How to Read Candlestick Charts

Hello everyone and welcome to our sessions on Japanese candles. My name is Merlin Rothfeld. I'm excited to be with you today. One of my favorite topics in trading is looking at candles and when we look at them on a price chart, it's pretty simple, we see all of these. little colored bars out there, but what do they really tell us? I'm going to start by going over the history and looking at how they came about, why they are so important and why they are so much more than just

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ing the price, it is really a behavioral analysis tool and we can begin to understand how buyers and sellers think and the emotions behind it, which gives us a competitive advantage.

We're now going live today, so we'll be keeping an eye on your chat as it gets here. today so feel free to keep writing in your chat and asking questions as we go and I'll try to answer all of them now as a quick little precursor here of course you have a disclaimer there. I'm going to make like a car at one of those car salesmen and

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it very very quickly, no I won't, I'll just let you read it at your own pace, so let's start with a basic example, something we all remember from our primary school.

School or camp days are a tug-of-war battle. Well, when we look at

candlestick

s, I want you to understand that it is basically a tug of war battle. Each candle starts at an even point. There is no winner, there is no loser, but as the battle progresses. Look here, we've got two guys on the left side, we've got two lovely ladies on the right side, you know, we can start basing our assumptions on what's going to happen and, oh, lo and behold, we go over here and get back to Ellen, there it is. you got, you see all of a sudden the guys are crushing it right there, pulling, they're getting the girls almost completely over that line, so they're about to win, but the battle's not over yet. and for some reason, whatever the circumstance, those girls just dig deep, plant those heels and all of a sudden they start pulling and pulling and pulling and they start winning this battle and at the end of it all, when the bell rings, when the bell rings whistle.

The girls have won this battle, so regardless of what your preconceived notions were in this battle, there was a period of time where men won, there was a period of time where women won, but at the end of all of this , women won and that. It tells us a little bit about the psychology of that situation, so that's how we're going to focus on this. I want you to think of it as a battle, a war between participants now in the real world, it's not about you and me or you know any other specific trader, it's all of us combined, so how did it all start well?

We can go back to the early days here, this is what is called the Dojima rice market and actually in 1710 was when they moved to a futures market. because it used to be a kind of real rice market until 1710 and then it went to a kind of futures exchange and this is a classic image that we found of the Dejima rice market, now one of the merchants who emerged from that and it was really Known as the father of Japanese chandeliers, he is a gentleman named Hama mana heesu again. I put the father of Japanese chandeliers there.

I'm pretty sure he's actually an honorary samurai, by the way, only for those who want. I know that because he was so good with

candlestick

s and trading, they made him an honorary samurai and I don't know about you, but I think honorary samurai should be able to swing a sword pretty well, but that meant that maybe he could 17:24 until 1803 It was his life there and I want to mention a quote here that some of you might attribute to another famous investor. There is one that people look at Warren Buffett and say it is Warren Buffett's phrase, no, it is Hama mana heesu and he says when everyone is bearish there are reasons for the price to go up when everyone is bullish there are reasons for the price to go down and this goes back to a kind of quote by Warren Buffett where he says that when there's blood in the streets that's when you want to buy and when everyone is getting really excited, that's when you want to get out, he says the same thing, but just a couple of hundreds of years before, so let's go over the basics now some of you may be familiar with Japanese candlesticks, some of you may be new to this.

Okay, we'll start with the basics, I'll show you some more common patterns and then I'll show you really unrealistic

charts

of what these formations look like, so we'll start with this basic illustration here, which actually shows us a bar chart, this is not a candlestick chart still, now each bar of information really gives us five pieces of information and of course you're looking at this. I only see four words on each, well, the left hash mark there. represents where it opened, you can see the minimum, you can see the maximum and you can see the right hash mark is where it closed, so those are your four pieces, but there is one more that would be the range and that is simply the distance between the maximums. and the lows, those five components are what make up all the bars and candles and give us a good idea: what is happening with the price and psychology now?

If it opened lower or I'm sorry, if it closed higher than it opened, then you'll see an example of what we have here on the left, which is a bullish candle that would be a white real body and then if it closed lower than that opened, it would have a black real body, now the way Japanese candles were traditionally made was in black. and white today has changed to red and green which is kind of ironic because commerce is pretty much a male dominated world and it's definitely changing and I'm glad to see that but it's still dominated by men or traders and it's red and green which which I think is something like that. 19 percent of men are color blind: red and green, could we have chosen different colors?

The actual body is the piece that was just colored here and that basically takes the difference between where it opened and where it closed and based on those numbers. Will you make it white or black or red or green? Now the white candle will obviously be green up and its black candle will be red, meaning it closed lower than where it opened. Those are the basics of candles, so we can start by looking at this chart here, no matter what value it is and what time frame it is, but you can see that we have a lot of black and white candles there and very clearly when we get a good black streak candles out there gives us the kind of negative connotation that we feel like there is a downward movement.

Do you see somewhere that there are many white candles in a row and that leads us to the bullish movements tonight? Well, most platforms will now look like this for the most part. red and green candles now of course we can change them to fit our color scheme at home. I like to use black and white candles simply because it is easier for me to see because I am part of that 19% that is color blind, now let's break down the individual candles, right, you have a basic understanding, they represent buyers, they represent sellers and we get five pieces of information.

This is where we want to start focusing on the psychology of the candles, so here we have two candles, one showing buying pressure. shows selling pressure and you wonder why the one on the left shows buying pressure well if you notice that the candle on the left is a white candle meaning it opened at the bottom of that white box and closed at the bottom. very high so it's a bit bullish but the most important thing is what happened during that range so take a look at this over this time period let's say each pie on this candle represents one day of training you can see that the price was selling aggressively at a Point, this was a giant black or red candle because it would have sold down to those lows, but going back to our tug of war analogy, this is exactly like what we saw at the beginning of this presentation, the buyers came back and for some reason. you could explain it until you're blue in the face, it doesn't matter, the buyers came back and took this to the max for the day, very positive, so if we go back to a simple analogy of you, you have you and your your partner is in an argument and you're fighting about something, you can choose any topic, what's the most important word in that argument, it's the last word and if you're like me, it's usually sorry or you know.

I have some flowers, but actually the last word on this candlestick is that in this case, the buyers pushed it up, the power and that is the momentum at that moment, on the right side of the screen, you see what inverse of that, where at a time. We had a number of buyers pushing this thing up, it was a nice green candle, it was a white candle, depending on what colors you use I'll use red and green from now on, it was a nice green candle and who knows why, but the sellers came back and not only sold it all the way to the end of the open word, but even lower and closed at the absolute low, this is a sign of very, very bearish pressure and depending on where these candles occur, where they appear. on a price chart can give us some high probability trading factors, so let's take a look at these six candles here.

Normally what I would do is ask you guys to do a test and say which one you think is more bullish and which one I think is more bearish, well, I'm going to read them and explain them briefly. Number one is probably the most bullish. It opened at the absolute minimum, there is no queue at the bottom, so it opens at the absolute minimum and closes at the absolute maximum. very strong candle number two as you look at this one you say oh well it's red so it actually has to be somewhat bearish, right, no, it's actually rather bullish because remember, like in the example we just saw, although the body It's red. right number two meaning it closed lower than where it opened it still closed at the top end of its range and if I ask you who had the final say it was the buyers because at one point it was a completely red candle all the way . to this low, but for some reason those buyers brought it back up, meaning the momentum was there at the end, therefore the quite positive number three is quite bullish, it is similar to number one, but has tails above and below, which is a tail like this small one.

The part here means that it went down to that price at some point and reached this high price at some point, so you call those tails wicks or shadows depending on who is instructing or using candles number four is actually quite bearish despite which psychologically is a green candle. we turn positive green, well not necessarily again, this is like what we saw a couple of slides ago, where there is a lot of selling pressure at the end, pushing it down to near the session lows, so now It is bearish number five and number six, I would say they are almost the same, they represent indecision, very small real bodies.

You can see that number five has that little red body, even though it's red, it still didn't have much change from where he opened it to where he closed it. The same thing happens with the number six, which is called doji, where it opens and closes at the same price. The only thing separating five and six is ​​range, so we had a lot more volatility during number five, while number six was almost non-existent, barely even. moved and those can also give us clues about the potential direction of the market, so let's talk about that number six for a second, that's the doji out there.

What is a doji? Well, a doji is simply a candle that opens and closes. It is approximately the same price. It doesn't have to be exact, but a lot of people, their real technicians say it has to be the same price, well when you trade something like the SP and it's listed at over two thousand, it's a little difficult to get it. it closes exactly the same as where it opened so we like to say stadium pretty close and you notice we have three different representations out there you see one is like a little plus sign you have the middle there and it has something big.

Then you have the one on the far right which is called the dragonfly doji and I will explain some of the differences between them as we go so let's look at some of the more popular doji patterns and again if you have any questions. feel free to post them here and I'll go over them. The tombstone doji is one of the most popular ones now. a tombstone doji is simply something that opens and closes at about the same price, that's the classic definition of oh dear, now to be a tombstone doji, it opens and closes at the bottom or very very close to the bottom and now it has a long top tail on its own, this doesn't really help us create a commercial location, location, location, you'll hear that throughout real estate.

As also heard with Japanese candlesticks, if this candle was at the top of a strong uptrend then it will give me a good chance of prices moving lower, so this is a tombstone doji denoting pressure selling and perhaps a more bearish environment in the future, well what does the opposite look like? Well,Here we have a dragonfly doji that looks exactly the same, only in reverse, it has the open and close price almost the same, it is right near the high and it has that long tail in the background. Now location is key if this were to happen at the top of an uptrend, that's really not that important to us if it's at the bottom of a downtrend and especially if we go back to the core Trading Academy strategy Online and we talked about it in a demand zone now we really have something that gives us some strength to work with a possible bullish move now, what are some of the others out there?

They're all called tops and really all the top is is a very short compressed range, a narrower range of candles as they like to call them or NRC candles in general, what? it means you have lack of emotion so you stay in a very short trading range, you don't have much price movement, maybe represents indecision. now indecision can often be found in areas of consolidation, so I have an illustration here and you will see in that red oval that there are a lot of small tops and that is where the price was actually going sideways again, it doesn't matter.

What security is this, you will find many tops in sideways congestion, but you can also find them in errors at points where the price accelerates aggressively and suddenly just stops. Those become big trading opportunities for me as well because that indecision could lead to buyer's remorse or seller's remorse, so to speak, and we could see a reverse price direction, so those are your spinning tops, of course, we have the small ranges. and narrow, we also have these colossal giants, these are, says Largo. candle I just think the term, the name is terrible, I like to call them expanded range candles, really big ranges, meaning we've moved a lot on any time frame, whether it's 1 minute, 5 minutes, daily, weekly, monthly, it doesn't matter, but a really big candle now, obviously, that represents a big price movement, a wide range, you usually don't have wicks, which means it will close near the highs and open, open your lows, close towards the maximums and vice versa, what this represents is a lot. of emotion a lot of times you see these extended range candles or long candles after important announcements, well it could be an earnings announcement, it could be some press release, but there is a lot of emotion there and generally it is combined with a lot of volume, that's what driving the price so we can see it on this chart, here are a couple of examples of them; now you see some really great expanded range candles, it doesn't have to close at the absolute low or open at the high, but it makes it more powerful.

If so, and with these four examples that I have here, you will see that they all have some top and bottom tails, so anything with candles will be perfect, it has an artistic touch, which means it is a little subject to your artistic vision on this one and I'll show you some examples of what I mean here shortly, but okay now let's get to some of the more popular ones here we have the bullish harami which in Japanese means pregnant and you As you can see in the illustration on the right side, the price is going down, you have a nice big black or red candle, and then the next candle will probably be green; preferably it will be a bullish candle, but it doesn't have to be like that, but it will fit within the range above, so as you can see here on the screen, they have this black candle and this whole cannon, including the tails, should fit inside the real body from the previous candle. that's really the definition of a bullish harami, so you have the bearish trend, the first candle is definitely a downward range expanded candle, the second candle may have a slightly tighter range, preferably up, and is completely in golf the first day. there, so we can make some small modifications.

This is where I think candlesticks get pretty fun because you have the bullish harami and then you have, oh, the bullish Rami crossover. Well, what changed, you'll notice that all the change was on the second day. having a body now is just a cross, it's a doji, so it doesn't make it more powerful or less powerful, but I wanted to include it here so you guys can warm up. You may have heard some of these terms, the whole bullish harami. Crossovers are just the bullish urami, so what does this look like on a price chart? Well, we can see it very clearly here.

We have two decent examples. Now I know if some of you are masters of tilting in the candlestick book, which of course is kind. from the Bible for most people who like to look at Japanese candlesticks, they will say, well, the first one on the left side is not exactly a Jaramillo, why not, if you notice, I'll have the illustrated cursor over it . here on the left side you'll see we have this, you can call that range expanded candle, this black candle right here and then we have this little doji, it's like I'm basing a bullish cross around me, but technically you'll notice. that the tail on the doji is slightly outside the treble of that expanding range piano, so technically you could argue it's not a rummy, but hey, it's close enough for government work.

I'll call it hooray because you realize it was. going down, we also have this similar situation here, we had the price going down and then you have this hurrah, although it has a long tail, it still fits completely inside this expanded range candle and the next day we get basically a three day value. of bullish movement, so you see some haram bullish ease on a price chart. Now I would say that his friend's brother is the exact opposite. His friend is a big day bear and we also have bear moms that will cover both. but you have a big down day followed by a small upgrade, well what if we have a small down day followed by a gigantic up day?

These are called engulfing patterns so this is a bullish engulfing pattern that some would refer to, we talked about that on Rexel teas are a day out and really what we're looking for here is a market that has been trending the downside, so remember the key is location, location, location, if you have an engulfing pattern in the middle of the consolidation, it doesn't mean much if it's trending down, we have a good downtrend on that first candle, it's kind of a smaller doji pattern maybe, but it's a bearish negative day and then the second candle is a really big candle that completely engulfs, meaning it eats up the whole candle.

The previous day's trading value is an example of a bullish envelope. This is a great pattern from a reversal perspective. We see it quite frequently. What it represents is a change in emotion, a change in sentiment, so we will most likely have that big expanded range candle in its prices. and I'm mainly saying it's not like 90%, but you have a better than 50% chance of it moving higher because where is the momentum? Where is that push and pull being one of those who are winning? It will probably continue for how long, who knows, but it is there at the time and that is the important thing, so here is a great example of a bullish engulfing pattern.

Notice that going into this engulfing pattern here we had pretty much a month of almost constant selling. a month where almost everything fell and then suddenly we had a huge bullish engulfing pattern and it rallied for most of the following month; in this case it went from 225 to about 255 so you're looking at a $30 move, about a 12 to 13 percent move in a month in this stock and what caused the emotion, how can we detect that emotion by that bullish engulfing pattern that formed on that stock? Here are some of the darker ones, no don't darken it. We'll see them regularly on price

charts

, but I just wanted to give you a broader scope as to the different candles we're using here is a so-called bullish doji star.

Now let me take a step back here real quick and Let's say you can torture yourself with Japanese candlesticks, so you can basically come up with a name for any candlestick on its own, a name for two candlesticks together, and a name for three Japanese candlesticks together. I think Steve Missins' book is three or four hundred pages long. of exactly that and I think it was like throwing darts and saying well, let's put this one next to this one and we'll call it well, that's the abandoned baby, that's the falling window, some of them are a little outlandish, so what ?

I'm covering that they are the basic ones that have some substance and really some substance regarding probability and I hope to explain the psychology enough here that you can see why it's so important, so we're not just looking at what's going on with price , but the behavior behind the price that is causing that emotion to stir and like you know the kind of real truth about the financial markets, institutions make money off of novice investors, so if I can capture the emotions of the novice investor and track them, then the probability is greater in my favor, so let's take another look at this bullish doji star.

All this represents is again an emotional spike, in this case it's a downward spike and you can see that we've had this big weird downtrend in the second. Until the last candle here is an expanded long range candle and then the second one has gaps below the gap of the first candle, which means there is air space between these two, they do not overlap at all, that is a great sign of feeling, right? It's an emotional peak now, of course, if we had volume here, that could actually help with our confirmation, but that second and last candle there, the doji shows that it should be short, it should compress.

Now I mentioned that there are two candles and everyone wants to say that there are. two candles here, well you want to add a third one now, it's no longer a bullish doji star, it's a bullish Morningstar because in the morning you wake up and in theory this is where this price will go for the same thing in the short term, TRUE? I have that bearish trend expanded range candle, it opens down forming a kind of little island, we have that tighter compressed range and suddenly the third candle opens again leaving this space here which is a very bullish sign called bullish. , more bullish. morning star doji we have three candles and I have four words there I wish they would keep it down to three so now we'll go to a Morningstar so it's no longer a doji down there on the second candle it's just a small I guess You could call it a top, but this would be called Morningstar bullish, so there really isn't much difference, the only thing that would have changed here is that little candle in the middle of the bottom, so I have a question that says: doesn't it have anything What to do with the theory of supply and demand?

Not that it has anything to do with her, but in conjunction with that. If we take the theory of supply and demand and we're looking at, let's say on the left side of our charts and we're looking at an area that we say man, I really feel like there's institutional demand here. I can see it on the price chart on the right, that's kind of the basis of the core strategy and if I can find those areas where there's a lot of demand and all of a sudden I have a bullish doji star, Morningstar, right in that zone of demand, that makes this chandelier even stronger, hallelujah, it does absolutely on its own, they are good, but if you can use them and line them up.

If you adjust to demand or supply, depending on whether you want to go long or short, that really adds value to them, so on their own I think candlesticks are great if used in conjunction with supply and demand. , makes them exponentially better due to supply zones and demand zones. They are where the buyers and sellers really are and if the candles align with them then we have a very high probability of trading a big ask, so let's get to my personal favorites, this is one that I look for all the time I run. scan and filter on some of the platforms I'm looking at for this candle.

This is called a bullish hammer formation, of course, we could reverse this and this could also be a bearish hammer formation, but we'll talk about that in a second. It's called a shooting star, how do we identify it correctly? You remember at the beginning I talked about candles, you know? In a sense this looks positive because it's a white candle, but even if it had a black top or Read it, it's still bullish, because look where we were, we were in a downtrend, so since it was in the middle of a big downtrend, we had a small real body at the upper end of that training range, meaning at some point this whole candle was black or red was negative, it was down and the buyers came back and pushed it up near the top now, As I mentioned, the color of that body, whether red orgreen, it's not really important, personally I would prefer it to be green. because it really shows a positive sentiment, but it doesn't really matter, the longest shadow should be at least double the length of the body, that's key here, you want to have a very small and narrow range for a hammer formation near the top. top and little no shadow top so you don't want anything up here this is a little bit and it's okay but you don't want to have this kind of sitting in the middle the real body is sitting in the middle which will hardly be more than a doji or a top, so where do they re-form well for me when I see them at the bottom of a downtrend?

Of course, we don't know that the downtrend is over, but if I can spot it in a demand area, that makes it a very high probability trade, so you can notice that the candle in the middle here that is surrounded in red is a hammer formation. Unfortunately, there is nothing that allows us to look to the left and see a demand area in this one, so I don't know if it coincides with a demand area, but you can clearly see that the next day it had a big bullish move and, of course, In fact, over the next two days it shot up significantly over the next four days, notice on the right edge, we have another one on the right now that actually formed a hammer information after an aggressive sell-off in price and actually went down. to those previous loads you see in the middle of the screen, so now I'm starting to feel more confident about this specific candle.

The only caveat is that they are running late. If you would like to trade this candle on the right edge, the cursor is spinning right now. If I bought it now. I'm going to buy here up to the top which seems to be on this chart around 77 okay I'll call it 77 but I could have bought down here at 75 50 yeah that's possibly true. I need to break this candle and see where that real demand zone was and see if there is an entry point so the candles can be lagging, so if you buy this hammer formation for example, you are leaving some money on the table, so I'm always looking for number one. supply or demand zones to place trades in and if a big candle forms you could add a position based on that candlestick formation so here's an inverse of that we look at the Morningstar well here's an evening star just in the morning, you get up at night, you go to sleep, this is an example that we have an uptrend, so you got a nice bullish rally in the market or the stock, whatever it is, that first day will be a long and white day. straighten a range expanded candle if you want gaps on the second date above the close of the first day so it opens out and forms maybe a doji or a top and then that third day opens down and proceeds to sell a big high probability reversal formation and of course we could turn this around very quickly, all we have to do is make that top pattern there, what was a doji, we just turn it into our Sun, a spinning top, just cross now, it is a bullish evening star doji, why?

Because the doji doesn't have much. changed here, but you guys can see the basic psychology is the same now as we look at the bullish engulfing formation, how about a bearish engulfing formation? Some you've probably seen over the last few months here in our markets, same thing, we're trending up. For it to be a bearish envelope, we want to be in the middle of a large uptrend. This is a potential reversal formation, so we have the uptrend happening, that first candle, a little spinning top if you like, could be a doji as well, the second one opens above it and completely engulfs it.

You know this black candle here completely devours the previous day which is a bearish envelope and there is a good chance that this is moving further down again to go to a yoga. session if this was in a supply area, suddenly my confidence in this trade will be much higher. I'm looking for a little extra probability to put in my favor now that we're talking about the bullish harami here is an example of a bearish harami formation it's just the opposite we are seeing an uptrend prices are moving up here you have a nice candle arranged expanding that really attracts a lot of new buyers, that's what caused that expanded range candle there that white one or most of the cases will be green the second part gaps down a little bit tighter range the candle shows a little of consolidation some pressure there that really shows indecision well if you had a big uptrend and let's think about it from a psychological perspective if you've had a big uptrend in price and suddenly you get this really big expanded range candle , I think we could agree that it could have been exhausted and that is generally the principle behind the sarami formation: you have had On an upward move, you get this big rise and that forms the first big candle there which could be that the Retail investors pile up acting emotionally the next day because most buyers have already lowered the body gaps a bit and doubt if the momentum was really strong, what should they?

If it does, it could go down and then continue to go up, but in this case it remains compressed, it shows a small range there, which represents indecision, so it is not an art to open a short position or sell necessarily, it is actually about waiting let's see. What happens on the next candle if we start to see new lows being reached? Okay, it's a great opportunity to short, but it could very easily start to rally. That second candle just represents indecision, a moment of hesitation after a big push up now, if we just tweak this a little bit and take that and turn it into a doji.

Now you'll see that we have a bearish harami cross that goes back to our quick naming of different candlestick formations and again, there are thousands of different ones, so my personal favorite. It was the hammer formation and that goes very well with its relative the bearish shooting star. It's basically the same as a hammer in reverse. Now what we are looking for here is a stock or market that is trending up. You have a small real body usually at the bottom of the trading range the color of that body is not important in this case you will see that it is white, well it could be green, it could be red, whatever color is important, if it is a star fleeting, I would prefer it to be red, meaning it is close to the lowest point, but it depends up to the eye, the viewer there again, a very small body, the bottom of the range, the color is not important, the top shadow long It's what's important.

I love when I see very long coverage. tails into shooting stars, it represents more excitement because remember how this pattern formed, at some point it opened, rallied to this high, so it was a giant green candle and then the sellers had the last word, they pushed it down and it closed. near the session lows, so it's very negative now if we look at this on the price charts and you can see here, we have a couple of them and I would just say two that I thought for me would be very important. The one on the left is a shooting star, but see, he's not as tall as me.

This one doesn't really work for me, it's technically a shooting star because it's after a big rally, but the candle before it erases its power for me, yeah, it came true and had a big selloff, but you know, we're all what they are. they call the Monday Morning Quarterback, so who can, after the fact, make evaluations on This one here in August was pretty decent, but notice that he bounced back and was just going to the side, so I probably wouldn't have seen it as a Short entry, although I'm a little more inclined to watch. In these two on the right side you can see that they were not completely new highs, but they continued to rise towards this general supply area that is seen for four days, whatever time frame this candle is in, actually it kept hitting these highs around $84.

So the fact that it soared and kept getting crushed for four consecutive days is actually very bearish. This would have been a big trade, of course, in retrospect we can see that there was a significant move, but all he was doing was avoiding it. In terms of the behavior and psychology of buyers and sellers, this right side is a great example of that psychology. Most people would look at this and say, well, nothing's actually happening. Those buyers were trying to push this because the momentum had increased. and they kept getting crushed on day one, they got knocked down again, on day two, again, on day three, they really got crushed, they tried to recover on day four again, they got knocked down again, on day five they got knocked down again, so yeah you don't see that selling pressure the fact that sellers are unloading for whatever reason you need glasses this is a clear example of that cyclical psychology the market is pushing things down and it really prepared very well for this big sell off, so it was very, very fast. an overview, you know, maybe in future sessions we can talk more about strategy and tactics on this, but what I wanted to emphasize here is that this is not a standalone trading instrument, it is a decision support tool, so what if we are analyzing price charts and you see a big shooting star or something bigger, that's great, mark it, make a note, look to the left and see if there are any areas of supply or demand that can make that pattern more significant, in the same way if it has a demand area. that you have already plotted and that is the way I trade: I will look for good demand areas, good supply areas on my normally traded instruments and I have those levels plotted and if I see a candle formation start to form in that area, well, now it makes trading even better for me because I'm using candlesticks again, which is retail, in general, behavioral psychology and retail, and the institutional levels that look at supply and demand zones, bring them together.

For some great trades, it should be designed as an odds enhancer, which means if we take the whole spectrum of things that we're using to build our trades, we start with number one, which is price, we look at the supply, we look at the demand and we plot those zones, then we start adding ratings, our probability enhancers usually look at how the price is moving, what its characteristics look like and those are our probability enhancers, this is an additional addition on candle six, you could even use some technical indicators, but again, they should not be the most important decision. -make piece why well, partly because they are lagging indicators, true, they are reactionary, they are showing what happened between buyers and sellers and that could give us clues about what could happen in the future, but again it is a reflection of the actions that have happened. in the past really that window into psychology, so Donnie is a great question.

He says that when using support or resistance, it is better to use the body or the wick. The wick remembers if we have a support zone and you have, let's say, a hammer formation that has gone down. more or less, it demands that a catalyst go down to that demand zone if the body is in the demand zone but the tail goes down below the demands in those violated demand zones it is no longer good, so if you have a formation that is the bottom of the tail tilts down and just kisses your demand zone and then starts going up, well you should be in the trade because you reached your demand zone, that's point number one, but suddenly that day ends or that bar ends and it's really big hammer hammer formation could you add to that trade?

Could you put a little more in there? I think so and that's how I operate. I'm trying to use supply and demand first to get that trade and then if at the end of that if the candle forms. and it seems like there is a high probability that I will progress even further in the decision in the direction I decided, so I will add more if it happens that way, so I will use the wicks that are available. asks Donny, okay, I'll do that for this session, that was a quick overview again, we'll talk a lot more about this in another session, so I encourage you to visit the OT Academy website, not just to look at candlesticks and know the basic investment methodology.

Also, there are many free videos to encourage you to submit them and if you like this video please share it with your friends, there is also a small comments page at the bottom of the Academy. We would love to receive your comments. and send any ideas you want on some new topics until then guys, happy trading and see you in our next session with OSI Academy.