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[Music]
hi traders welcome back to Zen in the
art of trading in today's video I'm
going to be covering one of the most
basic and fundamental concepts in
trading which is of course candlestick
patterns if you are already intimately
familiar with this information then you
might want to skip this video but if
you're new to trading or you're unsure
about certain concepts regarding
candlesticks then this video will help
clarify any confusion you have so right
here on this screen I've drawn an
example of a bullish candle and a
bearish candle now bullish means up
bearish means down a bullish candle
means that it closed higher than it
opened and a bearish candle means it
closed lower than it opened each one of
these candles or bars represent a
session of trading based on the
timeframe you're on so say here for
example I'm set to the daily chart each
one of these candles represents a full
day's trading session now let's start
with the bullish candle for a bullish
candle the low of the candle of this
body this is called a body I'll go over
these wicks in a moment that's what
these lines on top and the bottom are
called but a candle body for a bullish
candle opens at the low so the bottom of
the body is where price began at the
start of this trading session so in this
example when this trading day began
price was right here at zero point nine
seven six roughly you can see over on
the right axis here then throughout this
trading day price moved as low as zero
point nine six seven one two so price
opened at the start of the day here
sellers pushed the market down and then
the market was pushed higher and went as
high as one point zero two eight five
nine so at the beginning of the trading
day price was here and moved down to
here
and then it moved all the way up to here
and then at the end of the trading
session at the end of that 24-hour
period
price closed here at one point zero one
nine zero two so what this is giving us
is a visual representation of price
movement throughout the trading day
now one thing it doesn't tell us is how
quickly these moves happened but it
tells us the extremes of price where
price began and where it ended over time
this information tells us a story it
tells us what price has been doing and
how it's been behaving who has had
control of price and once you get good
at reading this story it can help you to
determine what might happen next based
on historical price action patterns
meaning what these candlesticks have
done in the past can give you clues to
what might happen next
now technical analysis is not a sure
shot way of determining price movements
anyone who tells you that is a liar
however there's a lot of hard core
fundamental analysts out there who claim
that technical analysis is voodoo and
that it has no bearing on price
whatsoever and they're wrong as well
what moves a market is mostly the
fundamentals that is true but many big
traders many market movers use visual
representations of price in order to
inform their decisions in the markets
and what that basically means in
layman's terms is that these candlestick
patterns and stories can become
self-fulfilling prophecies so when a
trader sees a certain candlestick
pattern it may cause him or her to make
a certain trading decision that they may
not have otherwise made had a certain
pattern not formed in the markets I'll
go over some practical examples of this
in a moment but first let's move on to
the bearish candle example the bearish
candle example is identical to the
bullish except that instead of opening
down here and closing up here we open
here at one point zero one nine zero two
and then price moved higher or it may
have moved lower that these widths can
occur in any order throughout this
trading day's session
but during this trading day price was
pushed up by buyers all the way up here
to one point zero two eight one nine
this was the high of the day the high
price the high tide mark if you will
then after making this high price was
pushed down by sellers all the way down
to here down to zero point nine six
seven one two so we opened here we went
up to here and then we moved all the way
down to here and then by the end of the
day in the final moments of the trading
day price was sitting right here at zero
point nine seven six six one so you can
see that these two candles are
completely identical except for the open
and the clothes are reversed in the
bullish case press open lower and moved
higher and therefore the candle is green
in the bearish case price opened higher
and closed lower which made the candle
red so now that I've gone over the
theory and anatomy of candlesticks let's
go to live charts and apply this
information in real time I'll show you
some of the most common candlestick
patterns as well as some price action
patterns such as double tops and I'll
explain what they mean so here we are on
the Australian dollar versus the
Japanese yen now this information
applies to any market in existence be it
crypto Forex stocks commodities bonds
anything I've got market replay on here
and I'm going to just click through
these candles and explain each candle
and what it means in terms of price
action as a story so right here we have
a bearish trend as you can see the
market is making lower lows and lower
highs if you're not sure how to read
trend I'll leave a link in the
description and put a card here
somewhere
for my previous video lesson regarding
trend analysis these two lessons go
hand-in-hand
by combining your understanding of trend
with your understanding of candlestick
patterns you can create some very
effective trading strategies so let's
move forward a few bars so you can see
here the price opened at this close of
the previous candle and moved up and
then it was pushed down by sellers
so this bearish trend is continuing the
momentum is still to the downside here
and then we get this interesting looking
candlestick pattern this candlestick
pattern is referred to as a hammer
candle that's because it has a handle
here and a small body on top
representing the metal part of the
hammer and the handle most candlestick
patterns and price action patterns have
really fun names like that for example
the bearish equivalent of a hammer
candle is called a shooting star candle
and that is represented by a long wick
to the upside and a small candle body in
the case of this Hema candle so we're on
the daily chart here and so what this
daily candle is representing what this
is telling us in a story sense is that
during this day sellers tried to push
this market lower but they failed to
keep it lower and by the end of the day
buyers had pushed this market up and not
only did sellers fail to push this
market lower but the candle closed
higher than its start of the day so this
is what we would call a reversal pattern
this pattern is telling us that the
control of the market has shifted from
sellers to bias at least during this
trading day it doesn't necessarily mean
that the next day is going to be a
bullish day because we don't know the
future we can't tell the future but what
it is telling us is that the momentum of
this move has paused here it has stalled
and now this is a great opportunity to
explain the fractal nature of price
action so you can see that this daily
chart pattern if we drop down to a
4-hour chart we'll see it this pattern
reflected with the candlestick patterns
on this time frame and so you can see
that that hammer candle though this is
the wick this price opened somewhere
around here it tried to move lower
failed
we got see another hammer candle on this
4-hour chart and then this large bullish
candle which retraced most of this move
giving us that higher timeframe reversal
pattern if you drop down to a one-hour
chart we'll get even more information so
you can see that this candle is quite
large in the context of recent price
action adding further
confidence that this is indeed a
reversal pattern you go down a 15 minute
chart get even more information and so
this pattern here is reflected on the
daily chart as a large hammer candle and
price opened around here tried to go
into new lows and then the Bulls
regained control of this market quite
significantly you can see that we even
took out these previous resistance zone
in here this adds even further
confidence that this daily chart hammer
candle is in fact a reversal situation
and once these higher timeframe patterns
are formed
you can then drop down to lower
timeframes to trade them and so that you
can see that price action is reflected
across multiple timeframes and each time
frame shows a slightly different
perspective on the story which can be
used to make trading decisions and
enhance your edge over the markets now
this is a bit advanced so I'm not going
to go into detail about this but if this
was a structure level down here that had
been tested multiple times in the past
as support then that would add
confluence to this pattern being
meaningful and potentially tradable so
the way you would trade this particular
pattern is that you would go long at the
close of this candle with a stop-loss
say 180 are below this low for
simplicity let's just say that that's
around here and then your targets would
be whatever you want to make them given
that this would be a counter trend trade
I would be conservative with my targets
and let's say that we just shoot for
these highs up here so that would give
us about a one to one risk reward
so let's cycle this market forward and
see what happens next so you can see
that now after this candle occurred the
market has hovered around in the same
price range the candle opened here it
tried to move higher and then sellers
pushed it lower but they failed to push
it beyond the candle bodies of this
reversal pattern which is very
interesting the candle closed above the
open of the previous day price did test
into the range here with this wick but
it failed to hold down there and buyers
were able to push the market up yet
again so that's a bullish sign given the
context of what's happening here
move forward again you can see here that
price opened at the close of this candle
it tried to move higher yet again and
was pushed down lower but again price
closed within the range of the previous
day you can see the wick here this low
price closed extremely close to this low
which means that there's still not a lot
of selling momentum in this market given
the context of what's happening here
we've failed to make a new low where
within the range of this reversal bar
still and we're holding above the lows
of this candle what this story is
telling us is that sellers do not have
control of this market yet and we're
kind of in a neutral territory right now
and we're going sideways so let's move
forward one more candle again another
very interesting situation here you can
see that the the price is contracting
here the ranges of the candle bodies are
getting smaller and smaller compared to
here where momentum is picking up after
this reversal hammer candle the candle
buddies are getting smaller and smaller
which means that price is coiling buyers
and sellers are fighting for control of
this market down here and neither one is
winning now if any of the next few
candles closes below this low then that
will mean that sellers have regained
control of this market and we may see
momentum pick up again to the downside
will see candle buddies get larger and
expand and the wicks get smaller as the
momentum increases in this down move
conversely if we get a breaking close
above any of these three candles here
then that could signal that buyers are
gaining control of this market and
they're going to push the market higher
so if we were involved in this trade
that I drew out earlier this sign here
it would be nothing to worry about this
all this means here is that the market
is going sideways momentum is stalled
out and we should be patient and wait to
see what happens next so let's move on
to the next candle and here we go
a very large bullish candle price opened
this next day at the close of the
previous candle and see how there's no
wick to the downside this means that the
momentum was strongly to the upside and
sellers couldn't even push this market
into the previous day's range we opened
at the close the previous day and
shot straight up see the small wick on
top relative to the large candle buddy
means that sellers are very weak right
now they haven't got much power to push
this market lower so that's a good sign
for this hammer candle setup this
reversal potential reversal setup let's
continue on now this candle here is red
which means that it closed lower than it
opened but look at the size of this
rejection wick
relative to the candle buddy so that's a
good sign that's a bullish sign for this
setup let's continue and there we have a
very large bullish engulfing candle with
a small wick to the downside and a small
wick to the top you can see very clearly
here that buyers have regained control
of this market at least for the time
being in the context of recent price
action this candle is significantly
larger than any of the others if we
compare this the size of this candle
body to all of the candle buddies that
have been printed in the recent past it
is the largest one since all the way
back here so that's a very bullish sign
for this market and so if you were to be
involved in this hammer reversal setup
this would be a great sign to hold on to
your position and wait to see if it'll
hit your profit target so let's continue
and there we have our next candle it's
close to bullish but you can see
momentum is fading on this candle it's
nowhere near as large as this previous
candle and we're coming up into an area
where price struggled previously also
referred to as resistance now if you've
watched my previous video lesson on how
to read trend you'll know that these
highs in here are very important because
in the context of this trending market
this is the last line of defense for
this bearish trend so we're involved in
a counter trend set up here on this
hammer candle expecting the market to
retrace and so far that's played out
perfectly when we get up into this
shooting star type candlestick pattern
it'll be very important to keep an eye
on price and see how it behaves when it
gets up here if we see another
candlestick pattern like this one up in
this urn then that could be a sign that
sellers are taking back control of this
market so let's continue forward
there we have it we've pushed up higher
we've hit our profit target on this
trade making this a winning setup you
can see the power of some of these
reversal candlestick patterns here we
had a shooting star candle push this
market lower then we had a hammer candle
push this market higher this candle here
has a wit a large wick to the downside
meaning the buyers are still in control
of this market there's no sign here that
this this move is running out of steam
so we have no reason to believe that the
market is about to suddenly reverse at
least not yet until we get a red candle
that tells us a bearish story then this
market is still bullish so let's
continue and here we have it look at the
size of this rejection so this tells a
very interesting story indeed what it
tells us is that price came up into this
high into this previous resistance tone
it opened at the close of this previous
day buyers tried to push this market
through these previous highs into a
trend reversal type situation and they
failed miserably not only did it not
close up in this range it was clearly
rejected from this zone of resistance so
you can see that it failed to close
above the bodies of this zone and serve
I changed the color of these discern to
make a little more sense red for
resistance and I'll put this line at the
bodies of this previous high you can see
that price action failed to hold in this
urn it failed to get above the zone and
close above this zone and was
immediately rejected
we've got a large shooting star candle
which is of course a reversal set up
just like this hammer candle this is the
polar opposite of this hammer candle and
so a way that you could trade this sort
of candlestick pattern this story of
price action is you would go short on
the next candle with a stop-loss one ATR
above these highs and you could target
the lows of this pullback given that
this is a bearish trend and that this
bearish trend is still intact until
price breaks and closes above these
highs you can safely assume that price
is going to be drawn down to these lows
before it's going to be drawn high
and out of this range so there's a
another reversal trading setup and let's
play this market forward and see what
happens here you can see that price
tried to run lower but buyers pushed it
up for a reattempt at this zone but here
we have a couple more weeks in this zone
showing us that price is failing to
sustain momentum up in this resistance
zone which is a good sign for our
reversal trade we continue this is what
we call a doji candle so price opened at
the previous close of this candle it
made its way all the way up here and
then all the way down here and then it
came back up and closed pretty much
where it started so that's what we call
a doji candle or an indecision candle
this price action story is telling us
that neither buyers nor sellers really
have control at this stage which means
that we don't really know where this
mark is headed next but given the
context of where prices the fact that we
are still below the bodies of this
previous high and this wick tells us
that the Bulls are having a very hard
time pushing this market out of this
zone so that again is a good sign for
our bearish trade let's continue you can
see we've been in the same price range
for 4 days now we fail to get above this
high and this story here all these wicks
to the top are telling us that sellers
keep pushing this market back they keep
beating us market back so let's continue
and there we have our first significant
bearish candle out of this zone since
this reversal pattern now this is a
lower low lower closed candle meaning
that this candle is made a lower low
than this previous candle and is closed
lower than the previous low that's a
very bearish sign particularly out of
this resistance zone we've had several
wicks here we've had 1 2 3 4 5 6
rejection wicks out of this urn and now
a large bearish lower low lower closed
candle this price action story has now
become very bearish we initially had
this bullish run up into the zone but we
were immediately slapped back multiple
times
out of this zone and so this roller
market Ford see what happens next
another indecision candle there another
reattempt at this zone yet another
indecision candle and a wick and another
failure to get above these hires
so if you're a conservative trader and
you didn't take your trading opportunity
in here shorting opportunity in here the
market is giving you a second chance
here it's telling you that this zone is
still acting as resistance how many
times can these Bulls push this market
up into this zone and be slapped back
before the market eventually rolls over
the answer is we don't know but it can't
be an infinite amount of times so so
let's continue forward a bit all right
this is the moment of truth
we've now closed above all of these
highs and where we've finally had a
decent closed candle in this zone up
here so the next few candles are going
to make or break this situation for the
Bulls if price cannot break and close
above this high here and out of this urn
on the next few candles then according
to recent price action there's a very
good chance that this market is going to
roll over so let's continue onwards and
here we have yet another rejection
candle large wick to the upside small
candle body back into this range not a
great sign for the Bulls and yet another
large lower low lower closed candle out
of this resistance sir we've now had
what I would call a significant double
top scenario so price has tried to break
out of his own failed made a pullback
then tried to make a reattempt getting
out of this urn and yet again has failed
so this is twice now that price has made
a earnest run for these highs and failed
this price action story is looking more
and more bearish the longer that price
struggles in this zone so let's continue
forward here we've happened now this is
very interesting you can see we've got
higher lows coming in here we've got a
lot of rejection wicks to the upside as
well as to the downside here and so
price is really trying hard to get out
of this resistance zone bulls are
squeezing this market up into these
highs and if we can get a candle the
closes out of this urn out of this zone
not in the zone but out of it
convincingly above these highs
particularly this high here then we
would have a potential bullish trend
reversal in our hats and price may want
to move all the way up into these eyes
up here or these highs over here
because there's not a lot of structure
between where prices now and this high
up here this swing high here or this
swing high all the way up here so this
is a very interesting situation to keep
an eye on and could offer a fantastic
loan opportunity if we break out of this
zone otherwise if price cannot come up
here and stop us out on this short trade
we took after the shooting style candle
then there's still a very good chance
that prices coming down to these loads
according to this price action story
that's unfolding right now so let's
continue for it another rejection wick
here another shooting star this is our
third shooting star candle out of this
resistance urn and even though we've got
a buildup of price in here the price is
really having a hard time getting out of
this resistance zone so I'm still
bearish here yet another shooting star
candle now this one is green instead of
red meaning that price did close higher
than it opened but look at the size of
the rejection wick in context of the
candle body we've now had one two three
four attempts to get out of this
resistance zone above this high and all
four of these attempts have failed
miserably so this story is still bearish
to me it's still telling me that this
market is bearish and wants to move
lower even though we have this large
bullish candle here with a wick to the
bottom these two bearish candles here
are telling us a very different story to
this candle here so let's move forward
continue on I'll continue analyzing this
market until we either break out of this
high or we come back down to this low
here we have another indecision candle
large wick to the upside this is the
fifth time we've tried to get out of
this errand and failed but until we get
out of this high as I keep saying the
story here is bearish this is a bearish
price action story so let's continue and
here we have yet another lower lower
lower close so that's the third lower
lower lower cloves we've had out of this
resistance zone the first one is here
the second one is here the third one is
here technically but because this is a
large indecision candle I wouldn't
really count that but
this one here is clearly showing us that
momentum is shifting to the downside
price opened here after this indecision
day and then it just rolled straight
through the lows of the previous day's
session and closed lower than the
previous day's low this is a sign that
the Bulls may be finally exhausted up
here if we don't get a large bullish
candle soon that breaks out of these
highs then this market is going to roll
over to the downside because sellers are
gonna pile into this short trade and
people who will long from down here
gonna take profits and liquidate their
long positions and when long positions
are liquidated that adds to the selling
pressure so anyone who's smart who's
been long from down here and is still
holding on their position has been
watching this story unfold and does not
like it I certainly wouldn't if I was
long from down here and I would be I
would have taken profit long before this
candle here I would have taken it either
on this candle or on any one of these
rejection candles so let's play this
market forward and see what happens next
if the next few candles continue to make
lower lows and break through these lows
down here then there's a very good
chance that we're coming down to these
lows here so let's play the market
forward and see what happens next
another rejection out of these lows so
these lows down here are now acting as
potential support and we're ranging
between these lows and these highs up
here so the range that I see here is
that between this high and this low down
here price has failed to form a
directional bias but given the context
of this market the fact that we are in a
downtrend that gives me reason to
interpret this price action story as
bearish and leads me to believe that
this market is headed towards a trend
continuation lower more so than a
reversal if we'd had one of these
candles close higher out of this range
above this high then I'd have a
different interpretation of this story
but right now I'm bearish on this market
and I'm expecting the market to roll
over so let's continue onwards all right
now we've had a candle close below this
low so anyone who bought on any of these
wicks here out of this support zone that
was forming is now trapped in there
long trade and given the size of this
candle body that is telling me that
momentum is picking up to the downside
we've had a couple of large red candles
in a row now and very small green
candles so this story is becoming
increasingly bearish the momentum is
picking up to the downside let's
continue for it and now this candle is
interesting when you see this sort of
candle here this could signify a
stoploss hunt because what's happened
here is that price has gone below this
low but failed to sustain the move you
can see by this Hema candle here this
somewhat of a hammer candle it's got a
large wick to the upside so I wouldn't
technically count this as a hammer
candle in my own personal trading but
this story is something to pay attention
to this is a warning sign of your
bearish if you're short from up here
then if we get a bullish candle now the
closes above this high then that could
be a great opportunity to take profits
in anticipation of this market making a
reattempt of these highs but instead you
can see momentum has indeed picked up to
the downside price failed to hold here
and on the next day we blew straight
through the lows of the previous day and
we've closed at the low of this candle
which tells a very different story to
this candle here doesn't it so now it
looks like this resistance urn has
indeed rejected price as pushed price
lower and we're probably coming down to
the bodies of this low if not lower and
so we'll leave our profit target where
it is and we'll wait and see what
happens BAM and there we have it
a profit target has been hit and this
market has blown straight through these
lows so we have indeed gone into trend
continuation now this isn't a price
action story an example that I cherry
picked because I knew that it would give
me a good opportunity to explain a lot
of these different candlestick patterns
like Hema candles shooting stars
resistance zones support zones and doji
candles etc but I cherry picked this
example because this is a trading setup
that I took last year and profited from
at the time that this price action story
was unfolding in real time
I used this information this exact price
action storytelling that I've just shown
you today I used this information to
build a case for going short I went
short and I profited from this move and
so I hope that this video today has
shown you the power of reading price
action candles and candlestick patterns
and showing you how effective price
action analysis can be once you master
reading what these candles mean the
other thing I should point out is the
importance of waiting for these price
action patterns for confirmation of your
thesis so when price came up into this
resistance zone we didn't just go short
here just because price came up into
this zone we waited for price to tell us
to give us a sign that it was struggling
in this zone and that's what we got out
of this large shooting-star candle here
you can see that when price came down
into this support zone price did not
give us any candlestick pattern any
story whatsoever to give us any reason
to believe that this market was going to
head higher out of this zone so that is
the importance of waiting for candles to
close before you make trading decisions
see this large wick here at some point
during this trading day this candle
would have looked like a large bullish
green candle it would have looked
something like this
now had price closed like this it would
have told a very different story to how
it actually did indeed play out as you
can see it was not a bullish day at all
it was a extremely bearish day but any
amateur traders who do not wait for
Candlestick closes would have been
trapped buying this and I've been guilty
of that in the past myself when I first
began trading I never waited for candles
to close and I got trapped quite often
the same thing is true of this candle
here at some point during this trading
day this would have looked like a giant
green candle a breakout trade and a lot
of people would have gone long in here
before the candle closed trying to get
in on the move early perhaps worried
that this candle would have closed like
this and they would have missed their
entry and so before the candle closed
they would have gone long up here and
then they would have suffered
through all of this and then eventually
lost money whereas if they had just
waited for this candle to close they may
have been able to profit off this trap
in the way that that we did here in this
example by going short at the close of
this rejection candle so by having a
firm understanding of what price action
is what these candlestick patterns
represent you can build a thesis you can
build a bias and best of all you can go
through historical price action and you
can test these patterns to see if they
have a consistent edge over the markets
you can see that there are multiple
shooting star like candles that occurred
here so we've had 1 2 3 4 5 shooting
star candles or hammer candles in this
case that all played out profitably now
not all of these candlestick patterns
are going to play out profitably but the
point is you can go through historical
price action test these patterns and see
just how effective they are and if you
combine these candlestick patterns with
the information I taught you in my
previous video regarding trend it can
develop extremely accurate trading
strategies that have a higher edge over
the markets so that's all I have to say
in this lesson regarding price action as
a story and the anatomy of candlesticks
and candlestick patterns so before I
leave you I want to leave you guys with
this I'll leave this link in the video
description but this here is going to
explain pretty much all of the
candlestick patterns and what their
names are so if you're new to trading or
you you're unfamiliar with these
patterns you can see here we have a
hammer candle just like we spoke about
earlier in the video and here we have a
shooting star candle that we also spoke
about there's a lot to learn
but nearly all of these candlestick
patterns can be used to develop entry
reasons for trading strategies by
combining these price action and
candlestick patterns with market
conditions that favor them you can
develop very very powerful trading
strategies so that brings me to the end
of this video thank you for watching
thank you for your time I'll see
you in the next one good luck with your
trading I wish you massive success and I
hope that I can do some small part to
help you achieve that have a great day
thanks again and good bye
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