Critic of candles



Both of these candle-stick patterns signal that the price will go up. Japanese candlestick always have these nice romantic names like "hammer" (the one on the right) and when they show them in newspaper a nice story follows about history-old use of these candlestick in Japan for trading.
Instead of trying to memorize the patterns. It is much better to understand what happened there.

On the left pattern, it is pretty obvious that the price direction changed. There is no reason to over complicate it that it is some magical pattern that works by some mysterious ways.

Also the hammer is very easy to understand. The price suddenly tested a limit and failed. Since the limit hold strong, it is likely to move the other way. It is a very fast price movement both up and down. Other way to look at it: if I am a market maker, and I know that the price is likely to go up, than I quickly push the price down (buying quickly everything) to gain a good position.

This later exactly the same activity that technicians (the market maker of a specific stop, the guy in the pit) are doing every morning when the New York Stock Market opens. They might take the price to the opposite direction at the open or for a short time period to take advantage knowing which way the price will move after that.

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