People seem to think that since they hear that so few people are successful in trading, that there must be a complicated process to complete in order to make money. The truth is that the simpler we make trading, the more profitable it seems to be…so this week I decided to discuss a simple technique that is often overlooked when traders are reading charts, specifically candle charts. The original article by Brandon Wendell has been edited here for length (…) and clarity ([ ]) by munKNEE.com to provide a fast & easy read.We are all too quick to look at the squiggly lines we call indicators and oscillators and dismiss the simplest signal available to us, PRICE! The most common way that price is displayed for most traders is through candle charts. If you are not familiar with the construction of a candlestick, I have included the quick reference below. There are two parts to candles. - The body of the candle is the colored portion and indicates the opening price and the closing price of the candle.
- The lines sticking out from the top and or bottom of the candle's body are known interchangeably as tails, shadows, or wicks.
A green candle usually indicates strength in price and is formed due to price closing higher than it opened during that period. The bottom of the body is the opening and top is the closing. Conversely, the red candle indicates weakness due to the closing price being lower than the open for that period. The top of the body of a red candle is the opening price and the bottom of the body is the closing. 
The problem is that many traders end their candle analysis there. You must look to see what the tails (wicks, shadows or whatever else you wish to call them) are telling you. These tails mark the highs and lows of the period. If I asked you what the candle below signifies, you may tell me weakness since it is red. 
However, with further examination, you will see that there is a long tail to the downside. This means, that even though the bears pushed the price lower, there was enough bullish pressure to move price higher before the close of that period. This is a bullish candle! Let's look at the candle chart to see where it was in the whole trend. 
This red candle indicated that we were ready to bounce off demand with a lot of bullish pressure. You must listen to the tale the tails are telling you. - Any candle tail that is above the real body (colored portion of candle) tells that the bulls were not able to hold price up and the bearish pressure moved prices downward.
- Any tail below the body indicates buying pressure.
This becomes especially important when price is nearing a level of demand and/or supply. By seeing which force is winning (bulls or bears) we can anticipate a bounce or break of that price level and take appropriate action. 
Conclusion …We can use the same tools for reading supply and demand as the professionals do - we just must refer to the candle charts… Remember that price gives us clues as to the immediate direction the stock will go. We just must be open to viewing it and listen to the tale of the tails. Scroll to very bottom of page & add your comments on this article. We want to share what you have to say! Related Articles From the munKNEE Vault: 1. Ride the Market Waves With These 6 Momentum Indicators It is hard to know what to buy or sell let alone just when to prudently do so. Thank goodness there are indicators available that provide information of stock and index movement of a more immediate nature to help you make such important decisions. This article describes the 6 most popular Momentum Indicators. If ever there was a ?cut and save? investment advisory this is it! 2. Yes, You Can Time the Market ? Use These Trend Indicators Remember, the trend is your friend and now you have an arsenal of such indicators to make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a ?cut and save? investment advisory this article is it. 3. Make Money! Time the Market Using Market Strength Indicators- Here's How There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this "cut and save" article. Read on! 4. Should Technical Analysis Be Ignored? We Think So ? Here's Why The Web is crawling with technical analysis (TA)…[and,] given its popularity, [begs the questions as to whether or not there] really is something to it. [Based on our research,] the short answer is no, not really, at least not in developed markets like the US or the UK… Furthermore, most of the popular TA indicators that are bandied around are nonsense jargon and should be ignored as useless noise. [Let us explain our position.] 5. Use These Technical Analyses For A Performance Advantage Research has found that investors using technical analysis had some performance advantage over those who didn't use these methods. The research also found that the performance advantage was more evident during down markets. If that has piqued your interest, read on to learn more about a few of the more popular types of technical analysis. 6. Use the ?Graham Formula? To Determine the Fair Price of a Stock ? Here's How Knowing how to properly value a stock is probably the most important skill for a value investor to develop and over the last fifty years one of the most popular methods to discover the fair price of a stock has been the Benjamin Graham formula. 7. Technically Speaking: What Exactly Is ?RSI?? Exactly what is RSI and how is it calculated? 8. Dogs of the Dow: A Simple Strategy Using the Dividend Yield Investing in the Dogs of the Dow, which refers to the 10 highest-yielding stocks in the Dow Jones Industrial Average at the end of the year, is a very simple strategy you can use in 2018 to beat the market. Here's everything you need to know. 9. Use Return on Equity (ROE) To Better Evaluate the Potential Returns Of A Company's Stock Brokers and portfolio managers often speak in what seems like a foreign language. They often use abbreviations to make the investment process seem more complicated than it truly is. This week, we will examine one of these abbreviations, Return on Equity, (ROE) that is used to evaluate the potential returns of a company's stock. 10. The Advance-Decline (A-D) Line Shows Market Action BEFORE Significant Declines ? Check It Out Many of us think Wall Street is using sophisticated tools to make money. It is…but big Wall Street firms also use simple tools to make money…One tool many large firms use is the advance-decline line. For all the latest - and best - financial articles sign up (in the top right corner) for your free bi-weekly Market Intelligence Report newsletter (see sample here) or visit our Facebook page.The post Candle Charts Anticipate A Bounce Or Break In Price Allowing Us To Take Appropriate Action appeared first on munKNEE dot.com. |
