OTA - Candlestick Reading Strategy Flashcards
What are the 4 data points that candlesticks provide?
Open, Close, High, Low
What does a green-body candle mean?
price closed higher than it opened (bulls won!)
What does a red-body candle mean?
price closed lower than it opened (bears won!)
What does a Doji (no body) candle mean?
the candle opened and closed at the exact same price.
What does an All-body candle mean?
the open and close are also the highs and lows
What does a one-wick candle mean?
Depending on the candle color, the open or close is also the high or low
What does a two-wick candle mean?
the high and low are distinct from open and close
What is a Rally?
a series of candles closing consistently higher
Do candles have to be green to be considered a rally?
No
What is a Drop?
a series of candles closing consistently lower
Do candles have to be red to be considered a drop?
No
What is a Base?
a series of neutral candles moving sideways consistently (body color doesn’t matter here)
Explain the 3 Order States
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.
_____ orders are the ones we see on candlesticks
Filled
_____ orders represent the traders’ REAL intentions, and they are not visible to the untrained eye
Unfilled
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
Green bodies are the same as unfilled bodies, red bodies are the same as filled bodies.
An Explosive Rally
a series of leg candles, consecutive higher closes resulting in a new high in price
What has to happen for it to be considered an Explosive Rally
a leg candle has to make a NEW higher high on the chart.
Base Candles
show supply and demand are balanced, they tend to close inside of the range of preceding candles.
Gap Candles
when a market opens at a different price than where it closed the prior day, it creates a gap.
Name the 4 Code Strategy Formations
Drop-Base-Rally (DBR)
Rally-Base-Rally (RBR)
Rally-Base-Drop (RBD)
Drop-Base-Drop (DBD)
What are the parts of a “Zone”?
1) Leg-In
2) Base
3) Leg-Out
When is a Base a Demand Zone and when is a Base a Supply Zone?
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
What are the two LINES that make up a zone?
Distal and Proximal
Where is the Distal Line drawn on a zone?
farthest (above or below) from the current price
Where is the Proximal Line drawn on a zone?
closest (above or below) to the current price
What does a candlestick body tell you?
the difference between the open and close
What do the wicks of a candlestick tell you?
the difference between the high and low
What is Candlestick Sentiment?
drawing conclusions about the candle data about whether markets are bullish or bearish
How do you methodically determine the sentiment of a single candle?
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.
How does price move in the markets?
price moves when there are either no more buyers or no more sellers at a specific price point (the origin)
We see an explosive rally in price on a chart. Explain what had to happen to cause this?
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.
We see an explosive drop in price on a chart. Explain what had to happen to cause this?
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.
What are the 2 main Buyer mistakes rookies make?
- buying AFTER a rally
2. buying at a price level where supply exceeds demand (dont buy in a supply zone)
What are the 2 main Seller mistakes rookies make?
- buying AFTER a drop in price
2. selling at a price level where demand exceeds supply (don’t sell in a demand zone)