The mathematical clues hidden within a SINGLE candlestick
The great market analyst and mathematician, W.D Gann, wrote of the significance of the longest bar (or candlestick) in a market swing. Ethereum's 4-hourly chart gives an intriguing example of the natural proportion that can be found in a single bar, and how those proportions are still dictating market swings.
For this example, to keep to a single chart, the discussion centres around the real body of the longest candle. This is highlighted in the leftmost green box and pointed to by the yellow arrow. This is the most volatile bar in the chart. It has by far the greatest volume and appears the most erratic and out of control. Delve beneath the surface, however, and you will discover that it is actually very precise and orderly in its construction.
For starters, as I'm sure readers are aware, candlesticks are a visual representation of Open, High,Low,Close (OHLC) data. As such, they have two significant ranges: the candlestick range (High - Low) and the real body range (|open - close|). In this candlestick, not shown on the chart, the close price divided the candlestick range exactly into the 0.618:0.318 Fibonacci ratio.
Moving on to the tools shown in the chart, observe the Fibonacci divisions of the real body. These are the white dotted lines derived from the range of the first green box. You will notice that the 1.618 extension marks the support level found at the low of the candlestick. The market later returned to retest this low and again, reversed from it. Take a moment to consider this. The market is working off levels derived not from obvious and prolonged swings, but from levels derived from the real body range of a single bar.
After the retest, the price rises back as far as the close price again, where it finds resistance. Price persists at this level for six whole bars, which is an indication of high-quality price action. When it does eventually break above on the seventh bar, it does so only as far as the 0.618 level of the longest bar. This actually means that the retracement from the retest, that is the distance from point A to point B is equal (in the price axis) to our real body range. This is an excellent example of proportion relating to the longest bar range because the range of a single candlestick is impacting the levels of support and resistance many candlesticks later. Even now, the market has most recently reversed at the 0.618 level and the close price, potentially becoming rangebound between the two. We will see, but it's very likely the market will continue to find degrees of support and resistance from the levels derived from this candlestick.
Conclude from this that there can be valuable predictive information in even a single candlestick that appears to be chaotic.
For this example, to keep to a single chart, the discussion centres around the real body of the longest candle. This is highlighted in the leftmost green box and pointed to by the yellow arrow. This is the most volatile bar in the chart. It has by far the greatest volume and appears the most erratic and out of control. Delve beneath the surface, however, and you will discover that it is actually very precise and orderly in its construction.
For starters, as I'm sure readers are aware, candlesticks are a visual representation of Open, High,Low,Close (OHLC) data. As such, they have two significant ranges: the candlestick range (High - Low) and the real body range (|open - close|). In this candlestick, not shown on the chart, the close price divided the candlestick range exactly into the 0.618:0.318 Fibonacci ratio.
Moving on to the tools shown in the chart, observe the Fibonacci divisions of the real body. These are the white dotted lines derived from the range of the first green box. You will notice that the 1.618 extension marks the support level found at the low of the candlestick. The market later returned to retest this low and again, reversed from it. Take a moment to consider this. The market is working off levels derived not from obvious and prolonged swings, but from levels derived from the real body range of a single bar.
After the retest, the price rises back as far as the close price again, where it finds resistance. Price persists at this level for six whole bars, which is an indication of high-quality price action. When it does eventually break above on the seventh bar, it does so only as far as the 0.618 level of the longest bar. This actually means that the retracement from the retest, that is the distance from point A to point B is equal (in the price axis) to our real body range. This is an excellent example of proportion relating to the longest bar range because the range of a single candlestick is impacting the levels of support and resistance many candlesticks later. Even now, the market has most recently reversed at the 0.618 level and the close price, potentially becoming rangebound between the two. We will see, but it's very likely the market will continue to find degrees of support and resistance from the levels derived from this candlestick.
Conclude from this that there can be valuable predictive information in even a single candlestick that appears to be chaotic.