How To Interpret Candlestick Charts
So, the question from Mark, “How does a candlestick tail indicate that sellers “or buyers have left the market?”
Now, you take a look at these candlesticks, you’ll see that they’re not all the same size or shape. You’ll also notice that some of these candlesticks have tails on them.
So if you look here you can see in this support level we have these tails here, and tails here, we also have a tailing action there on the Euro/U.S. dollar currency pan.
Now, these reason for these tails, when you see them very pronounced like this, is often a good indication that sellers and buyers have left the market.
When you’re seeing tailing action, so you can see here you’ve got some key overhead resistance and then price moves in, and then price moves into that, and you can see that profit is taken. So these tailing action here is a good indication that profits have been taken as price moves into these key overhead levels.
You can see here with this key daily support level, you just see it going back to the 29th of April, that as prices moved into it, you can see here and here that the profit is being taken. And that tailing action is often a good clue that profit takers have been in play.
What you’re looking at, there’s not an exact science to this, what you’re looking at is the market context and you’re looking for some tailing action, and when you see that in place it becomes quite obvious that this is a profit taking.
For example, just today we had the German court, and the German court made a ruling that the ECB had three months to sort out the QE program, so price sold off into selling action there, as buyers turned into sellers. And then you can see the tailing action here as those who sold took profit down at this irrelevant support level.
So, look out for this, look out for this tailing action that can give you clues about the future direction of price and can give you clues about when people are taking their profits.