Hey guys, in this video I will show you howI read the price action in order to determine if the bulls or the bears are in control ofthe market and we’ll also try to establish the momentum of the market by analyzing thebull and the bear candles during a trend.
So, what is price action? Price action is a representation of a pricemovement on a given chart and in its core it’s basically a representation of the behaviorof the market participants, namely the bulls and the bears.
The bulls want to move the market up, andtheir strength is represented by upward bars and the bears want to move the market down, and their strength is represented by downward bars.
Every bar on a given chart is basically abattle between bulls and bears.
When we read the price action on a chart, we don’t have to over analyze and complicate our trading, we just have to determine whetherthe bulls or the bears are in control of the market.
How we do that? By analyzing the bull bars- the green ones, and the bear bars – the red ones.
Before we begin, let me be clear on something, we will not look at candlestick patterns yet, we will look at much simpler and clearer clues.
So, a market controlled by bulls is oftencharacterized by the following bar patterns: First, then obvious one is that we have morebull bars than bears bars.
When he see this on our charts, this meansthat the bulls have more power and are increasingly moving the market upwardsAlso, we will see consecutive bull bars.
Consecutive bull bars is a clear indicationof a bullish momentum In a bull market, the green bodies are biggerthan the red bodies.
When he see this on our charts that’s asignal that the bulls have more strength than the bears.
Also, during a bull controlled market, wewill see the green bars closing near their highs.
This suggests a good momentum on the upside, because the bulls are trying to maintain the prices higher.
We will also see a lot of wicks below thegreen bars.
This also represents a good signal that thebulls are in control of the market and that are trying to push the prices upwards.
When we see the green bodies getting biggerthis signals a clear bullish momentum.
This kind of price action suggests that thebears are unable to compete with the strength of the bulls.
Also, during a market controlled by bulls, the red bars are getting smaller, as the bears can’t drive the prices down.
Now, let’s look at the bar patterns fora market controlled by the bears.
First, we have more bear bars than bull bars.
This means that the bears have more powerand are moving the market downwards.
Also, we will see consecutive bear bars.
Consecutive bear bars is an obvious indicationof a bearish momentum.
In a bear market, the red bodies are biggerthan the green bodies.
This kind of price action suggests that thatthe bears have more strength than the bulls.
Also, during a bear controlled market, wewill see the closing red bars near their lows.
This price action suggests a good momentumon the downside.
We will also see a lot of wicks above thered bars.
This represents a good signal that the bearsare in control of the market and that are successfully push the prices downwards, despitethe initial reaction of the bulls.
Also, when we see the red bodies getting biggerthis signals a clear bearish momentum.
This is a good indication that the bulls areunable to compete with the strength of the bears.
Also, during a market controlled by bears, the green bars are getting smaller and smaller.
This price action indicates that the bullscan’t drive the prices upward.
Now that we know what to look at when we analyzea chart, let’s take a couple of examples.
Here’s a bull controlled market on the EUR/USDon the daily chart.
For a better overview, we added a 50-periodexponential moving average to gain a better perspective on the market.
Once the price action started to move in higherhighs and higher lows, and the price stabilized above the moving average, the bulls took controlof the market.
We see consecutive bull bars, big body candles, green bars closing near their highs, wicks below the bars, green bars becoming bigger.
As long as the price continues to record higherhighs and higher lows this should be considered a bull controlled market and the only tradingscenario will involve buying positions.
So only long positions during this kind ofprice action.
Here’s a similar example on the pound/yen.
The same price action: market starts to recordhigher highs and higher lows, price action above the 50-period moving average, consecutivebull bars, big body candles, green bars closing near their highs, wicks below the bars, greenbars becoming bigger, red bars getting smaller and smaller.
Here’s a bear controlled market on the EUR/USD.
First we see the price action making lowerhighs and lower lows, as the price closes below the moving average.
At this moment, the bears took control ofthe market.
Observe the consecutive red bars, big redcandles, bear bars closing near their lows, wicks above the bars, red bars becoming bigger.
As long as the price continues to record lowerhighs and lower lows this should be considered a bear controlled market and the only tradingscenario will involve short positions.
In this example, after a strong move downwards, the bulls gained some strength and push the market above the moving average.
At this point, this is no longer a bear controlledmarket.
I hope you learned a few things from thisthat will improve your approach when you trade the market.
Price action is about simplicity and by analyzingthe market this way, you’ll have more clarity about the general outlook of the market.
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Until next time.