How to Day Trade for a Living

Candlestick Examples
Compared to other forms of representing price action, many traders consider candlestick charts
more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher
picture of price action. A trader can immediately compare the relationship between the open and
close as well as the high and low. The relationship between the open and close is considered
vital information and forms the essence of candlesticks.
Here is my ninth day trading rule:
Rule 9:
Hollow candlesticks, where the close is greater than the open, indicate buying pressure.
Filled candlesticks, where the close is less than the open, indicate selling pressure.
Traders can be divided into three groups: buyers, sellers, and the undecided. Buyers want to pay
as little as possible and sellers want to charge as much as possible. Their permanent conflict is
reflected in bid-ask spreads. “Ask” is what a seller asks for merchandise. “Bid” is what a buyer
offers for that merchandise. Prices are created by masses of traders—buyers, sellers, and
undecided people. The patterns of prices and volume reflect the mass psychology of the
markets. The goal of a successful day trader is to discover the balance of power between buyers
and sellers and bet on the winning group. Fortunately, candlestick charts reflect this fight in
action. A successful day trader is a social psychologist armed with a computer and charting
software. Day trading is the study of mass psychology.
The presence of undecided traders puts pressure on bulls and bears. Buyers and sellers move the
prices fast because they know that they’re surrounded by a crowd of undecided traders who

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could step in and snatch away their deal at any moment. Buyers know that if they think too
long, another trader can step in and buy ahead of them. Sellers know that if they try to hold out
for a higher price, another trader might step in and sell at a lower price. The crowd of undecided
traders makes buyers and sellers more willing to deal with their opponents.
Buyers are buying because they expect prices to rise. Sellers are selling because they expect
prices to fall. Buying by bulls pushes markets up, or as I phrase it, “Buyers are in control.”
Selling by bears pushes the markets down, or as I express it, “Sellers are in control.” Undecided
traders make everything happen faster by creating a sense of urgency among buyers and sellers.
Candlesticks tell us a great deal about the general trend of a stock and the power of buyers or
sellers in the market. Candles are always born neutral. After birth, they can grow to become
either bearish, bullish or, on rare occasions, neither. When a candle is born, traders do not know
what it will become. They may speculate but they do not truly know what a candle is until it
dies (closes). After a candle is born, the battle begins. The bulls and the bears fight it out, and
the candle displays who is winning. If buyers are in control, you will see the candle move up
and form a bullish candle. If sellers are in control of the price, you will see the candle move
down and become a bearish candle. You may be thinking that this is all very obvious, but many
traders don’t see candles as a fight between buyers and sellers. That little candle is an excellent
indicator that tells you who is currently winning the battle, the bulls (buyers) or the bears
(sellers).
Candles with large bodies toward the upside, like the figure below, are very bullish. As you can
see, 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.