What are the commonly used Candlestick Types in Price Action Trading?
Welcome to Episode 3 of Price Action Trading Series from MarketSecrets.
In this episode we are go to learn about “Candlestick Types“
To watch all the episodes, please use this link: https://www.youtube.com/playlist?list=PLRpfTFEfJ27Y9rFMjQZgXPRjxiA3dPhOP
We will start with technical’s in this episode. But that doesn’t mean I’m going to teach the very basic stuffs like Candle formation (like what is open, high, low, close), also I won’t be taking about various chart types like line chart, bar chart, candlestick chart or Heikin-Ashi. If you need that level of content, let me know in the comments section. I’ll try to prepare separate video about it.
We will be using only Candlestick charts throughout this series and each candle in the chart will have body and most candles will have wicks (which is otherwise called tail or shadows). Based on the shape of the candle bodies and it’s wicks, these candles can be classified into many types.
We will be using four important candlestick types throughout this training. Let’s see about each of those in detail in today’s episode.
What are these 4 candlesticks?
- Basing Candles
- Marubozu Candles
- ERC Candles
- Failed ERC Candles
Let’s start with the first item – Basing Candles. This is the most, most and most important candle type in the entire price action trading. We will have 1 dedicated video/lesson separately for basing candle with AFL integration. With that note, let’s begin.
Basing Candles, denotes candles where candle body is less than 50% of the entire range (i.e) Difference between high to low should be more than double of difference between open and close price.
Basing candles are very important as they generally form the base of most of the demand and supply zones.
Rules state that we cannot use all the basing candles as bases or pauses in the market. Identifying 50% candles on a price chart does not necessarily mean we have spotted a potential base.
So, How do we know if a basing/50% candle can be used as part of a base or pause?
There are some guidelines which will be explained in forthcoming episodes like high wave candles, wicky candles and single doji candles, hammers/shooting stars.
These candlestick patterns I’m referring to are not good as part of a potential base or pause because they mean indecision.
Usually a long wick or high wave candle has as many sellers and buyers which depicts the picture of a balance and not an imbalance.
Since we trade supply and demand imbalances (not balances), we must lean on candlestick patterns that display that imbalance, not those that display balance like wicky candles.
To reiterate, There are various aspects we need to consider before drawing the zones, which will be explained in detail in forthcoming episodes.
Example for Basing Candle:
Marubozu candles are tight candles with tight bases with no wicks or hardly no wicks at all.
In simple terms, any candle in the chart with very small wick or no wick is called Marubozu candles.
This is the candlestick type we will commonly see when there is an extremely bullish or bearish move.
Example for Marubozu Candle:
ERC Candles:
ERC stands for Extended Range Candle – these are long candles with long candlestick bodies and closing at about 80% of its candle range.
In simple terms, any big candle in the chart with very small wick or no wick is called ERC candles.
This is our key candle. Long candles indicate strong or explosive move, which suggests an imbalance in play. So we will be closely monitoring ERC candles.
Example for ERC Candle:
Failed ERC candles:
These candles can be defined as a candlestick that looks like an ERC (explosive and wide candle) but failed to close high in the candlestick range and whose body is 50% or less than the whole candle stick range.
To simply put, these are very similar to ERC candles, I mean these are long candles but the only difference is it will have long wicks.
Example for Failed ERC Candle:
Can a failed ERC candlestick be considered as base?
No, it can’t. A failed ERC candlestick belongs to the ERC category and it cannot be called as basing candle, because it has a strong and explosive move, an explosive move will never be part of a base or pause in the markets, it will always be the first or second leg of an impulsive move.
So, now open the chart and try to mark these 4 different candlestick types you have learnt today. Upload it Google Drive and share the link in the description section of this video, so that we can evaluate.
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