Candle Part I by NickB (forex4noobs)

All candles are born neutral

You might be thinking ‘what the heck is that?, why has this nutter put a picture of a line up?’. Well that’s not just a line, that is a newborn baby candle, isn’t it cute? That line up there is a neutral candle, it is a brand new candle that has yet to move a single pip in either direction. Candles are always born neutral, after birth they can grow to become either bearish, bullish or on rare occasions neither (what you probably know as Doji’s). When a candle is born we the traders do not know what it will become, we can speculate but we do not truly know what a candle is until it dies (closes).

After a candle is born the battle begins, the bulls and the bears fight it out and the candle displays to us who is winning. If there are more buyers in the market you will see the candle move up and form as a bullish candle. If there are more sellers you will see the candle move down and become as a bearish candle. I know this is all very obvious but think about it for a second. That little candle is an indicator that tells us who is currently winning the battle the bulls or the bears. Don’t you find that amazing? I certainly do!

Bullish Candles

A bullish candle is what I call any candle that has a bullish body. So after our baby candle grows up and dies (closes) if it dies with a bullish body it is a bullish candle. If it has a strong bullish body it is a strong bullish candle if it has a small bullish body it is a weak bullish candle. Simple right? but think about it, the candle does not only tell you the price it tells you the bulls are winning, they have power, there are more buyers than sellers!

This is critical information in this market. If your system tells you to go short for some reason but the candle is clearly bullish it might be a good idea to hold off on the short. Why would anybody go short when there are more buyers in the market?

Bearish Candles
A bearish candle is what I call any candle that has a bearish body. So what does the bearish candle tell us? It tells us there are more sellers in the market than there are buyers. It tells us that the sellers are currently in control so a long position would not be a great idea.








So what have we learned so far?

Bullish Candle: There is currently more buying pressure in the market. As long as buyers maintain enough buying pressure the candles will be bullish. If buying pressure eases and selling pressure increases bullish candles will become smaller representing decreased bull strength.

Bearish Candle: There is currently more selling pressure in the market. As long as sellers maintain enough selling pressure the candles will be bearish. If selling pressure eases and buying pressure increases bearish candles will become smaller representing decreased bear strength.

Indecision Candle

If you have been trading for a while you’ve probably heard the term ‘reversal candle’. That term is a bit of a misnomer because the candles it refers to are not actually reversal candles they should be called ‘indecision candles’.

Reading candles is easy you just need to put in terms of a battle between the bulls and the bears. I already explained that a candle with a bullish body indicates that the bulls are winning and a candle with the bearish body indicates that the bears are winning. We can say that because we are putting it in terms of a fight between the two. So what does a candle like these one tell us?













You may recognize these are reversal candles but I call them 'indecision candles' and here is why.











The candle tells us that nobody has really won the fight. Sure the candle has a tiny bullish body but overall they were held back from making a significant move. The bears too where obviously held back, they tried to move as the wick shows but they had no luck. So in the struggle the bears pushed down, the bulls pushed up but they were near equally matched so we did not see a significant break in either direction.

The point here is to stop looking at candles as shapes, look at it instead as the story of the battle between bulls and bears. If the candle has a strong bullish body it means the buyers control the market, if it has a strong bearish body it indicates the sellers control the market. If the candle instead has a small body and a long wick like the candle above it tells us that the bulls and the bears have near equal amounts of strength so nobody is winning.

The candle tells us that nobody has really won the fight. Sure the candle has a tiny bullish body but overall they were held back from making a significant move. The bears too where obviously held back, they tried to move as the wick shows but they had no luck. So in the struggle the bears pushed down, the bulls pushed up but they were near equally matched so we did not see a significant break in either direction.

The point here is to stop looking at candles as shapes, look at it instead as the story of the battle between bulls and bears. If the candle has a strong bullish body it means the buyers control the market, if it has a strong bearish body it indicates the sellers control the market. If the candle instead has a small body and a long wick like the candle above it tells us that the bulls and the bears have near equal amounts of strength so nobody is winning.

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