Hello everyone, your favorite trading primate here, and today I decided I wanted to go a little bit deeper into price action and candle stick analysis. When we look at a chart, there are multiple ways one can use a graph to represent the movement in price of any set period of time. One person might prefer to look at a line graph, another might fancy the bar charts, or maybe even area or heiken-ashi charts. The point is there are multiple ways to chart price movement’s, however, my personal favorite is the “CandleStick” plotting method.
In a candlestick chart we are able to see shapes that represent where the price has opened and where price has closed. Where price has opened and where price has closed we call the “body” of the candle. This area is often represented by the color green/red in the shape of some type of rectangle or square. If the body is currently OR has closed higher than the previous candles close the color of the body is generally represented with the color green. If the close is lower than the previous candle’s close the body is generally represented by the color red. There is also a portion of the candle above and/or below the body that is a single line extending a distance away from the body of the candle. This line is also called the “wick” or “tail” of the candle and is just as important as the body of the candle. The wick of the candle represents where price has moved regardless of what it finally closes at for the time frame set for each candle.
The importance of understanding what each candle’s particular shape, size, and figure is paramount in price action. When we look at candles, certain patterns tend to show bullish or bearish movement and can become a strong signal or at least add to the confirmation of which way price is headed for the next candle. There are many different types of candles that show strong bearish or bullish momentum, however, I would like to touch on one in particular for this post.
One of the single most important candles in my opinion is the “Pin Bar”. The pin bar is a candle that has a very large wick that is much larger than the body of the candle with little or no wick on the opposite side of the candle. The pin bar is an extremely important factor in determining reversals in the market. Generally, the larger the wick and the smaller the body, the more powerful signal one might have that the trend is about to change or go into a consolidation period. When watching the movement of the market, I find pinbars that are around support or resistance levels to be gold mines so to speak. I have attached a picture of a pin bar to show exactly what I am looking for when utilizing this candle pattern with price action. Give it a try and you may like the results!