What Nobody Understands About Candlesticks — Until It’s Too Late

Hello, my name is Doug and I've been a

professional trader now for 26 years.

And in today's video, I am going to tell

you what nobody understands about

candlesticks until it's too late.

Because if you ever want to have a fair

shot at hitting the big time as a

trader, you got to know your

candlesticks. And if you don't know your

candlesticks, it won't be long before

you're gone. You see, the thing that

most traders never understand about

candlesticks is that it's not just about

price. It's not just about bulls versus

bears or who's in control of the chart.

It's all about emotions. more

specifically understanding the emotional

context that's beneath each candle

because once you're able to figure this

out, which is pretty simple to do, you

now possess an extreme edge in the

marketplace. So, if you're tired of

guessing, you're tired of chasing,

you're tired of, wo wo is me, gee, I

don't know if I can do this whole

trading thing, I don't know if I'm cut

out for it, I need you to stop. I need

you to stop right now and watch this

video because today I am going to give

you an absolute master class on how to

read candles. So, how about we get

started with today's video.

All right, my friends. Our agenda for

today is a very simple yet effective

one. We're going to begin with the four

pillars that go behind successful

candlestick reading and they are the

color, the body, the wick, and the

range. After that, I'm going to show you

how to read the true emotional

significance that goes behind each

candle. This is where the secret is

because once you have this knowledge,

trading is going to make a lot more

sense to you. Now, after that, I'm going

to share with you my three favorite

emotionally charged candlestick patterns

that I'm using every day and have been

using for the last 20 years. And of

course, once we've combined all that

knowledge together, I'm going to show

you some live trading examples using

these candlesticks. That way, you should

be good to go. So let's get started by

discussing these four pillars to

successful candlestick reading.

Beginning with the color of the

candlesticks. Green candlesticks tend to

represent strength or buyside momentum

because the price of the asset had moved

higher throughout the selected time

period. Red candles tend to represent

weakness or sellside momentum because

the price of that asset moved lower

throughout that selected time period.

Now the rectangular area that you see

here on the candlesticks is known as the

candlestick body. And each candlestick

body has an open and a close. On green

candlesticks, the opening price is at

the very bottom of that candlestick

body. And the closing price is at the

very top of that candlestick body. For

red candlesticks, the opening price is

at the very top of that candlestick

body. And then the closing price is at

the bottom of that candlestick body.

Now, the lines that you see protruding

above and below that candlestick body

are known as wicks, tails, or shadows.

And for today, we'll be referring to

them as wicks. Now, the ends of the wick

at the very top of the candlesticks

represent the highest price point for

that time period. And the wick ends at

the very bottom of the candlestick

represent the lowest price point for

that time period. And the total distance

between the very top and bottom of a

candle or the bottom to the top of the

candle is called the candlesticks range.

Now, let's break down each one of those

pillars individually, beginning with the

significance of the candlestick's body.

And for today's video, we're going to

talk about three main types of

candlestick bodies. Big bodies, small

bodies, and little to no bodies. So,

let's go ahead and begin with

largebodied candles. The larger the

candle body, the stronger the momentum

is in that direction. But here's the

catch. Normally, these candlesticks are

abrupt, fast, and aggressive. And the

impulsive nature of these moves tend to

create a splitsecond illusion of

certainty like this is the next big move

in the market and I have to get in on it

now. And many times less experienced or

undisiplined traders chase into these

moves and the majority of the time

that's the wrong move to make. So here's

a better way to look at this. Instead of

viewing candlesticks in just terms of

price alone, look at them as people or

trader type. So the next time you see an

impulsive candle upward or downward,

instead of asking yourself what's

causing this move, what's creating this

move, ask yourself, what kind of trader

would be buying or selling this candle

right here and right now? Because once

you're able to look beyond price alone

and understand truly who's behind this

move, it's going to be a lot easier for

you to predict what the future movement

of that asset is going to be. Now, let

me break this down for you in layman's

term by showing you this chart real

quick. Take for example this massive

green candle right here. Any disciplined

trader who relies on technical analysis

would not be buying at the top of this

move. And the reason is because there is

no valid technical analysis pattern in

the technical analysis universe that has

a signal entry that is that high. Which

means anyone who is still buying at that

level is likely an amateur or reacting

via emotionally chasing FOMO instead of

following a strict set of rules. That's

why these large candles tend to fail

more often than not. The bigger the body

is, the higher the emotional intensity

is and the less sustainable that move

will become. Now, the same logic applies

in reverse. On large red candles like

this, any disciplined trader who's

relying on technical analysis would not

be selling into the panic this deep. So,

anyone who's chasing into sellside

momentum that deep is driven by fear,

not by logic. And just like emotional

buying, emotional selling often leads to

sharp reversals. Remember, emotion is

the abandonment of intellect. And that

is exactly what separates the winners

from the losers. Now the smallerbodied

candles to the no-bodied candles which

are called dogeis to most traders they

represent indecision. But to me they

represent opportunity because when I see

them I'm thinking percolating you

brewing. It's just coiling up and it's

just getting ready to explode either up

or down. And I want to do my best to

read in between those lines and truly

understand those candlesticks so I can

kind of frontr run that move because

again that's where the money is made.

Now, this is pretty simple to do, and

let me show you exactly what I'm talking

about right here on a chart. Notice all

the small consolidated candles and the

little tiny dogeis. Now, to a lot of

traders, that's going to look like

wasteful consolidation, but to me, I see

it as it's setting up for the next big

move. Now, in this case, that move

happened to be higher. But here's what I

want you to know. On this chart right

now, there are two pieces of strong

candlestick data that clearly told you

that the move was going to be up and it

was about ready to happen. And in just a

few moments when I go over my favorite

candlestick chart patterns, I'm going to

show you exactly what those two pieces

of strong data are. And finally, the

most important part of every candlestick

are the wicks. There is nothing that

will signify an abrupt change of

sentiment or a trend shift or a

directional change easier, faster, and

better than wicks. There's just nothing

like it. And let me show you exactly

what I'm talking about right here on the

charts. Now, take a look at this chart

and notice the size of this wick from

the very low price point to the closing

price point of that candle. That's

almost 90% of price retracement. Now the

significance of that candle is not just

about buying. It's the large aggressive

and authoritative buying that matters

that gives the trader the confidence.

And when you get that much aggressive

buying, the end result is most likely

going to be higher prices. Now on this

chart as well, there's a little tiny

secret. It's right there in front of

you. And I want you to tell me if you

can see it. It's okay if you don't. I'm

going to tell you here in a second. And

just think about it here real quickly.

Pause the video if you need, but I'm

going to go ahead and tell you. Notice

that right before that wick, just right

before that, what is it that you see? Is

that not a largebodied candle, which

means what? Emotional intensity. And

what have we learned up to this point

about emotional moves? They normally do

not stick. So long before that wick ever

printed and took a place, you would have

known ahead of time that that was most

likely to appear on that chart. And

right there is a significant edge. Now,

here's what this move would look like in

reverse. Notice in this case, you had

two backto back top wicks with strong

retracements. Now, what do you think

happened after these strong

retracements? The asset went lower. Note

that also in this case the down move

occurred after what? After the emotional

impulsive candle up. Simple. Right now

in this section I want to talk about my

three favorite candlestick chart

patterns. And by this time you probably

got a pretty good understanding of why

they're my three favorite and I hope

they become your three favorite as well.

But if not I want you to pay attention

to one thing as we go through here or

keep this in the forefront of your mind.

It's the significance and what these

patterns represent. It's the context

that they represent. This is what makes

all the difference. And what I have here

on the screen is what I feel are the

three most emotionally charged

candlesticks. Starting with the inverted

hammer and hammer candles. And we're

going to go through each one of these

individually here in just a second. Now,

as some of you know, I've done a video

about these particular candles before,

and I'll call them the John Wick. So, if

you hear me say the word John Wick, this

is what I'm talking about. The next is

the engulfing candles, also known as the

power of tower candles. And the third,

which I have not talked about yet here

on this channel, is the rising wick and

the fading wick. And we're going to go

through each one of these and with real

live trading examples to back them up.

And let's start with the John Wick. So I

want to show you exactly what a John

Wick feels, looks, and smells like in a

real live market. And these were real

trades that we took in our trading

community. But the most important part

of this segment is I want you to

understand the context that goes behind

this move. Otherwise, it's never going

to work for you. And that's not what I

want. And you may recognize this chart

because I used it a little bit earlier.

But here's what the significance is to

the John Wick if you're not familiar.

It's the aggressive price change from

the very bottom of that candle to the

top of that candle. So in layman's term

with this one as well, what this meant

is at one time this candlestick was a

fullbodied red. And not only that, it

was coming off the back of another

fullbodied red candle. So think about

this at this moment because this is

what's really important. At that moment,

it looked like this thing was going to

implode, right? Like it was just game

over. It's just never going to stop.

Everyone should sell. That's the point.

However, when it hits a specific spot,

it immediately retraces. So, think about

that. You have people moving in one

direction emotionally. Fear, this is a

crash. This is going lower. Then all of

a sudden, snap of the finger, it gets

picked up and picked up aggressively.

Now the point about this candle is

normally when you get this much

aggression that comes from the wick

whether it's at the top of the candle or

it's at the bottom of the candle the

most important thing is aggression like

that doesn't normally dissipate because

what you might not understand which is a

little tough to for some people even

myself to understand the true amount of

money that has to go behind a move like

that the amount of volume it takes to

lift a stock of this nature off the

floor is insane. I don't think any of us

could really comprehend how many

millions and billions of dollars it

takes. And when you have that much

intent and that much commitment, it's

super hard to get that thing to to come

back down. Like there's major buying in

there. Not to mention, it was set up

before by this candle. Now, let me show

you how I would enter this trade. And

there's two ways that we can do it.

Normally when you have something that's

this aggressive where the previous

candle was that strong followed by the

second if this candle that was once

fullbodied red can claw back about 30%.

So not to confuse people that would be

about right there about 30 to 50%.

That's normally where I would buy. Now,

that's a very aggressive entry because

you're entering on something where the

candle has not closed and there's a lot

of data that may maybe the other the

next candle is going to go much lower.

But that's the way I would do it.

However, I'll share with you a much

easier, more simplistic entry and that

would be crossing through the very high

of that candle. Okay? So, any move for

the next candle that presses through, I

would buy that. the stop loss would be

beneath the low of the day and this is

not an exiting class but normally what I

look to do is at least get about 50% to

100% of that that range. Now again this

is just a example because the most

important thing is to understand the

candle. Now, at some point it may look

like the risk is a little large on this,

but the point is that I want you to

understand it's that candle significance

that allows you to have the confidence

you need because the strength of this

candle, the the aggression at which it

was bought, there's a extremely high

probability it goes a lot higher. So, if

I just kind of play this forward, you

can see what ultimately happens here is

you do get this massive upward momentum

move, right? And you'll see all along

the way, even if you missed that very

initial John Wick, there were a couple

of different style of of wicks. Now,

they might not be as crisp and clean as

this John Wick, but there were in fact

some other John Wicks into rising

support there that makes this a really

good trade. So, understanding the power

of the John Wick. Now, if that's at the

top, you just flip the chart upside

down. And the same thing would be that

way via a short. Again, most important

part is what? Anytime a large candle

gets retraced before it can finish, it

really represents the highest level of

emotional significance and that's how

you make money. Now, the next one is

we'll take a look at what a power of

tower candle looks like in a real live

market. So, again, just take a quick

second to look at the chart here and

just tell me what stands out to you the

most. It should be the fact that what do

we see here? A large red bar, which is

what an emotional fear candle. And

hopefully some of the light bulbs going

off in your head that the next time you

start to see these impulsive candles,

you ask what who who who

would be selling down this, right? Who

would it? Rookie, pro, who would be

doing it? Now, when it comes to the

power of tower on a very strong, huge,

robust candle like this, it it might be

too late. It is too late in a lot of

cases to wait to the very top of this

candlestick to engage in a long. For

this one, I do use that 30 to 50% rule.

If it can somehow retrace 30% from the

bottom, 50% up there, it's fine. Now,

one note, it doesn't have to happen

perfectly to script with these candles.

I think most of you know that they can

be separated depending on your chart

frame. They can be separated by a few

different candles. I'll show you what

that looks like in a minute. So, it can

happen in a sum of one candle, two

candles, or or even three. But, let's

kind of put a 50% threshold on this

candle. Now, hopefully you also can kind

of put, you know, kind of connect the

dots here and say, I don't have to take

this trade. Maybe you understand that

anatomy like I'm thinking I don't have

to take this trade but just so happens

if the next candle bounces up this far

or the next two count candles bounce up

that far that's the entry that I'm

looking for. So I'm just going to kind

of play it forward here real quick and

as soon as you get somewhere up there

right the next candle comes up right

hits that point. So in this case that

would be very close to what my entry is.

So I would just buy it here using the

same formula with a stop at the low

targeting back to the range at least

bare minimum. Now a lot of these can go

further. Again it's not an exiting class

or an entry class. I just want you to

get the concept of what we're looking at

in terms of context. And of course we

play this one forward. You you'll move

up a lot higher. And then there's

another really strong strong trade. Now

let me show you what that looks for.

Because if you play this one I remember

this trade specifically. If you play

this forward, you're going to see you

got the same setup two different

occasions because later in the day, this

rolls over real strong right there. Now,

let me just kind of back that up real

quick here. Showing you again the power

of tower. In this case, this was sort of

like a a mix between the John Wick, a

mix between the power of tower. In these

cases, this is almost it's close to a

John Wick, but because it has the tail

at the very top. You could say that's a

dogey candle, but I don't look at it

that way. In these cases, you're just

looking for the next series of bars to

cross that 30 to 50% threshold. So, if I

just kind of draw that line, the entry

could have been on the push through this

candle right here. Okay? Hopefully, you

can see that. Now, there's other

advanced entries a little bit lower, but

what I'm trying to say here without

getting off topic or confusing everyone

is that once that candle has dropped,

you just need 30 to 50% of it. Whether

it comes from the next candle, the

candle after that or the third candle,

it's still valid. And many of our

technical signals are that way. There

there's noise in between and the smaller

the charts are, the worse it gets. And

notice what happens. What does it do? it

comes back up to the very top part of

the range. And that's the key. Now, the

next one I want to show you is the

rising support wicks or the fading

support wicks. And we're going to look

at the rising support way because this

was a recent trade. Again, what is the

anatomy of this? I did a video once and

kind of bring it up because I think it's

really important right now. A lot of the

answer to what's going to happen next is

in the series of candles that happened

before it. What are we seeing here?

Another downtrending instrument. Even

though it's not as aggressive as the

previous one with these very strong,

thick, singular, robust candles, there's

a series of candlesticks moving down.

This is the point. It's moving the

emotional intended in a certain

direction. That's the key. That's how

technicals work. It's it's it's it's

determining who's on that trade. It's

shaking people out. And you're looking

over here. You don't completely get it.

You get a tiny tiny little power of

tower style. But what is important about

the rising pattern is that's the key.

It's rising support. So notice the tail

of each one of these wicks. If I just

kind of draw a little trend line, notice

how they're they're kind of trailing up,

kind of like grinding up, kind of

walking up and rising support. You're

using the same formula in a trade like

this where you're buying on the break of

any candle structure which would just be

right there. It's very very tiny. Let me

write that line. Put it right there.

Right? And you could even in this case

wait. But notice that would be your a

standard wedge pattern. Right? Stop loss

always goes below the low of the day or

the high of the day. Target price moving

back into the upper range bare minimum.

Again, we're not doing a class on that

right now. The key here is those rising

wicks. I want to open that up because

notice that every time you get inside

there, there's somebody scooping that up

like an algo rhythm. So, the emotional

significance here is there's building,

right? That's building pressure. It's

coiling. There's some sort of algo just

kind of nibbling and nibbling on chairs.

And all it needs is a break of this

upper range and it's off to the races.

And you'll see in this case that's

exactly what happened, right? Off to the

races it goes and just starts shooting

all the way up. Now, a lot of people

will ask, "What about the losers? You're

showing me all the winners." Look, I get

it here. But what I want you to

understand this is each and every one of

you, and I hope you saw this throughout

the presentation part. The key with this

type of theory is that when you're down

that far with stops at low and high

after big moves, your stops are so

small. That's the point. They're little

compared to the gains. Notice that each

and every one of these have produced

more than a 3:1 riskreward. While 99% of

traders are out there chasing one to

ones or one to twos, these are threes,

fours, five. You don't have to win a lot

when you're when you're getting gains

like that. So yes, there are losses and

there are quite a bit of losses, but in

most cases, you're winning because

you're coming after the emotional.

You're understanding the emotional

context between it. So your ratio of

winning is high, but the ones that you

do lose on, well, they're a lot smaller.

So anyway, guys, I hope some of this

made some sense to you. I really enjoyed

doing this video. It's one of my

favorite subjects to talk about. I want

to say just a few things before we log

off here. Uh, as always, my wife and I

who run this channel, who she trades as

well, we put together a free watch list.

It includes all the great technical

setups for the week ahead. It's called

the gains guide. It's completely free

and I've put a link down there in the

description box. I also wanted to inform

everybody, which a lot of you do know by

now. We finally got around to starting

our live trading community. It's been a

lot of fun doing this. I love trading

live in front of everybody every day.

It's called the Rumor Squad. I'm also

going to put that link down there. So,

if you're interested in trying to get a

little bit more education, a hands-on

experience, trying to get better

knowledge, trying to finally get out of

the the hamster wheel of existence, go

ahead, click those links, join us in our

live community. Love to have you

narrating through each and every one.

I'd love to narrate through each and

every one of these scenarios with you on

a day-to-day basis. Be my pleasure. So,

I look forward to seeing you there. On

that note, guys, let me say thank you

very much for watching this video.

Thanks for your support. Until the next

one, take care. Trade well and cheers.