The midpoint of each and every Candlestick is critical. Some feel the midpoint is the real price and movement above or below the midpoint is just noise. This may be true, but we can use that noise as a diagnostic tool! Many traders use the
midpoint for the setting of all indicators, rather than the close.
As stated, each bar is considered a battle. The close shows the momentum by the half it closes in. Added strength is given, if the close is below the midpoint. The nearer the close is to the edge of the bar, the stronger the momentum! A close at the very edge, with no wick shows the strongest momentum. This generally means the next bar will continue the momentum direction.
If the Bears won, the close would be below the open. The bar would be printed red.
The immediate momentum would be down. If the Bulls won, the close would be higher than the open, preferably with a close above the midpoint, in the upper quarter, and the bar would be green. The Bulls took the prices higher. The immediate momentum would be up.
In the chart below the midpoints are marked on all the bars. There are four white Doji bars with an open and close at the same tick. The first bar on the left, had an open and close at the midpoint. It is a Balance Bar, a real standoff. The second Doji has an open and close above the midpoint but not near its extreme.
This shows a standoff in the battle but the Bulls have a slight upper hand. This is a weak up signal, and notice price continued down. Further to the right, there are two Doji bars with the open and close slightly below the midpoint. This position of the open and close shows a weak signal. Observe the market continued up. This way of marking the Midpoint can be done with the Fibonacci Trading software. It is an indicator called the MPoint and works on any charting method. There are different methods of marking the midpoint.
50 If there is a long upper wick, it means the Bulls took the prices high, but then the Bears took over and drove the prices down. Some call this a Spike Top Reversal Bar (STRB). It is an alert for a reversal. This is because at the close, the Bears were in control. It is stronger, if there have been several up bars preceding the printing of this bar. Here are some examples of Spike Top Reversal Bars. The lower the close the stronger is likelihood of a reversal occurring.
If there is long lower wick, the Bears took the prices down, and then the Bulls took over, and moved the prices up. Some call this a Spike Bottom Reversal Bar
(SBRB). This is an alert for a possible down trend reversal; especially if there have been several down bars before the SBRB. The higher the close the more likely a reversal will occur.
If there is no upper wick on a green bar, that suggests a strong uptrend momentum.
The next bar will probably continue up. If there is no lower wick on a red bar, that
51 suggests a strong down momentum, then the next bar will probably go further down.
The next chart shows how multiple charts can be analyzed. The mid points are shown with the right arrow as a marking symbol. Here the market starting from the left is in an upward momentum. However, there are Dojis, candles with wicks and long ones on every bar. This shows indecision. The Bulls and Bears are in a tug a war, pushing and pulling, a stalemate. Notice how low, the close level is on most all the bars. The midpoint showed the true momentum! At the bar with the orange arrow, there is even a close in the lower half. This is precisely why I feel seeing the close. The Midpoint says the momentum is up. The close gives the tip off
momentum is weak, and to look for a reversal. This shows the upward momentum is very weak, and is a sign of consolidation. This says we are looking for a
Breakout. In this instance The Breakout was to the short side. One would need to look at other indicators to determine a trading action.
52 The chart below gives another example of how the candle sticks are read as a group. There are several green bars showing an up momentum. As we get closer to the top, the wicks get longer. The closes are at or below the midline showing the momentum is weakening. Then there is a white STRB Doji Candlestick and the close is at bottom, the opening. It is marked with the yellow arrow. This says the Bears are winning and pushing the market down. A momentum reversal is
possible. One can see the market did turn down. However, there are still long wicks on the red Candlesticks. This says the reversal is not strong.
Next we will look at multiple candles, and then at groups.
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