Price Action 3 – Swings and Candlesticks

Price Action 3Candles & Swings

Table of Contents

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3

4

5

The 5 main Candlestick Senarios

Price ActionWhat is Price Action? - recap

What are candlesticks and how do they relate to price action

The hidden secrets we can read in candlesticks

Candlestick Interpretations

Price ActionWhat is Price Action?

In simple terms, price action is a trading technique that allows a

trader to read the market and make subjective trading decisions

based on the recent and actual price movements, rather than relying

solely on technical indicators.

DEFINITION

Since it ignores the fundamental factors of an instrument and looks primarily at the instruments

price history it is a form of technical analysis.

HOW IS IT CATEGORIZED?

Price ActionThe theory behind PA

• Supply and Demand determines prices

• We can think of trading as a battle between two warring lines of combatants

• Our first port of call is always to determine if market is Trading or Trending

• Establish the Support and Resistance either by trend lines or hugging moving average

• Be aware of the Round Numbers and trade according on the premise that they attract

higher volumes

• Head and Shoulder, Rounding bottoms and tops, triangles, flags are closely related to

trading psychology and supply and demand

• Be aware of professional traps – breakout hooks/flush outs and reversals happen often

in any time period.

Re Cap


• The origins of Candlestick Analysis has it roots in war or better still the expansion of

commerce in Japan after years of feudal war and subsequent peace in the 17 th century

• The Dojima Rice Exchange, the first rice exchange was established to centralise the

trade of rice in Japan where merchants could grade and negotiate a market price

• Candlestick analysis was developed to track the rice price movements

• Huge fortunes were amassed by astute trading families using candlesticks to analyse

the rice market

• Candlestick analysis is relatively new to the west where it has become a key ‘price

action’ analytical tool

Candlesticks- History


• Example of a Candlestick Chart

What is a candlestick

“In the midst of chaos, there is also opportunity”


• Reading a Candlestick



• Reading a Candlestick

• Vertical bar depicts the range for the period from high to low

• Horizontal line LEFT the opening price. Horizontal line Right the close

• The fill between is called the REAL BODY

• SOLID or RED or BLACK indicates CLOSE BELOW OPEN

• EMPTY or BLUE/GREEN or WHITE indicates CLOSE ABOVE OPEN



• KEY BASE CANDLESTICK ANALYSIS

• 1. The length of the wick and candle can give you directional and volatility information-

the longer the candle the greater the volatility

• 2. The ratio between bullish and bearish wicks. If the wick is longer below the body, this

is BULLISH. If the wick is longer above the body, this is BEARISH.

• 3. In addition to No2, the position of the body is important the further up or down on

the wick the greater the strength of the buyers or seller. A body in the middle of a long

wick indicates UNCERTAINTY

• 4. Strength of buyers and sellers can also be analysed by the size of the body. A large

body indicates that the price moved a great distance from open and close of the

candle.

• 5. The ratio between body and wick indicates rate of volatility. Large bodies show less

volatility from open to close, strong directional. Small bodies and long wicks indicate

indecision and sometimes equal power between buyers and sellers.

Understanding the 5 X 5 of Candlesticks


Understanding the 5 X 5 of Candlesticks

Japanese Candlestick Interpretations

• LONG LINE MARUBOZU

• Long White Line – the buyers are firmly in control• Long Black Line – the sellers are firmly in control

Japanese Candlestick Interpretations• DOJI – the session of indecision

•

Key Point:Prices close at the same price as open

Japanese Candlestick Interpretations• REVERSAL PATTERNS – HAMMER HANGING MAN DRAGONFLY

GRAVESTONE

KP:Shadow must be twice the size of the body

KP: Next candle to confirm

Japanese Candlestick Interpretations• REVERSAL PATTERNS – HAMMER HANGING MAN DRAGONFLY

GRAVESTONE

KP:Shadow must be twice the size of the body

KP: Next candle to confirm

• REVERSAL PATTERN CHART


• REVERSE PATTERN MISCONCEPTIONS

• Reverse pattern is a sign of PAUSE – CAUTION – Re-EVALUATE• Market requires additional information to decide direction

Japanese Candlestick Interpretations• ENGULFING PATTERNS

KP:Engulfing candle body must be larger than previous body

KP:Particularly strong when against the trend

Japanese Candlestick Interpretations•DARK CLOUD & PIERCING LINE Formations

Japanese Candlestick Interpretations• STAR FORMATIONS Reversal

Japanese Candlestick Interpretations• STAR FORMATIONS reversals


• HARAMI’s – The session of decrease in momentum

Decrease in momentum

Decrease & Indecision

Japanese Candlestick Interpretations• TWEEZERS

•Two or more candles that have matching Tops/Bottoms•Colour & Size & Shape do not matter


•THE THREE METHODS

Japanese Candlestick Interpretations• THE THREE WHITE SOLDIERS/CROWS - continuation

Japanese Candlestick Interpretations• RISING & FALLING WINDOWS

Japanese Candlestick Interpretations• BLENDS

Japanese Candlestick Interpretations• TFG example


• Candlesticks are very powerful tools when understood correctly

• From an individual candle we can establish if the Bulls or the Bears are in control

• All the news, secrets are exposed in the price

• Follow your price action edge to profitable trades

• If you missed Price Action 1 and 2 look out for the webinars coming soon

• Don’t forget to book for Price action 4

• THANK YOU AND HAVE A GOOD EVENING

Candlesticks Conclusion

Vunani Private [email protected]

011 384 2924

Economy & Finance

Price Action 3 – Swings and Candlesticks