Getting Started with Technical Analysis | Lesson 4

Good morning and welcome this morning to Getting Started with Technical Analysis. My name is Ben Watson. I'm an education coach and senior manager here at Charles Schwab, and I am joined out there in the chat by my good friend, Scott Thompson. I just wanted to make sure I knew who was in the chat. Scott is a 20-plus year veteran of the financial markets. He is a phenomenal educator. If you have not had an opportunity to join his His trading webcast, I will point that out here in just a few minutes, but he has a phenomenal getting started. with Trading Webcast and does a great job with that and is a phenomenal educator. He's there to help answer your questions. Welcome to all of you.

We're glad that you are here with us, whether you're in the live version or in the recorded version. Thank you for being here. We're going to get into a couple of quick housekeeping items here to get started, but I just wanted to remind everybody, this is the fourth of a nine-part series in this playlist, Getting Started with Technical Analysis. We're going to be talking about candlesticks today. So we're going to dig deep into the way that candlesticks work, the construction of candlesticks. We're going to dispel some of the mythology around candlesticks as well. and use that idea of candlestick patterns and candlesticks and what they tell us as a way to help make more informed investing and trading decisions. And that's been the theme and continues to be the theme of this Getting Started with Technical Analysis webcast series.

So let's jump right into this discussion today. A couple of quick housekeeping items, as I mentioned. Remember, everything we talk about simply for illustrative and educational purposes only. advice. If we do happen to talk about options content, which I don't think that we will today, but if it does happen to come up. Remember that options carry a high level of risk. They're not suitable for all investors. Make sure that you're aware of the characteristics and risks of standardized options before considering any option transaction. Now, a lot of different ways to look at the market. Technical analysis is only one of them. They are all, all theoretical in nature. None of those are guaranteed. But Schwab does not recommend the use of technical analysis as a sole means of investment research.

Remember that the paper money platform, specifically the Thinkorswim desktop software platform, which we're going to be using today, and specifically the paper money version of that. It's a great educational tool, great learning environment. However, it is not a guarantee of future success out there in the real world. Also remember that there are some things that the live trading account will do that the paper trading account or the paper money account will not do. So as you move your practice from paper trading to live trading, understand that there are some differences and be aware of that. Investing involves risk, including the loss of principal. Past performance of any security or strategy does not guarantee future results or success. Quick note, if we do happen to talk about stop losses, which we may because candlesticks do play into that concept.

Remember that stop orders do not guarantee the execution price. So a stop order triggers either a market order or a limit order. Market order may get filled at a vastly different price. A limit order may not get filled at all. So we'll talk about that when that specific circumstance or if that specific circumstance comes. up in this discussion. So here is, again, as I said, number four of nine. Last week, we talked about support and resistance. Before that, we talked about trends. Before that, we talked about the introduction to technical analysis. Next week, we're going to talk about price patterns, specifically flag patterns. Then we're going to talk about pendants and triangles and then channels and reversal patterns. And then technical indicators. So you see the nine-part series here in this discussion.

We are on session number four today, talking a little bit about candlesticks. So as we get into this discussion, a couple of things. This is a starting point. This is a beginning-level webcast. However, if you've been doing technical analysis for a while, I'm going to encourage you to stick around because there will likely be some nuances. that you will take away from this. If you are brand new, this is the place to be. We're going to go through from start to finish in terms of the discussion of candlesticks today and in largely technical analysis in general. That's the reason for this getting started playlist. Now, by the way. I'm just going to mention a couple of things as we are here at this particular point. One, you can follow me.

You can follow Scott. You can follow all of the other education coaches on X. My X handle is at BenWatsonCS. Scott's is at ScottThompsonCS. All the other coaches follow similar naming conventions, so you can find us there on X. Great place to connect with us and as well participate in some of the conversations and the content that we provide there on. Also, I'm going to encourage you to click on the subscribe button down at the bottom of the page if you have not done so already. I'm going to mention that again here in just a few minutes, but I wanted to bring that out. Click on that subscribe button. It's a great way to follow us. It's a great way to stay connected, and it's at no cost to you.

So let's get into the next. uh section of this discussion which is really kind of getting into this understanding of candlesticks i'm going to be using my annotation tools my specifically specifically my annotation tools and my magic marker here. in the WebEx meeting just so that you can see what we're talking about. But this is the basic element of a candlestick. And to really begin, one of the things that we know about is that we have really four points throughout a day in terms of or throughout a period of trading. We have an open and a close and we have a high and a low. So where those open and close points are, where those highs and lows are, that helps us to understand what the candlestick is doing.

Typically, remember, we in the Western world, we read from left to right. And so we read a candlestick from left to right. So we've got a left-right orientation. That means we're always going to see the open. of the candlestick over here on the left-hand side, we're always going to see the closing price on the right-hand side if we're looking at candlesticks in that relationship in terms of that typical progression of price and time from left-hand side to right-hand side. Now, there's one relationship in terms of a candlestick that is. that is somewhat fixed from this standpoint, and that is high and low. So the high is always going to be on top. We'll talk more about this in just a moment.

But the high is always going to be on top, and the low is always going to be on the bottom. And we know that. So we know where the high and the low are going to be. What we don't know is where in relationship to those open and close are going to be. We do know that they're going to be left and right. So if we were to have a candlestick where the opening price was down here at the bottom of the body. And the body is the rectangle that fills in. This is where price moves from the open to the close. If our open is down here at the bottom left and our close is up here at the top. Right. And this is going to be an upward moving candlestick, right?

Because price opened here and it moved throughout the day to that close. And oftentimes what's going to happen is that candlestick is going to fill in in a green color. Now, it doesn't have to be green. You can choose whatever colors you want for your candlesticks. If you want to have your favorite team colors, your wedding colors, whatever it is you want to have, you can make your candlesticks that color as long as you've got two contrasting colors. I'll show you how to do that when we get to the platform. But if we've got a candlestick where the open is lower than the close, then that is, again, an upward moving candlestick. Now, the high again is always going to be on top. The low is always going to be on the bottom.

And as we look at this. You know, that's the kind of basic relationship. Now, if on the other hand. Our. Open is up here. and our close is down here, then that's going to be a downward moving or a bearish candlestick. And if that's the case, then oftentimes. This candle is going to fill in with red. So open higher than the close. Again, remember, we've got a left-right translation. So we're reading left to right. Open higher than the close. And that's gonna give us a red candlestick. Now, once again, the high is always gonna be at the top. and the low is always gonna be at the bottom. That's the relationship between open and close, high and low, left and right, and open higher or lower than the close.

So if we open high and it closed low, that's going to be a bearish candlestick. And again, we're going to measure that in terms of the body of the candle. Now that we have that basic relationship in place, and again, it doesn't matter. It doesn't have to be red. It can be a different color just as long as it contrasts with the color that you use for the upward moving candlestick. Now, I tend to be a little more bullish just by nature. So I'm going to change my magic marker back to green. That doesn't mean that every candle is going to be green. Doesn't mean that every candle is going to be red. But let's take a look at what our next idea is here, and that is that relationship.

between that high and low and the range of the trading day. So again, we're going to have those highs and lows. The high is always going to be at the top. The low is always going to be down at the bottom. And so we might have an open here. We might have an open here. And we might have a close here. Or we might have a close here. It doesn't matter. And it doesn't matter what color the candlestick is. we're going to have a high and a low, right? So that high and that low are going to be always in that relationship. Now, the distance between the body of the candle and that high and that low, we sometimes refer to as shadows or wicks.

But that helps us to judge the nature of the move of this candle. so if we have long shadows or long wicks that can be an indication of sometimes a failed move Because if you think about what's going on, if this candle, let me clear this annotation. We'll just kind of walk through a day in the life of this candle. Let's say it opens here. and it closes here. So that would be a bullish candle. This would likely be a green candle. Our high is gonna be up here. And our low is going to be here. That means the candlestick opened at this point. And throughout the day or throughout the trading period, price got pushed all the way up to here. And then. sellers pushed the price at least some point all the way down here.

Now, it could have happened in the opposite order. It could have been that the sellers pushed it all the way down to there and then rallied it back up. Doesn't matter. But at the end of the day, the price closed right here. So what this would then suggest is that price ended up right there. It opened up here and it ended up there. So you had two failed moves here. You had two failed moves. You had a failed move to that high, which came back down. And you had a failed move down to the low, which came back up. In this case, it wasn't very significant. But if you have longer shadows top and bottom, that might be more significant. And we'll talk about that as we get into some specific circumstances.

So let's clear those annotations. And let's move to the next step. Now, we talked about that white or green or red gives us that idea. Now, in terms of that relationship, we talked a little bit about that. That's already in the case. That would be a green candle. The color in terms of the – now, remember, we're doing this in black and white here. It's a contrasting color. Black or red bodies show a lower close than the open. We already had that in terms of that move. Now, Ron asks a phenomenal question. All right. Ron asked a great question. Is there a proven statistical difference in using candlesticks versus bar charts, or is it a matter of preference? I think it's a matter of preference.

Candlesticks tell us the same thing that a bar chart does, just in a different way. They just fill in part of the information to give us more detail. Not that it gives us better detail. It's giving us the same information. So there really isn't an advantage in that particular case. Now, David asks an interesting question. Is there a variation in which the wicks can be placed horizontally to indicate when during the trading day they occurred? Not that I know of. But what we can always do is reduce our trading time frame or the displayed time frame and see where that happened throughout the day. So if we're looking at daily candlesticks or daily bars or daily candles, which we're focusing on. we can shift our view to five-minute candles or one-minute candles.

30-minute candles, one-hour candles, something sub the timeframe that we were looking at, and we could get a sense of when those things occurred. David, so good question to ask. So, all right. So now that we've got this relationship, this is using black and white. We use red and green. Doesn't matter. You can use whatever colors you want. Like I said, that specific color does not matter. It can be whatever you want it to be. It can be. It can be blue, it can be violet, whatever you want it to be. Now, let's talk a little bit about how we might interpret candles and what they can tell us. So there are, Randy, to your question, there are candle displays and the way that you can display candles that would show candle trends.

And there's a way of charting using what's called candle trends. that displays information a little bit differently. There's equal volume candles. There's Heiken Ashi candles. There's a lot of different variations. And there's a lot of different mythology around this. So in terms of the kind of basic perspective here, what I want to look at is now the difference between the size. of the candles. And in this slide, I think this is kind of effective, right? It gives us a large candle versus a small candle. So large and small are relative terms. So you have to keep that in mind. Large isn't a specific numerical or percentage range. Small is not a specific numerical or percentage range. But the only way that I know that a small candle is a small candle is by looking at other candles around it.

If it is smaller than the other candles that you're seeing, then it's a small candle. If it's larger than the other candles around it, then it's a large candle. That's it. So. It's relative. It's a relative term. Speaking of being relative. Yeah. We've got a feedback survey out there in the chat. It is relatively important that you fill that feedback survey out. Let us know what you think. So click on that link. open up that page, set it aside if you'd like to, or you can wait till the end of the webcast and you can fill that survey out. But that helps us out to make these sessions better. It's right there. Scott's going to pin that to the top of the chat so that you can get to it.

So don't forget to do that. That is relatively important in the context of our discussion. Now, one of the things that I want to talk about here really quickly, and then we'll look at this on the chart, is when we see large candles, that can oftentimes be an indication of momentum. So larger candles than other candles is generally an indication of momentum in a particular direction. So if we see large green candles, or as this slide is showing large white candles, that's an indication of bullish momentum. That momentum begins to slow as the candles start to get smaller. So what is momentum? It's the oomph behind the directional price move. Cool. Okay. I like that. that helps me to understand why these candles are important. They can give us that indication of momentum.

If we look at the other direction, right? Large black or red candles indicate heavy selling, and a smaller candle indicates a slowdown in that downward momentum. So we see that same kind of relationship here. So there's a couple of elements that we're going to see in this discussion. I'm going to pop out to the Thinkorswim desktop software platform here really quickly. We're going to take a look at an individual stock, and we're going to see what those candles look like. Now, this is a stock that is familiar to some of you, maybe most of you. I don't know all of you. But many of you have probably seen this before. This is Tesla. And the reason I chose this is not because I'm necessarily bullish or bearish on Tesla.

It is because it displays. a variety of different types of candles. So let's start with a candle that is giving us an indication of kind of that body and shadow or wick relationship. So I'm going to choose a candle kind of right here in the middle of the range, and I'm going to zoom down into that candle right there. I'm going to zoom in even a little bit more. And if you remember what we were just looking at in the slides, this is a good representation of what we were looking at. In this particular case, the open is over here because it's a green candle, and the close is over here. The high was up here. And the low was down here. Now I'm going to contrast that with a couple of other candles.

So I'm going to contrast that with candle that happened previous. So if I clear those annotations, we know where that candle moved through the day. This red candle that was immediately previous to it opened here, closed down here. Its high was up here just about the same point that the opening price was, and the low was down here. Smaller shadow or wick on the top, larger wick or shadow on the bottom. daily candles. Now, that's the great thing about candles. And I was just kind of alluding to that. A moment ago is that candlesticks and what they tell us. And the interpretation of those candles is fungible across different time frames. So if I were to change this chart to a weekly time frame, if I were to change the aggregation period of the chart to a week.

And click on OK. Then each one of these candles now becomes a weekly candle. It's representing a week's worth of trading data. If I were to change the aggregation period to a month. Now each one of these candles represents one month of trading. It incorporates a lot more information. But you still see that same relationship, the highs and the lows and the open and the close. But if I change this now down to a shorter time frame, so let's go back down here to, say, for instance, let's make this a daily candle. And let's change our time frame now down here. I'm just going to pick one from my favorites. Five day, five minute. Now each one of these candles represents five minutes of trading.

And so I'm going to look at the five day, five minute time frame here. And we're going to just zoom in. candles. Each one of these candles represents five minutes. So what I can see is that throughout the day, today, in today's trading, the price opened right here at 308.99. It went down. It went back up, and it created a new high. The high was up here at 312. It went back down. It went into the middle. It went sideways. And so far right now, it's kind of sitting right here. Now, if this were the close of today's candle, Today's daily candle, our closing price would be just a little bit higher than our opening price. And this would be a bullish candle or it would be a green candle, but it would be a very thin green candle.

So you can kind of see that relationship. So David T., that goes back to your question about being able to see when those moves happen throughout the day. Most of the move happened to the highs and lows of this candle early on in the trading session, within the first like 20 minutes or so. We saw that move to the high and the low. All right, so that's a five-minute candle. And if we really wanted to get frenetic about this, we could go to a one-day, one-minute candle, and we could see those one-day, one-minute candles. It gives us roughly the same information, just each one of these candles represents one minute in terms of that time frame. So let's pop back over here.

Let's go to our one-day, one-minute candles. Excuse me, this is our one-year daily candles. Now let's take a look at the difference between size of these candles. So I want you to look at a couple of different candles here with me. I want you to compare two candles with me in terms of the size of the candle. I want you to compare this candle right here. with this candle today. What do you notice? That candle back here was a much bigger candle relative to the one we're seeing today. So this candle gives us an idea perhaps where we're seeing this big move to the downside that there was a lot of momentum going on. There was a lot of downside momentum in that candle, which means that there was a lot of selling pressure.

This candle right here was also a larger candle. That means that there was probably a lot of buying pressure. This is a larger candle, buying pressure. This is a larger candle, buying pressure. Today's a little bit of smaller candle. Kind of moving sideways, kind of not a lot of move one direction or the other, not a lot of momentum behind that candle. So there's something that oftentimes happens, and this is part of the nature of candles, just like it's the nature of a scorpion to sting. It is the nature of candlesticks when those candles or when price gets near a level of support or resistance to have a tendency. to give us smaller candles, more equilibrium or balanced type candles than when the stock is moving in a trend.

So you notice that in this particular case, let me grab my magic marker one more time here. that when the stock is in a trend, moving from that support level to the resistance level, that these candles are generally a little bit larger. There's more momentum going on. Then when the price runs into that resistance, those candles become a little bit more equilibrium. Then we get this big gap to the downside, and then it rallies back up, and then it moves back down. And you notice right now, sitting on this level of support, this diagonal trend line that I've drawn in there, you've got a couple of neutral candles. a lot of movement coming from those candles. So that can tell you, that can give you some insight as to kind of what the nature of the price movement is.

And that's one of the great things about candles is they give us some insight into that daily struggle, that battle back and forth between the bulls and the bears. but it can also give us an insight into kind of the strength of a trend. If you were looking at a trend that's moving and you have a lot of big candles. That can be an indication that that trend is strong. And when you then start to see those candles becoming smaller and smaller and smaller, it could mean that the momentum for that trend is waning a little bit. and has the potential to possibly change. So look for. As a technically informed trader, look for the type of candle. as it approaches a level of support or resistance, like we talked about last week.

Draw those lines of support and resistance in. Learn where those levels are. Learn how to identify those levels. And now start to look at candles at levels of support and resistance as an indication of what might happen. Doesn't always. There is no guarantee. And one individual candle by itself. oftentimes not enough to tell us what is going on. Candles are relative. So probability trader asks a great question. Could we use Fibonacci tool? Well, yeah, you could because Fibonacci tools are just another way to identify levels of support and resistance. So looking at what the candlesticks are doing relative to where those Fibonacci levels are, simply another way to confirm where those levels of support and resistance are. So it doesn't matter what technical indicator you're using. To draw. Levels of support and resistance.

What's important in this discussion today, because remember, this is four out of nine. We're speaking specifically about candlesticks today. The important thing is what those candlesticks are doing relative to levels of support and resistance. So as we start to see this price kind of moving into that range, that becomes an important level. Now, there's something to think about here, too. Remember we talked about those failed moves? We talked about the idea that price, when it gets to a particular level, when it gets to, say, for instance, a level of support, that candlestick might do something. it might give us some kind of an indication of a failed move. So I want you to look at this particular candlestick. I'm going to come back a little bit in terms of time.

I'm going to come back. to this time frame right back here. We're back into the October time frame. And I'm going to draw a horizontal support level across here where prices changed direction before. And again, remember, not too particular, not too precise. I'm not measuring this to the penny. The sick. precision, but I want you to look at this particular candle right here, and I'll zoom in on this candle. This candle right here, and you can see what's going on here. Let me grab my magic marker one more time. And we'll kind of point out the path of this candle. It opened up here. We know that because it's a red candle. It opened on the left. It closed on the right. It opened higher than it closed. That's why it's red.

Okay. Now, Y Left asks this question, is there a default script that can indicate buy or sell? I know what's buy or sell on this candle because I know what color it is. I know where it opened and I know where it closed. That means that selling pressure was stronger than buying pressure over the course of this candle. What it also tells me is that Price got pushed all the way down here to the low, and then at some point got pushed up here to the high. But that also means that buyers stepped in. Buyers.

How do I know that? Because the price went from that low up here and eventually closed right there. It doesn't matter if it went higher and then came back down or if it just went up to that level. At the end of the day, when the time ran out, that's where the closing price was. So what I know is that sellers were at some point in control. Buyers took over and pushed that price back up. Now, it doesn't mean that price has to change direction, but notice where it occurred. It occurred at a level of support. Now, some news perhaps came out and pushed that price a little bit lower the next day. lower the next day. And as we start to see that move, again, the scenario is here.

This is a possible, this is a type of candle that is oftentimes referred to. Let me clear those annotations so that you can see it. This is oftentimes referred to as a hammer candle. or a hammer-like candle. It's got a long shadow to the bottom. In this particular case, it could be flipped over and it can have a long shadow or wick to the top, and it would be an inverted hammer or a shooting star. It can occur at a level of support or a level of resistance. But the implication of this candle, never a guarantee, is that price changed direction, bears and the bulls, sellers and the buyers. And the implication is upward movement. It didn't happen in this particular case. It eventually broke down through that level of support the next day.

but it can be an indication of a potential reversal. So some technically driven traders will look for hammer candles or hammer-like candles. at levels of support or levels of resistance to give us an indication of that possible reversal. So that is one particular type of candle. The other type of candle that I wanted to point out was the type of candle that we're seeing today. And these two candles that we've seen the last two days here on Tesla. notice that they have a very, very narrow range in between the open and the close. And they have a high and they have a low and they have a high and they have a low. And those highs and lows are pretty spread apart.

Oftentimes, this type of candle we refer to as a doji, D-O-J-I, Japanese name for balance. Doji candle. You don't have to call it a doji candle. You can call it a blue dolphin. It does not matter. What matters is you understand what that candlestick pattern means or what that candle means. It means that there's roughly balance. between buyers and sellers. Sellers pushed down, buyers pushed up, and at the end of the day, they ended up in just about an equal balance between those buyers and sellers. Now, this candle that is happening today was a doji candle just a few moments ago when we looked at it. It now certainly seems as if buyers are pushing price up at the moment. Doesn't mean they're going to keep it there.

Doesn't mean that's where it's going to stay. Could end up closing lower. Could end up closing higher. Could end up closing exactly where it opened. And that would give us some semblance of understanding of who's in control, buyers or sellers. Doesn't guarantee what's going to happen tomorrow. But it gives us some insight into who's in control right now. So if you were a buyer. If a trader was a buyer looking for some information about getting into a trade or getting out of a trade, a candle that was showing or starting to show some momentum, as this one is, might be an indication of when that buyer could potentially enter a trade. So we're going to do that. We're starting to gain some upward momentum here on this candle.

I'm going to go ahead and click on buy. And we're going to create an order here to buy some shares of this particular stock. And so I'm going to put this in my market drive group, just a placeholder there. We're going to look at buying 100 shares. And again, this is not a recommendation, simply an illustrative and educational example. We're going to go ahead and buy that on the strength of that upward moving candle. Speaking of strength, we've got that survey out there in the chat. I would love to have you fill that out. Do me a favor, just click on that link, set it aside, and come back to it if you'd like. But this is a great way. And Scott, and I'm glad that Scott is doing this.

He's got a great webcast and a short video that talks about using a candlestick as an indication for a bounce entry into the trade. Yeah, you could have a close above the high of the low day. Yeah, for sure. In this particular case, if it were to close there, that would be potentially that hold close above the high of the low day. You know, I wanted to look at another stock here, and that is this one. And this is one that is giving us some interesting candles. I just talked about this on the Schwab Network. in the Next Gen Investing Show. By the way, Schwab Network brought to us by our media affiliate, Charles Schwab Media Productions. And I talked about Disney perhaps running into a little bit of a resistance level here.

and giving us a candle that maybe was changing the nature of what's going on. So we saw a big move to the downside. We saw a gap down into a support level, a hammer-like candle. Maybe that's a little bit of a Thor's hammer since it's Disney. And then we see some upward momentum following on from that shift between sellers pushing down and buyers stepping in and pushing price up. And now all of a sudden we see this momentum running into this resistance level again. And we get. The same type of candle. Notice that this candle is almost the twin to this candle two days ago. in terms of its nature, but it's occurring at a level of resistance and not at a level of support.

So that might be an indication potentially of a reversal. We might call this a hanging man candle. Because it's occurring at a level of resistance. Does not necessarily indicate that we're going to see a breakthrough of that resistance. Because what's happening is prices stopping at this resistance level. If this candle were flipped over, if we were to see a candle that looked like this. at this resistance level. Candle that looked like this. and had a long shadow up here to the top and a short shadow or wick down here at the bottom, we might call that a shooting star candle. And that might be an indication of buyers pushing price higher and then sellers coming back in and pushing that price back down. That might be a slightly more bearish implication.

But now that you have an understanding of kind of what the candlestick tells us. in terms of that movement of price. From there, you can start to put this into your kind of visual checklist. When you look at a stock, when you look at levels of support and resistance and you start to incorporate things like trend and support and resistance and now momentum as indicated by a particular candle. Huh, okay, I like that. So if we were to go to a company, let's look at another stock here. And I'm going to bring up this one, Caterpillar. cat. And I thought this was really interesting. As a matter of fact, I talked about this on the network early this morning in the Morning Movers show.

Again, Schwab Network brought to us by our media affiliate, Charles Schwab Media Productions, separate but affiliated company. But I noticed that these types of candles were happening at this level of resistance. And this is kind of cool because we have an upward trend. So if we were to put on here, say, for instance, a moving average, we've talked a little bit about moving averages. Let's just grab a moving average here. Simple, simple moving average. Let's put on here, say, for instance, a 30 period simple moving average. I'll make that a little bit larger. Click on OK and apply and OK. that trend giving us an indication of upward movement. We've got some candles here along the way. They're pretty big candles. But you notice as they run into these levels of resistance, the nature of those candles changes.

It becomes a little bit of an indication of some downward momentum. So part of the important takeaway from this and part of the mythology is that a candlestick or a candlestick pattern, when we start to look at these in conjunction with one another, we see an equilibrium or what we call a spinning top type of candle. And then that's followed by a bearish candle. that that indicates a reversal. Well, it kind of did because we got a downward candle the next day, but there's no guarantee that that's going to continue. So you got to remember that using individual candles or even candles in multiples, you start to put those candlesticks together into other more complex candlestick patterns. They are never a guarantee of directional price movement because news always changes.

the characteristics and the nature of price movement. So you can look at a candlestick pattern as an indication, but don't look at it in a vacuum. Don't look at it as, hey, I have a bearish engulfing pattern. That means this stock is reversing and it's just going to crack down. It doesn't mean that. We did get some downward movement, but that's all it got out of it. So let's look at the current time frame. And we can get kind of these candles where we get equilibrium, and then we get a shooting star, and then we get a little bit of downward movement into a hammer-like candle. We get some upward movement. We get some more shooting star action going on here, but a big bullish candle.

So that may mean some bullish movement to the upside because it's bigger than the previous candle. Who's in control? I don't know. And that is because these candles are giving us some indication of that back and forth. No one side, buyers or sellers here, are in control. And you notice what's going on. This is happening at a level. of support and resistance in this case at a level of resistance So this would be maybe considered to be the lack of a trend or a sideways trend. Um. If this were occurring at a level of support, again, same type of thing. That's very likely going to be an indication of a sideways trend. Where we see those trends occurring is where we get those larger momentum candles that are typically moving in a directional fashion.

Now, we had an earnings announcement today on this particular stock. So this candle today may have maybe a little bit more validity in terms of, are we going to see some follow through? Or are we going to see price moving back in a downward direction? Still, no guarantee of that. No guarantee of that. So as we start to see a candle like this, that is what we would refer to as an engulfing candle, meaning the size of this candle that we're seeing today here on Caterpillar engulfs the range of the previous candle from yesterday. That can often be a bullish indication. It's a green bullish candle engulfing a previous green candle. That's a bullish engulfing candle. If this candle were red. and it engulfed that previous candle, that would be a bearish engulfing candle.

So now let's just kind of summarize. We know where the high. And the low are for the day so far. Day's not done. Those highs or lows could be taken out. We know at least at this point, the open was right here and the close was right here, or at least. where we would, if the time ran out and the bell rang right now, that's where the closing price would be. It hasn't closed yet, but we know that that's where it is. This could still turn into a red candle, and that's the nature of candles. They can change. So we know the difference between a big candle and a small candle is all relative. We know the names of some candles. Again, it doesn't matter. The specific name is not important.

There's some great poetic Japanese names that go along with these candles, but that's part of the mythology. You can call them whatever you want, as long as you understand the daily battle between the bulls. and the bears. And so let's do this. Let's pop over here for more information. We're going to go to the Trader Talks webcast page. And if you want to type in right here, candles. You're going to get a bunch of webcasts that talk about. Different types of candlestick patterns, different types of candles. You're going to see there's, I think this is hammer versus hanging main candles, same look, different meaning. Heiken Ashi candles, planning short-term stock trades. Thank you so much.

stuff here. My thanks once again to my good friend Scott Thompson for helping out in the chat. My thanks to all of you for being here. Make sure you click on that feedback survey. That's going to help us out. And if you like this webcast today, click on the like button as well as hitting subscribe if you have not done so already. Thanks to our great production staff. We'll see you guys again back here next week. Take care, everybody. Bye-bye.