Candlestick Pattern Analysis

Market Participant Groups Candle Footprints

There are “time progression” chart examples of one stock in this article, to help readers focus on the candle patterns and Market Participants creating those patterns in the charts. Therefore a portion of the chart has been covered in charts 1 & 2 creating a white space on the right side.

Candlesticks are a language unto themselves. It takes a bit of practice reading the candlestick patterns to be able to understand who is buying, where they are buying, and when they stop buying.

When studying just candlesticks you must also include Volume. This is because there are 3 pieces of data that come from every stock transaction which are the Price, the Time, and the Quantity of shares that exchanged hands. All 3 pieces of data are required if you are going to do a proper and complete analysis. All too often, Retail Traders think Volume is unecessary or unimportant. This comes from 40-50 years ago when Volume was not as easy to come by, as the market was all manual in those days. With the consolidated ticker tape, every trade is recorded precisely with Price, Time, and Quantity stored for future reference. This makes totally reliable for analyzing stocks as the data is pure, cleaned, and verified which is one reason why I recommend stockcharts to my Students as an excellent charting software.

We are going to look at Candlestick Pattern Analysis differently than you have before, unless you are one of my TechniTrader Students.

When reading the broad aspect of the price using candlesticks I prefer to start from the left and move to the right of the chart. This analysis is not “finding a stock to trade,” that is the super easy part of trading. This is about understanding the relationship between the Candlesticks and Volume so that a clear picture of what is going on appears, rather than just a jumble of white and black lines.

The chart example below has a huge gap down, then a candle with a long wick and a small white body. Volume has spiked to the top of the Volume Bar chart indicator window on unusually high red, or down day Volume.
chart example with huge gap down and volume spike - technitrader

This is a High Frequency Trading Firm HFT footprint and should be obvious on any chart. This was preceded by a runaway trendline pattern which was speculative. Usually this type of gap is either news or an earnings gap, however HFTs can also trigger in the wrong direction.

The next day is a extraordinarily long black candle that gaps slight at open, falls for the remainder of the day, then moves up slightly in the last couple of minutes of trading. The next several days are small black candles with 2 small white candles. However price is not running down instead it is shifting sideways, which is a big signal that even though price appears to be moving down it actually is being supported by buyers with sufficient capital resources and powerfully controlled orders that hold the stock at this level. If these large lot buyers were not countering the selling, the price would be collapsing.
chart example with sideways shift - technitrader

The stock moves down slightly further then next day, then recovers with a candlestick that has a tail that is as long as the body, see candlestick indicated by red arrow. The next few resting days convert to a run up with small candles. Again we see control of the entry Price and Volume just above average. Those larger lot buyers took control of price and the sellers evaporated, causing the buying to be revealed as more Professional buyers moved in.

However the stock stalls at a around $39 and slip-slides down. This is partly profit taking and partly a void of large lot buyers. As the large lot buyers halted their automated orders at a specific high price, and with Professional Traders taking short-term profits, the stock inches down but does not run down.

The stock now moves down to the prior low, forms another small body candle with a long tail that is white this time, then runs back up close to the prior high. Now you should see that there is a PATTERN here. The larger lots are controlling their entry price and the high range they will pay for the stock. This is important for Swing, Day, and even Position Traders to recognize.

Profit taking starts again, large lot buyers halt their buying and the stock gaps down going a bit lower this time. However, this dip beyond the prior low buy in price triggers more large lot buyers with a gap and run that again halt near a previous high where buyers stopped buying.  

IF this was Professional Technical Traders, the runs would be more technical. This is automated orders triggering on price and halting at price levels.

There have now been 3 hits on the high of the Buy Zone™ range. Often that is all that is needed to expose the liquidity draw of large lot accumulation.
full chart example with 3 hits on the high of the buy zone - technitrader

Professional Traders drive price up on rising Volume, then quickly take profits ahead of a resistance level. This is a technical candlestick pattern without a Buy Zone restriction.
Since Professionals use carefully constructed exit orders, the stock barely dips. 

The stock runs up on retail crowd  and Smaller Funds buying action, smack into resistance and ends with a reversal tailed candle as Professionals that held, sell into the retail crowd buying frenzy.

To see the TechniTrader customized tools, indicators, scans, and webinars available for StockCharts users go to the TechniTrader partner page HERE. Sign Up for full access.

Followers of this blog may request a specific article topic by emailing:

Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

©2016 Decisions Unlimited, Inc. dba TechniTrader.  All rights reserved. 
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.