, I am going to discuss the following pointers in detail.
Candlestick Analysis in Trading:
Each candlestick tells a story as they are a reflection of what buyers and sellers are doing or what the market is telling you. Use candlestick with support and resistance area
- Support tends to break into a downtrend
- Resistance tends to break into an uptrend
- Support and Resistance tend to break when there is a tight range at SR level
- The more/frequently test of support resistance is weakening this level and break the level
Then how to know whether the price will reverse from support or resistance or break level. I mean whether price confirms or disconfirm as support or resistance.
DISCONFIRMATION AND CONFIRMATION
At resistance we expect the price to reverse or supply exceed demand confirms the supply.
What price action validates the resistance level?
- Clear Rejection from resistance in the form of the pin bar or outside bar or engulfing bar
- Momentum loss when approaching resistance
- Unable to close above the resistance level
- Low volume candle when approaching resistance
CANDLE REJECTION
Single candle rejection (pin bar)
In an established downtrend any Clear Rejection from resistance in the form of the pin bar or outside bar or engulfing bar confirm the resistance level
MULTIPLE CANDLE REJECTION
Better if multiple candlesticks are rejecting an area as this shows that price tried over and over but failed When multiple candles refuse to go UP or rejection from resistance they ultimately go down Below are some example of multiple rejection candle from an area
Momentum loss is the key to reversal when approaching a key level
- Candle getting smaller and multiple colors with wicks signal that buyers or sellers are losing strength
- Even better when it finishes with long wick candles (for bullish reversal lower ling wick and fro bearish reversal upper long wick)
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