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Candle Behavior

Candle anatomy is essential in price action trading, detailing how candlesticks represent price movements through their open, close, high, and low values. Understanding candle behavior aids traders in timing entries, recognizing market psychology, and anticipating movements based on higher timeframe structures. Mastery of this concept enhances trading accuracy and helps optimize entry timing by aligning trades with predictable market behaviors.

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186 views5 pages

Candle Behavior

Candle anatomy is essential in price action trading, detailing how candlesticks represent price movements through their open, close, high, and low values. Understanding candle behavior aids traders in timing entries, recognizing market psychology, and anticipating movements based on higher timeframe structures. Mastery of this concept enhances trading accuracy and helps optimize entry timing by aligning trades with predictable market behaviors.

Uploaded by

teekeisee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CANDLE

BEHAVIOR
EXPLAINED

TomTrades
CANDLE
ANATOMY
What is Candle Anatomy?
Candle anatomy is a fundamental concept in price action trading, describing how individual candlesticks on a
chart represent the movement of a financial asset's price within a given period.

Candlesticks visually represent price action for a given timeframe (e.g., one minute, five minutes, an hour,
etc.). Each candlestick has four main components:
Open: Price at the start of the candlestick period.
Close: Price at the end of the candlestick period.
High: The highest price reached during the candlestick period.
Low: The lowest price reached during the candlestick period.
Candlesticks are categorized as:
Bullish candle: Closes above its open price.
Bearish candle: Closes below its open price.

Why Understand Candle Anatomy?


Understanding candle anatomy is crucial for several reasons:
1. Market Psychology:
Candlesticks represent market participants' behavior. Long wicks (or shadows) indicate strong rejections, showing
where buyers or sellers took control, while large candle bodies indicate strong momentum.
Price action reveals human emotions such as fear, greed, and indecision clearly through candle patterns.
2. Timing Entries:
Understanding candles helps traders identify optimal entry points by determining when momentum is likely to
continue or reverse. For example, a bullish candle that creates a bottom wick first may indicate strong buying
momentum once it flips bullish​.
3. Simplicity & Real-Time Information:
Candles provide immediate, clear, and unfiltered data. Unlike indicators (which lag), candle anatomy directly
represents real-time market sentiment and activity​.

How to Use Candle Anatomy in Trading:


Your trading strategy specifically focuses on candle behavior, described as how a candle moves relative to the
previous candle's close​. Here's how you practically apply candle anatomy:
1. Identify Structure and Direction:
Use candles to identify whether the market is making higher highs and lows (bullish) or lower highs and lows
(bearish).
2. Understand Timing:
Pay attention to the first 15 minutes of each hour, expecting candles to initially create a wick (a pullback)
and then continue in the main direction, reflecting how higher time frame candles form from lower timeframe
structures​.
3. Recognize Strength and Weakness:
A candle with a large body and minimal wicks indicates strong directional strength (bullish or bearish).
Candles with significant top or bottom wicks indicate possible reversals or reduced strength.
4. Combine with Areas of Interest:
Match candle behavior with support and resistance levels or previous candle closes/opens to refine entry
and exit points.

TomTrades
CANDLE
BEHAVIOR
Candles are just simplified market structure
Each HTF candle = a LTF Market Structure range
Every single candlestick is formed by price movements that, if viewed on a lower
timeframe, reveal a detailed structure of highs, lows, trends, pullbacks, and shifts
in market sentiment.
A single candle on the 1-hour chart actually consists of:
60 candles on the 1-minute chart.
12 candles on the 5-minute chart.
4 candles on the 15-minute chart.
Each higher timeframe candle consolidates detailed lower timeframe movements
into a simplified visual form—this is the essence of "fractal market structure."

Understanding this relationship gives you a powerful edge in trading because it


allows you to anticipate lower timeframe behavior based on the higher timeframe
candle's anatomy:
If a candle opens and immediately moves down to create a bottom wick and
then flips bullish, on the lower timeframe, this looks like a small downtrend
(retracement), followed by a reversal and continuation upwards.
This helps traders anticipate timing and direction of market movements.

Candle Behavior is all about giving "Timing" to Structure


How to use this practically:
1. Anticipating Moves (Timing):
At the start of a higher timeframe candle (e.g., hourly candle), anticipate a pullback first (wick creation)
and then a continuation in the prevailing market direction.
This strategy specifically involves looking for moves in the first 15 minutes (wick formation) and
subsequent continuation in the main candle direction.
2. Confirming Direction (Structure):
Higher timeframe bullish candle = Lower timeframe bullish structure (higher highs and higher lows).
Higher timeframe bearish candle = Lower timeframe bearish structure (lower highs and lower lows).
3. Improving Entries and Risk Management:
Understanding that each candle represents market structure allows precise entry at the lower timeframe,
near the wick areas, thus giving smaller stop-losses and better Risk-Reward ratios.

Visual Illustration:
Hourly Candle Example:
Opens → moves down first (bottom wick)
→ flips bullish → closes bullish.

Same Movement on 1-minute Chart:


Opens → clear lower timeframe downtrend
structure (creating lower highs and lower
lows temporarily) → hits support or area
of interest → lower timeframe bullish
shift occurs (creates higher highs and
higher lows) → closes higher, forming
bullish hourly candle.

TomTrades
TRADE
SETUPS
0-15m Continuation
Target Continuations when conditions are more directional/High Volume

30m Reverse
Target Reversals when Conditions are more rangebound/low volume

TomTrades
EXAMPLE
12:00PM
Hourly Candle
closes bearish

12:05PM
New Hourly Candle
pulls back creating
its top wick first

12:10PM
LTF 1m structure starts to
shift bearish, Stop placed
behind previous hourly high

12:32PM
Hourly candle flips and
pushes bearish continuing
LTF bearish structure

Key Takeaways:
Each candle you see on your chart is simply a condensed visual representation of detailed market movements on lower timeframes.
Mastering this concept helps you:
Predict lower timeframe behaviors.
Optimize entry timing.
Enhance accuracy by aligning trades with clear, predictable higher timeframe behaviors.
This understanding is foundational for successful price-action trading, enabling clarity, precision, and consistency in your trading strategy.

TomTrades

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