What is Raindrop Candle?
Raindrop candle charts are a recent form of a financial chart. They enable you to see how the market is doing from a unique angle. Raindrops form by using similar market data as Japanese candlesticks but add volume into the final image, presenting to you the behavior of price and volume over time.
The left part of a raindrop forms the first half of the period and the second half of the period forms the right side. Individual half is basically a small volume at price or volume profile chart. It has experience tilting at a 90-degree angle.
This allows you to view the way market emotion changes by placing the two halves of the period histogram side by side and making a comparison.
As opposed to the typical candlesticks, raindrops do not have an open or close price. Instead, their formation happens from a high, low, left VWAP and right VWAP. The first half (left part) of each raindrop makes up the first half of the market period.
The second half (right part) makes up the second half of the market. The breadth of each side forms the amount of trading volume that took place at each price mark. It is a new type of price chart that combines price and volume.
Characteristics of Raindrops
- Locate breakouts and Fake-out: raindrops has the capability of revealing to you if there exist a volume behind a move or not. When you see a big green candle breaking out on a traditional chart, the equivalent on a raindrop chart is a small wick. It’s a nudge to be concerned.
- Volume is everything, move along the volume: a blind spot exist in a traditional candlestick. They inform you nothing as regards the strength of a move. Raindrops on the other hand are not so.
- Locate points of market indecision: a perfect way to figure out when a market is attempting to determine which direction to take or when it is confused is by adopting the blue doji raindrops.
- Adopt Raindrop specific patterns: locate the strongest moves by searching for a balloon-shaped raindrops on the chart. Each time volume gathers at an extreme, they form a powerful pattern which is a balloon.
The key difference between Raindrops and Candles
Candles develop using traditional open and close prices, which I see as random price breaks, placed by the passage of time, and having no rare information as regards the price asides from its timestamp. On the other hand, raindrops adopt Left and Right Volume weighted Average prices (VWAPs) rather, which has a deeper height of details about movements in more than just price. It indicates the emotion of a market.
Meaning of the Different Raindrop Colors
- Green raindrop: you can also refer to this as the bullish raindrop. This is when the second half of the period or day. The VWAP is higher than the first half of the day.
- Neutral raindrop: also known as the purple or blue raindrop is essentially a volume based Doji. The first half of the raindrop candle together with the second half of the raindrop candle equals each other as far as VWAP goes.
- Bearish raindrop: this is also known as the red raindrop and it is the opposite of the bullish raindrop. The VWAP of the second half of the raindrop candle is lower than the first half.
Patterns are more effective on bigger timeframes as more volume data is available
Some potential patterns include:
- Directional Flips and Double Flips
- Blue “True” Dojis
Classic patterns will also still work but will become volume-weighted.
The majority of the typical candlesticks create patterns. To fully utilize and benefit from candlestick charts, it is essential that one has a full understanding of them. In the case of raindrops, the charts are naturally easy to understand. What is required is common sense to observe and locate how the market moves from one point of balance to the other. It is vividly seen with volume histogram.
Raindrop chart is a volume-based chart with two sides. The left side is the first half of the period (or day) while the right side in the second half of the period (or day). And rather than making use of an open and close pattern, it uses volume average weight on the left-hand side and likewise volume average weight for the second half of the day. Again, it possesses a volume layer on each side
Raindrops give basic but well-detailed information. You are not required to memorize any pattern or complex rules to have the understanding as it is with the traditional candlestick. Raindrops provide you with a more extensive look into the market’s emotional flow, as it keeps a really low amount of noise.