OTA - Candlestick Reading Strategy

Question 1

What are the 4 data points that candlesticks provide?

Answer 1

Open, Close, High, Low

Question 2

What does a green-body candle mean?

Answer 2

price closed higher than it opened (bulls won!)

Question 3

What does a red-body candle mean?

Answer 3

price closed lower than it opened (bears won!)

Question 4

What does a Doji (no body) candle mean?

Answer 4

the candle opened and closed at the exact same price.

Question 5

What does an All-body candle mean?

Answer 5

the open and close are also the highs and lows

Question 6

What does a one-wick candle mean?

Answer 6

Depending on the candle color, the open or close is also the high or low

Question 7

What does a two-wick candle mean?

Answer 7

the high and low are distinct from open and close

Question 8

What is a Rally?

Answer 8

a series of candles closing consistently higher

Question 9

Do candles have to be green to be considered a rally?

Answer 9

No

Question 10

What is a Drop?

Answer 10

a series of candles closing consistently lower

Question 11

Do candles have to be red to be considered a drop?

Answer 11

No

Question 12

What is a Base?

Answer 12

a series of neutral candles moving sideways consistently (body color doesn’t matter here)

Question 13

Explain the 3 Order States

Answer 13

Sent = after trader submits and order
Unfilled = Until another party accepts the trade, the trade remains unfilled.
Executed (Filled) = when a trade is matched with an opposing order at the same price.

Question 14

_____ orders are the ones we see on candlesticks

Answer 14

Filled

Question 15

_____ orders represent the traders’ REAL intentions, and they are not visible to the untrained eye

Answer 15

Unfilled

Question 16

Sometimes you will see candles with Filled and Unfilled bodies instead of Green and Red, however, they mean the same thing. Describe the equivalence of the 2 styles

Answer 16

Green bodies are the same as unfilled bodies, red bodies are the same as filled bodies.

Question 17

An Explosive Rally

Answer 17

a series of leg candles, consecutive higher closes resulting in a new high in price

Question 18

What has to happen for it to be considered an Explosive Rally

Answer 18

a leg candle has to make a NEW higher high on the chart.

Question 19

Base Candles

Answer 19

show supply and demand are balanced, they tend to close inside of the range of preceding candles.

Question 20

Gap Candles

Answer 20

when a market opens at a different price than where it closed the prior day, it creates a gap.

Question 21

Name the 4 Code Strategy Formations

Answer 21

Drop-Base-Rally (DBR)
Rally-Base-Rally (RBR)
Rally-Base-Drop (RBD)
Drop-Base-Drop (DBD)

Question 22

What are the parts of a “Zone”?

Answer 22

1) Leg-In
2) Base
3) Leg-Out

Question 23

When is a Base a Demand Zone and when is a Base a Supply Zone?

Answer 23

The Base of a zone is considered a Demand zone when it’s Leg-Out candles are a Rally
The Base of a zone is considered a Supply zone when it’s Leg-Out candles are a Drop

Question 24

What are the two LINES that make up a zone?

Answer 24

Distal and Proximal

Question 25

Where is the Distal Line drawn on a zone?

Answer 25

farthest (above or below) from the current price

Question 26

Where is the Proximal Line drawn on a zone?

Answer 26

closest (above or below) to the current price

Question 27

What does a candlestick body tell you?

Answer 27

the difference between the open and close

Question 28

What do the wicks of a candlestick tell you?

Answer 28

the difference between the high and low

Question 29

What is Candlestick Sentiment?

Answer 29

drawing conclusions about the candle data about whether markets are bullish or bearish

Question 30

How do you methodically determine the sentiment of a single candle?

Answer 30

Imagine the entire length of the candle (body + wicks) as being the range from 0-100%, then look at where the CLOSE price sits relative to that range.

If the close is in the upper 60-100% of the range, its Bullish and Very Bullish. If the close is between 40-60% its Neutral. If the close is in the bottom 0-40% range, its Bearish and Very Bearish.

Question 31

How does price move in the markets?

Answer 31

price moves when there are either no more buyers or no more sellers at a specific price point (the origin)

Question 32

We see an explosive rally in price on a chart. Explain what had to happen to cause this?

Answer 32

the market ran out of sellers at the price point at the base of the rally (the origin). Once there were no more sellers, there were lots of unfilled buy orders. This forces buyers to increase their price point so that they can get their orders filled, which induced a rally.

Question 33

We see an explosive drop in price on a chart. Explain what had to happen to cause this?

Answer 33

the market ran out of buyers at the price point at the base of the rally (the origin). Once there were no more buyers, there were lots of unfilled sell orders. This forces sellers to decrease their price point so that they can get their orders filled, which induced a drop.

Question 34

What are the 2 main Buyer mistakes rookies make?

Answer 34

1. buying AFTER a rally

2. buying at a price level where supply exceeds demand (dont buy in a supply zone)

Question 35

What are the 2 main Seller mistakes rookies make?

Answer 35

1. buying AFTER a drop in price

2. selling at a price level where demand exceeds supply (don’t sell in a demand zone)