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THE MARKET WHISPERER 13 7

Analyzing Japanese Candles

So far, we have seen how prices are presented using Japanese candles.
Now we will discuss the components of the candle: the candle body, and
the tail. Each candle contains information about the balance of power
between buyers and sellers.

Narrow Range Candle

The narrow range candle shows a relatively short distance between the
opening and closing price.

Relatively … compared to what? To the common behavior of the stock
being examined.

Every stock has its own “personality.” A candle can only be defined as
short (narrow) or long (wide) if you observe the stock’s behavior over
a representative timeframe in which you can see the conduct of many
candles.

For a stock such as AAPL, a narrow range intraday candle of five minutes
might be from ten to thirty cents, although by contrast, for most stocks, it
would be considered long range.
• A narrow range candle indicates low volatility.
• A relatively small change in the balance between buyers and sellers

indicates, in many cases, sharp movement anticipated in the near future
in one or the other direction.
• A narrow range candle also indicates that buyers and sellers hold close
to equal force, as occurs with the candle called a “doji.” It is not a perfect
balance, as represented by the doji, but does have clear significance.

A candle has little meaning in and of itself, but becomes more important
when we observe its position in the formation of several candles. For
example, a narrow range candle has one meaning if it follows several
more narrow range candles, and a different meaning following several