All Candles are Born Neutral
You might be thinking ‘What the heck is that? Why is there a picture of a line?’ Well that’s not just a line, it 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. When a candle is born traders do not know what it will become. They can speculate but they 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 a bullish candle. If there are more sellers you will see the candle move down and become a bearish candle. You may be thinking this is all very obvious but think about it for a second. That little candle is an indicator that tells you who is currently winning the battle, the bulls or the bears. Don’t you find that amazing?
A bullish candle is what traders call any candle that has a bullish body. After the baby candle grows up and dies (closes) 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 and they have power. There are more buyers than sellers!
This is critical information in this market. If your system tells you to go short 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?
A bearish candle is any candle that has a bearish body. So what does the bearish candle tell you? It tells you there are more sellers in the market than there are buyers. It tells you that the sellers are currently in control, so a long position would not be a great idea.
Besides displaying a candle’s highs and lows, wicks offer an abundance of information.
Remember the battle between the bulls and the bears? Well it’s time to learn what it’s all about in relation to wicks.
If a strong Bullish candle suggests that the bulls are in control of the market, what does a bearish candle with a large upper wick and a small bearish body suggest?
Small lower wick, small bearish body and larger upper wick: This candle suggests that at some point while this candle was open the bulls tried to push the price up. This is what the long upper wick tells us. However, before this candle closed the bears took over and pushed the price back down. This is shown by the bearish body close.
Large lower wick, small bullish body and small upper wick: This candle suggests that at some point while this candle was open the bears tried to push the price down. This is what the long lower wick tells us. However, before this candle closed the bulls took over and pushed the price back up. This is shown by the bullish body close.
These are just some of the very basic concepts of candle trading. In the next section, you will learn why this information is useful.
What You’ve Learned About Reading Candles so Far
A Bullish Candle Means: 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.
Wicks: Wicks show the highs and lows but in certain cases reading them reveals some very useful information.