Who Won? Reading Candles

In the last class you learned what a candle is. Now for the fun part: reading what it means. Think of every candle as a tug of war between buyers, pulling price up, and sellers, pulling it down.

New words in this class: bullish (buyers in charge) and bearish (sellers in charge). That’s just two.

Five shapes, five stories

1. Big green body: buyers won. Price started low and finished near the top. Traders call that bullish, after a bull tossing its horns upward.
2. Big red body: sellers won. Price started high and finished near the bottom. That is bearish, after a bear swiping its paws downward.
3. Tiny body, wicks both ways: a tie. Both sides pulled hard, and price ended right where it began. Nobody is in charge, so watch what happens next.
4. Long wick below: pushed back up. Sellers dragged price down, but buyers dragged it all the way back up before the close. The sellers tried and failed.
5. Long wick above: pushed back down. Buyers pushed price up, but sellers pushed it all the way back down. The buyers tried and failed.

The wick is where the fight was lost

Here is a handy way to read any wick: a long wick points at the side that lost. A long wick below means the sellers’ push down was rejected. A long wick above means the buyers’ push up was rejected.

These “pushed back” candles matter most when they happen at a place price has turned before. You will meet those places, floors and ceilings, in class 6.

One candle is a clue, not a promise

A single candle tells you who won that period. It doesn’t tell you who wins the next one. Traders use candles as clues, and they look for several clues pointing the same way. That’s what class 8 is about.

Remember

• Big body: the colour tells you who won. Green is bullish, red is bearish.
• Tiny body with wicks both ways: a tie.
• A long wick points at the side that tried and lost.