Everyone should understand this: candlestick charts are not the truth of the market; they are only the traces left behind by the market.

Today I want to talk with you about the essence of trading. Many years ago, when the stock market had just been born, there were no indicators like those in trading software today. There were also no tools such as MACD, Bollinger Bands, or moving average systems. What traders faced was simply a blackboard and constantly changing prices. Someone would buy; someone else would get filled. When the price went up, they recorded a higher number; when the price went down, they recorded a lower number. Back then, people relied more on their understanding of the market environment, the direction of capital flows, and human nature.

With the development of financial markets, candlestick charts and technical indicators gradually became important tools for traders to observe the market. Today, an ordinary investor opens a trading app and can see dozens of indicators and countless pattern-analysis methods. Many people immerse themselves in them every day, looking for so-called “certain signals”: breaking above a resistance level means prices will rise; breaking below support means prices will fall; a golden cross of moving averages means the trend is starting; MACD turning green to red implies a trend reversal.

But the longer you trade, the more many people eventually realize a problem: why, at times, do all indicators look bullish, yet the price suddenly drops? Why, even when a so-called bottom pattern appears, does the market still keep making new lows?

The reason is simple: you people often ignore one most important fact—which is something I’ve been mentioning all along:

Candlesticks are not the cause of price changes; they are the result left after price changes.

A single bullish candle only tells us that the market rose, but it cannot tell us the true reason behind the rise. Was it continuous institutional buying? Did ETF inflows come in? Did macro policy change? Or was it a rapid pump caused by mass liquidations of shorts?

Similarly, a single bearish candle cannot be simply understood as the market getting weaker. It might represent investors panicking and selling, or it might represent large capital using panic sentiment to complete absorbing positions.

Candlesticks record what happened in the market, but what truly drives market changes is the force behind the price.

Many people’s biggest problem is that they turn trading into a “chart-watching game.” Every day they study all kinds of patterns and look for combinations of indicators, yet they rarely think about one question:

Why does capital choose to buy or sell at this position?

When the market rises, it is never because a candlestick chart shows a bullish candle. It rises because there is enough capital willing to buy at higher prices. When the market falls, it is not because an indicator turns green; it is because the selling power in the market exceeds the buying power.

So, a truly mature trading system should not rely only on technicals, and it also cannot rely only on news.

Macroeconomics determines direction; capital determines strength; and technicals determine position.

First, we need to understand why the market changes. Federal Reserve policy, global liquidity, geopolitics, and the flow of institutional capital—these factors determine the broad direction of the market.

Second, we need to observe how the market responds to these factors. With the same good news, sometimes the price rises quickly and then immediately falls, which suggests the market may have traded in advance, and capital chose to realize profits using the good news; while other times, after the price rises, it keeps getting follow-through, which suggests capital may be re-pricing.

Finally, technical analysis plays its true role—helping you find more reasonable entry locations and risk-control locations.

Technical analysis is not a tool for predicting the future; it is a tool for observing market behavior.

Many new traders have the order exactly backwards. They first look at indicators, then at the price, and only at the end do they look for reasons why prices will rise or fall.

That leads to a wrong mindset:

Because the indicator goes up, the price goes up.

But in reality, it’s often because the price is rising that the indicator produces bullish signals.

Indicators are just the mathematical expression of what happened as the market moved.

By the end, you’ll find the market isn’t that complicated. The real difficulty is not finding an indicator that is always correct, but building a way of thinking to understand the market.

Candlesticks aren’t wrong, and indicators aren’t wrong.

What’s wrong is treating the tool as the answer.

Real trading is not predicting what color the next candlestick will be; it’s understanding why the market produced this candlestick.

When you start focusing on the reasons behind the price instead of only the surface fluctuations of the price, you truly begin to get close to the essence of trading.

Candlesticks and indicators are only the results of price, not the cause of price.

When you truly understand what I mean by what I’m saying right now, that’s when you should start trading. Don’t get obsessed with the order book view. Don’t get obsessed with candlesticks. Candlesticks are always only the result of price changes, not the cause!

— Jiang Feng Trading Diary

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