In Part 2 of our "How to Become a Profitable Trader" course, we'll delve into two crucial aspects: Candlestick Chart Patterns and Market Dynamics.
Candlesticks:
Candlesticks are a very basic concept that you should know. While the subject of Candlesticks is really vast, there are only a few basics you need to understand. The candlestick is used instead of a line chart because a simple line chart doesn't tell the high, low, open, and close at a given time. Additionally, candlesticks can also give you clues about the strength of a particular move when we analyze the candle structure or the pattern formed by a sequence of candlesticks.
Here are the 4 elements of a candlestick:
The body of the candle represents where the most interest has been while the
wicks represent where the price attempted to go but failed.
Tip: There are 100s of types of Candlesticks, don’t get stuck in memorizing the
names of the Candlesticks. You need to understand the LOGIC behind their
formation and use that understanding to predict future prices.
General assumption: the longer the candle body is, the more intense the
buying or selling pressure. Conversely, short candlestick bodies indicate little
price movement and represent consolidation or uncertainty. Smaller candle
bodies mean the buyers and sellers are at an impasse with no side currently
exerting dominance over price movement.
Wicks plays a really important part in understanding the STORY behind the
candlesticks. It shows the fight between the buyers and the sellers and who
won it.
Long upper wick Vs. Long lower wick
Candles with a long upper wick and short body below denote that even
though the bulls tried to push the price higher, the sellers took control, and
there was just too much supply at this point to push the price up. Candles
with a long lower wick (tail) indicating that the bears tried to push the price
down but the selling pressure was absorbed and the price managed to go
up.
If these candles appear on areas of support or resistance or at the top or
boom of a trend, it usually signals a reversal. Check the examples below.
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These two types of candles are generally considered to imply indecision in
the market. If they ever appear at the top or bottom of a trend, this means the
trend might potentially reverse. The example below has both.
Bullish engulfing Vs. Bearish engulfing:
The engulfing candles are one of the most important candles to showcase a
trend or simply the strength of the move down or up. The smaller the wicks
the higher buying or selling pressure there is thought to be Check the example below from the daily
BTC chart. You will see how all of the common candlestick types are telling a story and providing
context about what is happening in the exchange between buyers and sellers. The context is more
important than memorizing patterns as there are hundreds of candlestick types and thousands of
patterns. I am not a candlestick trader, as my decisions can never be solely based on what kind of
candle formed in the last hour or day, however, everything discussed above are a few of the most
important points that any novice trader must know.
Conclusion:
1. Long candle body: more intense buying or selling pressure.
2. Short candle body: consolidation.
3. Long bottom wick: sellers trying to push the price down but not
succeeding.
4. Long top wick: buyers trying to push the price up but not succeeding.
Understanding market dynamics
Now that you understand what candlesticks are, you are one step closer to
taking your first actual trade. However, we must first form or reform your
perception of the market and why and how markets move. The number
of participants, whether they are buyers or sellers is not the primary driver of
price movements.
It is the level of desperation or urgency among market participants to enter
or exit positions that truly influence market behavior.
Let’s understand this concept by using the analogy of a car for sale.
Example: Imagine a scenario where there is only one seller and multiple
buyers vying for the same car. As more buyers enter the market with a
desire to own the car, the value and price of the car naturally increase due
to the increased demand. However, a crucial turning point occurs when
one of the buyers begins to question whether they are willing to pay the
inflated price for the car. This hesitation initiates a range-bound price
movement as the buyers reassess their willingness to meet the higher
price.
Now, let's consider a scenario with two sellers and no buyers who can
afford the offered price. In this case, buyers will naturally hold back, and
sellers will need to lower their prices to attract potential buyers. This
example demonstrates the constant pursuit of finding value in the market,
as both buyers and sellers adjust their positions based on their
assessment of the current situation.
It is helpful to view market movements as traders making decisions rather
than simply observing price fluctuations. The most lucrative profit
opportunities often arise when traders find themselves trapped in
unfavorable positions and attempt to bail out. Identifying these trapped
traders can provide valuable insights into potential market reversals or
major price movements.
you can read How to Become a Successful and Profitable Crypto Trader? A beginner to Advanced Level Free Course.Part 1 here https://www.wealthzon.com/2025/02/how-to-become-successful-and-profitable.html
