What is Candlestick?

Japanese candlesticks are formed using the open, high, low and close of
the chosen time frame.

 If the close is above the open, we can say that the candlestick is bullish.

Which means that the market is rising in this period of time .

Bullish candlestick are always display as green or white color.
Color is doesn’t matter, you can use whatever color you want.
The most important is tthe open price and close price.
 If the close is below the open, we can say that the candlestick is bearish.
This indicates that the market is falling in the session.
Bearish candle are always displayed as red or black candlestick.
1
The filled part of the candlestick is called the real body.

The thin lines poking above and below the body are called shadows.

The top of the upper shadow is the high.

The bottom of the lower shadow is the low.

2
 Candlestick body size

 Long bodies refer to strong buying or selling pressure. There is which the
close is above the open with a long body, this indicates that buyers are
stronger and they are taking control of the market during this period of
time.

 There is a bearish candlestick in which the open is above the close with a
long body, this means that the selling pressure controls the market during
this chosen time frame.

 Short and small bodies indicate a little buying or selling activity.

3
 Candlestick shadows

The upper and lower shadows give us important information

about the trading session.

-Upper
Upper shadows signify the session high

-Lower
Lower shadows signify the session low

Candlesticks with long shadows show that trading action occurred

occurr
well past the open and close.

Japanese candlesticks with short shadows indicate that most of the

trading action was confined near the open and close.

If a candlestick has a longer upper shadow, and short lower shadow,

this means that buyers flexed their muscles and bid price higher.

If a Japanese candlestick has a long lower shadow and short upper

shadow, this means that sellers flashed their washboard abs and forced
price lower.
4
 Candlestick patterns

Candlestick patterns are one of the most powerful trading concepts,

they are simple, easy to identify, and very profitable setups, a research
has confirmed that candlestick patterns have a high predictive value
and can produce positive results.

Candlestick patterns are the language of the market, imagine you are
living in a foreign country, and you don’t speak the language.

5
 The engul
engulfing bar candlestick pattern

The bearish engulfing is one of the most important candlestick

patterns.

This candlestick pattern consists of two bodies:

The first body is smaller than the second one, in other words, the
second body engulfs the previous oneone.. See the illustration below:

6
This is how a bearish engulfing bar pattern looks like on your charts,
this candlestick pattern gives us valuable information about bulls and
bears in the market.
In case of a bearish engulfing bar, this pattern tells us that sellers are in
control of the market.

See the example below:

7
 The bullish engulfing bar patterns

The bullish engulfing bar consists of two candlesticks, the first one is
the small body, and the second is the engulfing candle,

see the illustration:

The bullish engulfing bar pattern tells us that the market is no longer
under control of sellers, and buyers will take control of the market.

8
See the example below:

9
 The Hammer (pin bar)

The Hammer candlestick is created when the open high and close are
roughly the same price; it is also characterized by a long lower shadow
that indicates a bullish rejection from buyers and their intention to
push the market higher.

See the illustration below to see how it looks like:

10
See another example below:

As you can see the market was trending down, the formation of the
hammer (pin bar) was a significant reversal pattern.
The long shadow represents the high buying pressure from this point.
Sellers was trying to push the market lower, but in that level the buying
power was more powerful than the selling pressure which results in a
trend reversal.

11
 The shooting star (bearish pin bar)

The shooting formation is formed when the open low, and close are
roughly the same price, this candle is characterized by a small body
and a long upper shadow.

It is the bearish version of the hammer.

See the example below:

The illustration above shows us a perfect shooting star with a real small
body and an upper long shadow, when this pattern occurs in an
uptrend; it indicates a bearish reversal signal
signal.

The psychology behind the formation of this pattern is that buyers try
to push the market higher, but they got rejected by a selling pressure .
12
See another example below:

The chart above shows a nice shooting star at the end of an uptrend.

The formation of this pattern indicates the end of the uptrend move,
and the beginning of a new downtrend.

This candlestick pattern can be used with support and resistance,

supply and demand areas, and with technical indicators.

The shooting star is very easy to identify, and it is very profitable, it is

one of the most powerful signals that i use to enter the market.

13
 The morning star

The morning star pattern is considered as a bullish reversal pattern, it

often occurs at the bottom of a downtrend and it consists of three
candlesticks:

-The
The first candlestick is bearish which indicates that sellers are still in
charge of the market.

-The
The second candle is a small one which represents that sellers are in
control, but they don’t push the market much lower and this candle can
be bullish or bearish.

-The
The third candle is a bullish candlestick that gapped up on the open
and closed above the midpoint of the body of the ffirst
irst day, this
candlestick holds a significant trend reversal signal.

14
See the illustration below:

The first candle confirmed the seller’s domination, and the second one
produces indecision in the market, the second candl
candlee could be a Doji,
or any other candle.

But here, the Doji candle indicated that sellers are struggling to push
the market lower. The third bullish candle indicates that buyers took
control from sellers, and the market is likely to reverse.

15
 The evening star pattern

The evening star pattern is considered as a bearish reversal pattern that

usually occurs at the top of an uptrend.

The pattern consists of three candlesticks:

-The first candle is a bullish candle

-The second candle is a small candlestick, it can be bullish or bearish or

it can be a Doji or any other candlestick.

-The third candle is a large bearish candle. In general, the evening star
pattern is the bearish version of the morning star pattern. See the

example below:

The first part of an evening star is a bullish candle; this means that bulls
are still pushing the market higher.

16
Right now, everything is going all right. The formation of the smaller
body shows that buyers are still in control but they are not as powerful
as they were.

The third bearish candle indicates that the buyer’s domination is over,
and a possible bearish trend reversal is likely to happen.

See another chart that illustrates how the evening star could represent
a significant trend reversal signal.

17
 The Tweezers tops and bottoms

The tweezers top formation is considered as a bearish reversal pattern

seen at the top of an uptrend, and the tweezers bottom formation is
interpreted as a bullish reversal pattern seen at the bottom of a
downtrend.

See the example below:

18
The tweezers top formation consists of two candlesticks:

The first one is a bullish candlestick followed by a bearish candlestick.

And the tweezers bottom formation consists of two candlesticks as
well.

The first candle is bearish followed by a bullish candlestick.

So we can say that the tweezers bottom is the bullish version of the
tweezers top.

The tweezers top occurs during an uptrend when buyers push the price
higher, this gave us the impression that the market is still going up, but
sellers surprised buyers by pushing the market lower and close down
the open of the bullish candle.

The tweezers bottom happens during a downtrend, when sellers push

the market lower, we feel that everything is going all right, but the next
session price closes above or roughly at the same price of the first
19
bearish candle which indicates that buyers are coming to reverse the
market direction.

The chart above shows us a tweezers bottom that occurs in a

downtrend, the bears pushed the market downward on the first
session; however, the second session opened where prices closed on
the first session and went straight up indicating a reversal buy signal
that you can trade if you have other elements that confirm your buying
decision.

Don’t focus on the name of a candlestick, try to understand the

psychology behind its formation, this is the most important.

20
 Candlestick patterns exercise

Look at the chart below and try to find the name of each candlestick
number, and the psychology behind its formation.

Let’s try to answer the questions concerning the candlestick patterns

on the charts above:

1: Bullish Harami pattern (inside bar)

-The formation of this candlestick patterns indicates indecision in the

market, in other words, the market was consolidating during this
session.

2: Bullish Tweezers

21
The market was trading up, sellers tried to push the market lower, but
the reaction of buyers was more powerful.

This pattern represents the battle between sellers and buyers to take
control of the market.

3: Engulfing bar

-Sellers were engulfed by buyers, this indicates that buyers are still
willing to push the market higher.

4: Engulfing bar

5: Engulfing bar

6: Engulfing bar

7: Harami pattern

This pattern shows us that the market enters in a consolidation phase

during this session.so buyers and sellers are in an indecision period.
And no one knows who is going to be in control of the market.

22
Let’s take another exercise, look at the chart below and try to figure out
these candlestick patterns:

Answers:

1: Bullish engulfing bar

2: Hammer

3:(Hammer which is the large body +the smaller body (baby) =Harami
pattern

4: Bullish engulfing bar

23
 Market structure

market structure important aspect in trading and analyzing the charts.

Market doesn’t move in straight line instead market moves in higher
highs and higher lows in uptrend, Lower highs and lower lows in
downtrend.

a ranging market is when price is moving with no direction and just

consolidating between levels of support and resistance printing equal
highs (EQHs) and equal lows (EQLs).

uptrend an uptrend is when price is printing a series of higher highs and

higher lows

For example

As you can see in the example above, the market is making series of
higher highs and higher lows which indicates that the market is up
trending.

24
downtrend a downtrend is when price is printing a series of lower highs
and lower lows.

Look another example of a downtrend market.

The example above shows a bearish market, as you can see there are
series of higher lows and lower low which indicate an obvious
downtrend.

Trending markets are easy to identify, don’t try to complicate your

analysis, use your brain and see what the market is doing.

If it is doing series of higher highs and higher low, it is simply an

uptrend market; conversely, if it is making series of lower highs and
lower low, it is obviously a downtrend market.

25
a ranging market is when price is moving with no direction and just
consolidating between levels of support and resistance printing equal
highs (EQHs) and equal lows (EQLs).

Note.

One of the most important skill that you need as a trader is the ability
to read the market structure, it is a critical skill that will allow you to
use the right price action strategies in the right market condition.

You are not going to trade all the markets the same way; you need to
study how the markets move, and how traders behave in the market.
The market structure is the study of the market behavior.

And if you can master this skill, when you open your chart, you will be
able to answer these important questions:

26
What the crowds are doing? Who is in control of the market buyers or
sellers? What is the right time and place to enter or to exit the market
and when you need to stay away?

Through your price action analysis, you will experience three types of
markets, trending markets (uptrend and downtrend), ranging markets,
and choppy markets.

27
 Price wave and swing point

The any given time, the price can either rise, fail, or move sideways.

Price waves the most important components available to technical

traders, because every chart phase and every chart pattern can be
clearly described using only price wave.

As already mentioned, market doesn’t move straight line instead

market move in higher highs and higher lows uptrend and lower highs
and lower lows in downtrend that is called price wave.

28
Swing point the end point of price wave are called swing points.

Uptrend trend wave comes to a temporary stop, this is called (swing)

high

The end point of downtrend movement is also called the (swing)low

29
 BOS and CHOCH

Breaker structure (BOS), change of character (CHOCH)

This is important and where the buyer and sellers are gaining strength
or weakness.

Breaker structure (BOS)

30
Change of character (CHOCH)

31
 Supply and demand

Supply and demand represent the two most powerful forces of the
forex market.

Demand means the number of buyers buying a security in the market.

- Large demand takes the price to move up.

Supply means the number of sellers selling a security in the market.

- Large supply take the price to move down

Balance in both forces will keep the price in sideways movement.

Types of supply and demand

There are four basic concepts of supply and demand in forex.

- Rally basic rally (RBR)

- Rally basic drop (RBD)
- Drop base drop (DBD)
- Drop basic rally (DBR)

32
Rally basic rally (RBR)

33
Rally basic drop (RBD)

34
Drop base drop (DBD)

35
Drop basic rally (DBR)

36