Indecision Candlestick Patterns
Analysis:
Indecision candles can tell us a lot about the current market conditions. They are important to understand when it comes reading price action and candlestick patterns . They are formed during times of imbalance between bullish and bearish market participants. Buyers and sellers are battling out between each other in order to push price higher or lower. This means that indecision candles can provide us with information into which direction the market is likely to be heading.
One way to think of the formation of indecision candles is; If price is in a downtrend, buyers might start to enter the market when they feel as though the downwards trend has finished. They begin to place buy orders, initially slowing the downwards momentum. Sellers might try to fight back by placing sell orders. This fight between the two results in increased volatility until one of the parties is victorious. During the down trend the sellers are in control, therefore, there are more sellers than buyers. Indecision candles form when there are equal numbers of buyers and sellers meaning that neither are in control of the market. A candle will open at a particular price and be pushed higher by the buyer and then lower by the sellers but ultimately close at or near the original opening price. This created two large wicks above and below a relatively small body.
It is important to understand that, from the formation of these candles, the only certainty is that there is indecision in the market. It does not tell us which party was victorious (buyers or sellers). For that, we must wait for some kind of confirmation which might be via some other trading patterns.
For example, if price is in an uptrend and an indecision candle is formed we could wait for confirmation of a reversal, or trend continuation, in order to see if the bulls or bears are in control. If the indecision candle is followed by a bullish engulfing candle, we could assume that the bulls are still in control after having a brief fight with some sellers. Therefore, we can begin looking for trend continuation setups (buy). If, however, a bearish shooting star candlestick is formed after the indecision candle, we could look at catching the reversal in trend (entering short).
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