Learn to Read Candlestick Strength | Trading Basics
In this educational article, we will discuss how to objectively measure the market momentum with candlesticks.
Please, note that the concepts that will be covered in this article can be applied on any time frame, however, higher is the time frame, more trustworthy are the candles.
Also, remember, that each individual candle is assessed in relation to other candles on the chart.
There are three types of candles depending on its direction:
Such a candle has a closing price higher than the opening price.
Such a candle has a closing price lower than the opening price.
Such a candle has equal or close to equal opening and closing price.
There are three categories of the strength of the candle.
Please, note, the measurement of the strength of the candle is applicable only to bullish/bearish candles.
Neutral candle has no strength by definition. It signifies the absolute equilibrium between buyers and sellers.
Strong bullish candle signifies strong buying volumes and dominance of buyers without sellers resistance.
Strong bearish candle means significant selling volumes and high bearish pressure without buyers resistance.
Usually, a strong bullish/bearish candle has a relatively big body and tiny wicks.
Medium bullish candle signifies a dominance of buyers with a rising resistance of sellers.
Medium bearish candle means a prevailing strength of sellers with a growing pressure of bulls.
Usually, a medium bullish/bearish candle has its range (based on a wick) 2 times bigger than the body of the candle.
Weak bullish candle signifies the exhaustion of buyers and a substantial resistance of sellers.
Weak bearish candle signifies the exhaustion of sellers and a considerable bullish pressure.
Usually, such a candle has a relatively small body and a big wick.
Knowing how to read the strength of the candlestick, one can quite accurately spot the initiate of new waves, market reversals and consolidations. Watch how the price acts, follow the candlesticks and try to spot the change of momentum by yourself.