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Candlestick Patterns of Market Participant Groups Explained

Within this article are “time progression” chart examples of one stock, to help readers focus on the candlestick patterns of Market Participant Groups and which one creates certain patterns in the charts. Therefore a portion of the chart has been covered in charts 1 & 2 creating a white space on the right side.

Candlesticks are a language unto themselves. It takes a bit of practice reading the candlestick patterns to be able to understand who is buying, where they are buying, and when they stop buying.

When studying just candlesticks you must also include Volume Bars as an indicator. This is because there are 3 pieces of data that come from every stock transaction which are the Price, Time, and Quantity (Volume) of shares that exchanged hands for that stock. All 3 pieces of data are required if you are going to do a proper and complete analysis.

All too often, Retail Traders think Volume Bars are unnecessary or unimportant. This comes from 40-50 years ago when Volume was not as easy to come by, as the market was all manual in those days. With the consolidated ticker tape now every trade is recorded precisely with Price, Time, and Quantity (Volume) stored for future reference. This makes Stockcharts.com charting software totally reliable for analyzing stocks as the data is pure, cleaned, and verified.

When reading the broad aspect of the price using candlesticks to start from the left and move to the right of the chart. This analysis is not about “finding a stock to trade,” that is the super easy part of trading using scans. Candlestick Pattern Analysis is about understanding the relationship between the Candlesticks and Volume Bars in a chart so that a clear picture of what is going on appears.

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The chart example below has a huge gap down, then a candlestick with a long wick and a small white body. Volume has spiked to the top of the Volume Bars indicator window, on unusually high red or down day Volume.

StockChart showing beginning Candlestick Pattern - TechniTrader

This is a High Frequency Trading Firms Market Participant Group footprint and should be obvious on any chart. This was preceded by a runaway trendline pattern which was speculative. Usually this type of gap is either news or an earnings gap, however High Frequency Trading can also trigger in the wrong direction.

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The next day is a extraordinarily long black candle that gaps slight at open, falls for the remainder of the day, then moves up slightly in the last couple of minutes of trading. The next several days are small black candles with 2 small white candles.

However price is not running down instead it is shifting sideways, which is a big signal that even though price appears to be moving down, it is actually being supported by buyers with sufficient capital resources and powerfully controlled orders that hold the stock at this level. These are the Buy Side Institutions Market Participant Group using Dark Pool alternative trading systems off the exchanges. If these large lot buyers were not countering the selling, then price would be collapsing.

StockChart showing Candlestick Pattern developing - TechniTrader

The stock moves down slightly further then next day, then recovers with a candlestick that has a tail that is as long as the body. The next few resting days convert to a run up with small candles. Again we see control of the entry Price and Volume just above the average line. The Buy Side Institutions Market Participant Group larger lot buyers took control of price and the sellers evaporated, causing the buying to be revealed as the Professional Traders Market Participant Group of buyers moved in.

However the stock stalls at a around $39 and slip-slides down. This is partly profit taking and partly a void of large lot buyers. As the large lot buyers halted their automated orders at a specific high price, and with the Professional Traders Market Participant Group taking short-term profits the stock inches down but does not run down.

The stock now moves down to the prior low, forms another small body candle with a long tail that is white this time, then runs back up close to the prior high. Now you should see that there is a PATTERN here. This StockChart Candlestick Pattern Analysis shows that the Buy Side Institutions Market Participant Group larger lots, are controlling their entry price and the high range they will pay for the stock. This is important for Swing and Position Traders to recognize.

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Profit taking starts again and the Buy Side Institutions Market Paricipant Group large lot buyers halt their buying, and the stock gaps down going a bit lower this time. However this dip is beyond the prior low buy in price, which triggers more large lot buying with a gap and a run that again halts near a previous high where large lot buyers previously stopped buying. These are Buy Side Institutions Market Paricipant Group automated orders triggering on price, and halting at price levels.

There have now been 3 hits on the high of the Dark Pool Buy Zone™ range. Often that is all that is needed to expose the liquidity draw of the large lot accumulation by the Buy Side Institutions group.

StockChart showing Candlestick Pattern fully completed - TechniTrader

Professional Traders drive price up on rising Volume, then quickly take profits ahead of a resistance level. This is a technical candlestick pattern without a Buy Zone restriction. Since Professional Traders use carefully constructed exit orders, the stock barely dips. 

The stock runs up on the retail crowd and the Smaller Funds Market Participant Group buying action, smacks into resistance and ends with a reversal tailed candlestick as ProfessionalTraders that held the stock sell into the retail crowd buying frenzy.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com

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Chartered Market Technician

Instructor & Developer of TechniTrader Stock and Option Courses

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