Beyond Basic Candlestick Pattern AnalysisLearning to Recognize Who Is Controlling the Stock Price
There is a plethora of training on Candlestick Pattern Analysis and interpretation, and yet this remains one of the most problematic areas for Technical Traders who want to trade at the expert level.
Once the basics of Japanese Candlestick Patterns are understood, it is time to move up to the next tier of analysis. That is being able to recognize not only where a pattern is, but also who forms that pattern, why they are capable of creating that pattern, what automated orders generate that pattern, and which Market Participant Groups react or chase that pattern.
Nowadays it has become critical to include Volume with Candlestick Analysis, because this provides the basis for recognizing which Market Participant Group created that candle pattern.
Candlestick Pattern Analysis at the expert level involves more than just one to three candles. Instead it includes a larger group of candles in the near term. This is what I call "Relational Analysis." This is especially useful for Swing Traders, Momentum Traders, Velocity Traders, Swing Options Traders, and Day Traders using Swing Style Intraday action.
The NYSE:RAMP chart is an excellent example of a Candlestick Pattern for Swing Style Trading.
See where High Frequency Traders (HFTs) took control of price, and gapped the stock down for one day on extreme volume. Selling did not continue the following two days, and Volume was above the Moving Average, but much lower than the High Frequency Traders' spiking Volume pattern.
This was the first accumulation level for this stock. Dark Pools started buying the stock even though High Frequency Traders were selling, since they typically miss this initial buy mode of the giant Institutions.
High Frequency Traders typically create the final gap down to the low which, if it reverses quickly, indicates a Buy Zone area for the Dark Pools. These patterns are what I call "Shifts of Sentiment." They happen in bottom formations where buying is generally dominated by the Largest Institutions' quiet accumulation.
The next phase will be when Professional Traders and then High Frequency Traders discover the Dark Pool accumulation. The bottom is not complete, but it shifts sideways if more Dark Pools decide to buy.
