A Better Way to Classify Candlesticks

I received an email during the last week seeking some clarification about a prior series of articles.

I thought it best that I share this with you all, as my experience shows that if I’ve failed to adequately explain a concept to one person then there are likely many others who didn’t get the message either.

This was the prior article series:

Part 1: http://yourtradingcoach.com/trading-process-and-strategy/better-than-candlestick-patterns-part-one/

Part 2: http://yourtradingcoach.com/trading-process-and-strategy/better-than-candlestick-patterns-part-two/

Part 3: http://yourtradingcoach.com/trading-process-and-strategy/better-than-candlestick-patterns-part-three/

Part 4: http://yourtradingcoach.com/trading-process-and-strategy/better-than-candlestick-patterns-part-four/

Part 5: http://yourtradingcoach.com/trading-process-and-strategy/better-than-candlestick-patterns-part-five/

And of course the concept is also a feature of the YTC Price Action Trader, so if you want to explore it further and see a number of related examples, check it out here: http://www.ytcpriceactiontrader.com/

Here’s the relevant part of the email:

I’m a bit confused with the close comparison and close position of some candles on a chart I’m viewing. See attachment please.

So the thing is, I’m looking at these 3 candles, and the first 2 are low close candles, right? But their close position is what gets me because they closed higher than the close or range of the previous candles, which would make them bull candles, but they are bear candles by themselves… I’m not sure what to make of them then?

Same for the last one. It’s a mid-close candle, but it closed above the previous candle which would also make it a mid-close bull candle? But on it’s own it’s also a bear candle?

If you’re not familiar with some of the terms… read the above articles!

Here’s the image that was attached to the email. Please note that this is a “reduced size” version. Click on the image to open a full-size version in your browser.

a better way to classify candlesticks - email image

The error was in looking at each candle in isolation and saying, “the candle is red and therefore bearish”.

The whole point of the alternative classification / naming system presented in the above article series is that we take a wider view of the current candle and compare it’s close with the range of the prior bar. This gives us a more accurate assessment of short-term sentiment.

Of course… even more important is the context within which the pattern is occurring (see article 3 in particular). But the starting point in assessing sentiment comes from looking at the immediate price action, and this is best done by considering a two-candle pattern, rather than the individual candle in isolation.

Here’s the reply image I sent in response to the above email. Again, please note that it’s a “reduced size” version. Click on the image to open a full-size version in your browser.

a better way to classify candlesticks - email reply 

Lance Beggs


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4 Comments to “A Better Way to Classify Candlesticks”

  1. Rod says:

    Hi Lance,

    If i my trading time frame is M5 which timeframe should i look for candle confirmation ….
    M1 or H1

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