Price Action is the skill to trade arbitrarily and the candle reading skill is the most important skill when analyzing Price Action. To understand candles, not only do you use the classic set of Japanese candlestick reversal patterns, you will need to learn to consider the position, arrangement, and coordination of candles together.

Because Price Action has no specific rules, the way to read candles in the article will be highly subjective. You have to practice and practice a lot to master this skill.

What is Bar by Bar Analysis?

The way of analyzing the market by candle does not think that every candle has an important meaning. It also does not mean that you have to grasp the meaning of every candle that you observe.

This reading of candles is based on the principle that each candle can have a certain important role.

May be important. That's why you pay attention to each candle.

May be important. That is why you should not over-analyze. You can try to find a certain meaning in each or every candle, but the effort will not be worth the effort. And often too much analysis makes the problem more complicated than necessary.

Candlestick analysis means you are:
  • Find out what's going on in the present
  • Make expectations about the future
  • Evaluate what actually happened
  • Expect what will happen
We do not expect to accurately predict the direction of the market, so we need to reassess and outline the expectations.

Basic rules for choosing the illustrative example

These examples should meet the following conditions:
  • Choose a random chart.
  • Focus on analyzing 20 candles.
  • Use swing points to analyze price action context structure.
Example 1 - HD chart daily chart

In this example, we will look at the Home Depot (HD on NYSE) chart daily candlestick chart.

Price Action Structure

Inside the red square, you will see 20 candles selected. Two small dotted lines mark the two swing highs and swing low just before the selected area.

Analyze each candle

The chart below has been numbered for each reading position, you click to enlarge the chart to see the number clearly and read on how to read in the line below.

  1. The strong bearish candle covers the length of the previous candle, trying to reach the nearest swing low.
  2. The candle does not break the support line successfully, buying pressure enters the market.
  3. The previous bearish candlestick was just a test of the market to see if buying pressure could hold the price above the support line. And the candlestick bar at this position confirms the strong upside force.
  4. The price quickly rallied sharply to test the top swing high. Although the market's push was strong, the price still could not break out of the resistance line.
  5. The market fell and entered a sideways range. The next four bullish candles cannot push the market up. Note that the 4 bullish candles cannot surpass the first bearish candle.
  6. The market continued to decline after that.
  7. However, the market bounced from the support line very quickly after the bearish candle failed when the price failed to move below the support line.
The next market movement

The red square is the area we just analyzed. Let's see what the market played out after.