Understanding long white candles

One common feature of the long white candle (see Figure 5-1) is an open near the low of the day and a close near the high of the day. This indicates that buying has taken place throughout the day.

Figure 5-2 is an instraday chart of the price action that results in a long white candle on a daily chart. An instraday chart is a chart that depicts the price action during a time period that is less than a day, such as on a 5-minute or 30-minute basis. Each candlestick represents the price action for this subpe-riod of a day. The day that corresponds to Figure 5-2, which is the price action of a single day made up of 30-minute pricing periods, features an opening price near the low of the day and a closing price near the high of the day. A textbook long white candlestick has a long candle with no wick, but that doesn't happen very often, and long candles that have a little wick on either or both ends are still considered long white candles.

Figure 5-1:

A long white candle.

Figure 5-2:

A 30-minute chart that produces a long white candle on a daily chart.

Figure 5-2:

A 30-minute chart that produces a long white candle on a daily chart.

For the day in Figure 5-2, the bulls were in charge from the beginning of the day to the end. There's just no disputing this, because the price does nothing but go higher over the course of the day, and the close is near the high of the day; the bulls will probably stay in charge for the near future. It's just that bullish. You usually have the chance to act on such a case because there may be some trading below the closing price of the long white candle in the next couple of days, and you can place a buy order lower than the closing price but within the range of the long white candle to try to get an attractive entry point.

On a long white candle day, a lot of price action is covered in a very short amount of time. Stocks — and markets for that matter — don't move in one direction without some sort of move in the opposite direction. This normal retracing of prices gives you a chance to act on this bullish signal.

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