The current monthly candlestick has only one week to close. So, we are getting closer to our monthly analysis which is so important, because the monthly candlestick and monthly time frame sometimes show the direction of the markets for the next several weeks, months or even years. So please stay tuned and wait for our monthly analysis. Please Subscribe to Our YouTube Channel not to miss our videos.
In this article I’d like to talk about candlesticks more, because there are some good messages currently forming on the charts. Candlesticks are the only real-time indicators that talk to you about the situation of the markets lively. They tell you who has taken the control, buyers or sellers, and this is so important to make your decisions about taking a position with the markets. Almost all the other indicators are lagging indicators. So, if you learn the language of the candlesticks, you will have a higher chance to take profitable positions, and also you can avoid more risky positions.
So try to understand the language of the candlesticks:
- Candlestick Trading – The Language of Japanese Candlesticks
- Bearish Engulfing Candlestick Pattern As a Strong Sell Signal
- Piercing Line Pattern: A Strong Candlestick Buy Signal
- Which Candlestick Patterns Are the Best and Most Reliable to Trade?
- Good Examples of the Strong Candlestick Patterns
The below article is related to this video. Please make sure to watch it while you also read the below article as well. By following our videos and articles, you will shorten your way toward becoming a consistently profitable trader.
Candlestick Shadows on Amazon’s Stock Price Chart
Below is Amazon’s daily time frame. As you can see, I have already talked about this market a lot, because it is such an important and interesting market. You can learn a lot of things from this market. I have talked about Bollinger Band Squeeze that you can see on the below chart. Bollinger Band Squeeze is a strong trading system:
To take a position based on Bollinger Bands Squeeze, first you need a strong movement that makes Bollinger Upper and Lower Bands too far from each other, like the ones that you see below. Then, Bollinger Upper and Lower Bands have to become so close to each other and move horizontally for a while. Also, they need to form a resistance, in case of an uptrend (like the below market/chart), or support, in case of downtrends. After a while, if any of the candlesticks closes above the resistance level, then that’s a long trade setup.
After the first long trade setup you see at the left side of the chart below, again this market formed another strong up movement and made Bollinger Upper and Lower Bands too far from each other. Now, it is a while that the market is moving sideways, and Bollinger Upper and Lower Bands are getting closer to each other. At the same time, you can also see a resistance level at the top.
The last closed daily candlestick (2020.08.24) which was the first candlestick of the current week went up, tested the resistance level, but then it went down and closed below. That’s a signal that tells us that most probably this resistance level is a valid resistance level:
Now, I am going to zoom in to show you the candlesticks with more detail (below). The upper shadow of the last closed daily candlestick on the below chart is so important. Many traders still have a hard time to understand what the upper and lower shadows of candlesticks tell them. Upper shadow shows the highest price, and lower shadow shows the lowest price that a candlestick has ever reached while it was forming. It is as simple as that. So, when the last closed daily candlestick (2020.08.24) opened, it went up and down, and then reached the highest and lowest prices, but finally it closed and it formed a small bearish body:
The last closed daily candlestick (2020.08.24) is not a Doji, because it has a body which is much bigger than the body that a Doji has to have. But its small body still reflects indecision, because Doji reflects indecision. It means the market doesn’t know to what direction it has to go, and balls and bears or buyers and sellers, almost have the same power. When it is like that, then a Doji forms, and that makes sense because when the market reaches a resistance level, balls are hesitant to buy and take the full control, and so the price doesn’t go up to close above. It goes up, but then just because balls are hesitant, they sell, and so the price goes down. Bulls need more reasons to buy Amazon and push the price even higher, but most probably, they will find the reason because Amazon has been going up very strongly during the past several years as you can see on the monthly time frame (below). But this process needs a longer time to be completed and make bulls take the control again:
As long as candlesticks are reflecting indecision, it means you have to wait. It depends on the next candlestick which is called the confirmation candlestick. If the next candlestick goes up and closes above the resistance level, and so it forms a bearish body, then that’s a long trade setup. If the next candlestick goes down, forms a strong bearish body, then that’s a short trade setup. Of course, then you have to wait and think, whether you really want to go short on such a strongly bullish market or not because this market is strongly bullish, and going short is extremely dangerous. Traders are waiting for a strong buy signal in this market to buy. Or, if they have already bought, they want to buy more and average up. Shareholders of this market are waiting for a new buy signal to take a breeze and make sure that their investment is going to remain profitable for the next several weeks or even months and years.
The Last Closed EUR/USD Daily Candlestick’s Upper Shadow
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EUR/USD is the most favorite currency pair for many of Forex or currency traders. You know the chart below very well, because we have talked about it a lot during the past several weeks. Below is EUR/USD daily charts. It almost looks like Amazon’s daily chart, isn’t it?
The last two movements look like Amazon, because Amazon also had an up movement, and then it formed a Bollinger Band Squeeze. Later, it broke above the resistance and formed
another strong up movement, and now it’s going sideways and it seems that it is forming a Bollinger Band Squeeze again, because Bollinger upper and lower bands are becoming so close to each other. So far we can find a resistance level at the top, but maybe later we will have to adjust it:
We still have to wait and see but the reason of moving sideways in case of EUR/USD is that the market is below a strong resistance line on the monthly chart. Here, I’d like to talk about the
last closed daily candlestick (see the chart below). This candlestick is called Gravestone Doji. When it is a Doji, it means it reflects indecision, because as I said all Doji candlesticks reflect indecision and Gravestone Doji also reflects indecision of the market. The market opens and goes up and then goes all the way down and closes almost exactly at the same level that it was opened. This is how a Gravestone Doji forms with its relatively long upper shadow. It means none of the parties, balls and bears, have been able to take the control completely.
Old-school stock traders say when a Gravestone Doji forms at the top of a strong uptrend or bull market, it means you have to get out and the price is not going to go up anymore. That is why they call it Gravestone because they say when this candlestick forms, you will have to bury all the hope that you had for the price to go higher and make profit for you. This name goes back to the time
that the stock traders could do nothing but buying. It wasn’t possible to go short. They could only buy. So when they saw a Gravestone Doji on the chart, it reflected this appointment and it meant that the price is not going to go up anymore, and so they cannot make money. They had to wait for the price to go down, until it started going up, so that they could start buying and making some profit again. That is why they call the candlestick, Gravestone.
Gravestone Doji also needs confirmation because it is a Doji. If the next candlestick goes down and forms a strong bearish body, then most probably the price wants to go down. But if the next candlestick goes up and closes with a strong bullish body, then it means bulls have taken the control and now the market and the price is under the control of the buyers. The other thing is that this market is now moving around Bollinger Middle Band, which is an important moving average, because it works as a strong support and resistance most of the time. As you can see on the chart below, some candlesticks have closed below Bollinger Middle Band, while another candlestick (2020.08.21) closed below which means the middle band is broken by 2020.08.21 candlestick. Now, the middle band is working as a resistance, whereas before it was used to work as a support. Therefore, the last closed daily candlestick couldn’t go up and close above Bollinger middle band, because middle band worked as a resistance.
All of these movements and signals reflect the indecision, and it means that we have to wait. But the good news is that when there is such a situation and a Bollinger Band Squeeze is forming, most probably a strong and profitable trade setup is on the way. So we have to cross our fingers for the market to form a trade setup for us:
Now, I expect you to know the meaning of the candlesticks shadows, especially upper shadow of candlesticks like Gravestone Doji. As I said at the beginning, I was supposed to talk about
the shadows of the candlesticks and now you should be able to understand what the shadow of the above Gravestone Doji means.