Supply and Demand

The price of a market will change from high to low or vice versa according to the supply and demand principles.

Below is a diagram of a green candlestick (Figure 7) represents that the closing price is higher than the opening price on the day.

Figure 7

The colour of the candlestick and size are very important clues in relation to the TRADER'S SENTIMENT towards the future market prices.

What is important here is the key phrase 'trader's sentiment'. Traders can understand another trader’s sentiment by interpreting the information that given by the candlestick charts.

Let's have the Figure 8 as the example. XYZ Company, opened at 25 and closed at 25 3/8.

Figure 8

First of all, the candlestick is in green color, which means that the closing price is higher than the opening price. Let’s understand the mechanism to know what the traders’ sentiment is.

In Figure 8, the stock opens at 25 and then rises up to 25 1/8. The reason behind this is because there is a high demand of stock 25 1/8 but a short supply of sellers at 25 1/8.

Once there is a demand for the stock available at 25 1/8, there is a group of sellers do this offering. The market keeps on rises as there are more buyers than sellers.

This process will keep on going for the stock at 25 1/4 and the market price will keeps on rising until the buyers lost interests in buying any of the stock. As a result, the demand will decrease and the bear market will start soon.

There is one reason why the traders keep on buying a lot of stock as they have a mind that the stock will goes up in the near future. Therefore, a smart candlestick reader is able read other traders’ mind by viewing the candlestick charts. And by then, they thought that the stock price will go higher in the future.