As technical traders the information embodied in the candlesticks and outlaid to us by the charting means everything. The charts are not simply a collection of colourful aesthetically pleasing candles, they are an honest display of how each market is actually being priced in real time.
Each candlestick is a physical representation of active trading within that given time period. Whatever shape or ultimate form the candlestick takes, market participants have both entered and/or exited the market as continuous trading occurs. Trading occurs at different prices and it is only when this candles closes we will then, and then only are able to see who ‘won the battle’; the Bulls or the Bears.
Think of this price action as a simple game of tug of war between buyers and sellers. Who won the battle in the candlesticks below?
(Fig.1) 1 Minute Candles (Fig.2) 5 minute candle
The answer is of course… the Bulls. By observing the price we can see that in both the 1 minute candlestick pattern and the 5 minute candlestick the price opened at a lower price and closed at a higher price. We refer to this price rise as bullish move. What is important to note is that the 5 minute candle is in fact formed by 5 separate 1 minute candles of trading. It is in fact the same market. The varied price action characterised by the 1 minute candles simply represents volatility.
This volatility is a result of constant interaction between buyers and sellers and is a fact of market trading. To avoid much of this intraday volatility many traders apply their technical analysis to longer time periods in order to smooth out market price and ignore much of the noise of intraday trading. Consider the volatility in the charts below as a measure of intraday volatility and think how you would react emotionally when trading the different time periods.
If you want to know more about trading the financial markets please refer to The Academy of Financial Trading