Candles with large bodies toward the upside, as you will see on the left-hand side of Figure 5.1 above, are very bullish. It means that the buyers are in control of the price action, and it is likely that they’ll keep pushing the price higher. The candle not only tells you the price, it tells you that the bulls are winning and that they have power.
Bearish candles, on the other hand, are any candles that show a bearish body. So what does the bearish candle tell you? It tells you that the sellers are in control of the price action in the market and that buying, or a “long” position, would not be a great idea.
Filled candles that have a big filled body, such as on the right-hand side of Figure 5.1 above, mean that the open was at a high and the close was at a low. This is a good indicator of a bearishness in the market. If you want to go long, you definitely don’t want to go long after seeing a series of big bearish candlesticks. You don’t want to stand in the way of bears. If the price gets really extended and the candlesticks become smaller and smaller, then it might be time to take a reversal if you want to go long.
Just by learning to read candlesticks, you will begin to generate an opinion on the general attitude for a stock. Again, this is called the “price action”. Understanding who is in control of the price is an extremely important skill in day trading. As I mentioned, a successful trader is a social psychologist armed with a computer and trading software. Day trading is the study of mass psychology during the day.
Your job as a successful day trader is to figure out if the sellers will end up in control, or if the buyers will end up in control, and then bet on the winning group. If bulls are much stronger, you should buy and hold. If bears are much stronger, you should sell and sell short. If both camps are about equal in strength, wise traders stand aside. They let the bulls and the bears fight with each other and then enter trades only when they are reasonably certain which side is likely to win. You never want to be on the wrong side of the trade. It is important therefore to learn how to read candlesticks and how to constantly interpret the price action while you are trading.