The key to understanding and interacting with the world of Candleverse is how we use candle types to organize and analyze data.

A candle on a chart is visually represented by using the high, low, open, and close. It is then placed on the chart based on its open date and close date. All of these are values associated with that candle.

What you don’t see visually represented is how many other values are associated with that candle. For example, the previous close, the previous previous open, volume, how many visits its website has received, how many social media followers it has gained, how much money it has made, and many more.

Using the data we have, we can then create lots of new values.

We can take all the previous close values and combine them to get an average close of the asset. That’s a new value.

We can then take that average close and find out how far away it is from the close. That’s another new value.

Now we have all these values. How do we understand what they mean? Well, we can run meaningful mathematical analysis to create new numbers with a goal of giving us an indication of where price is going.

We can compare the value we created at the end of the last section, distance the close is away from the average close, to its previous values and now we know if the current candle close is above the average close or below. That’s another new value and gives us a meaningful indication of price direction. If the close is above the average close then the asset is currently performing better than it has in the past.

A lot of traders use values like the close being above the average close to make their trades. For example, they might foresee that value as an indication that the asset is healthy and buy the asset and sell the opposite is true because it means the close is lower than it has historically averaged.

We’ve now reviewed all the different values the current candle can have. We could just stop here and make decisions based on our best guess about whether our indication theories are true.

Wait, if we look at a candle that closed a long time ago, we will find that it contains future data. By future data I mean that it now also stores what happened in the candles after. It knows not only the close and the previous close, but the next close. How could we use this data to help us inform our decisions.

So, now that we have future data, we could test our theories. Let’s say we want to test if buying an asset when the close is above the average close. First, we need to know how many different values exist for that value.

Based on the way we recorded it there could be 3. The close could be “Above”, “Equal”, or “Below” the average close.

In order to run our test, let’s group each candle based on their value.

Group 1: Above. A group of all the candles where the close is above the average close.

Group 2: Equal.

Group 3: Below.

In the Candleverse, we refer to groups as candle types because they each represent a type of candle we are searching for. For this test we will have 3 candle types:

Candle type 1: Above. A group of all the candles where the close is above the average close.

Candle type 2: Equal.

Candle type 3: Below.

Wait let’s say our decision to buy or sell is based off of 2 values. Not only do we want to make a decision based on where the close is in relation to the average close, but we want to also know where the volume is in relation to the average volume.

Now we have 2 values that each have 3 possible values. Our decision tree now has 9 new candle types to test.

Candle type 1: Above and Above. A group of candles where the close is above the average close and volume is above the average volume.

Candle type 2: Above and Equal.

Candle type 3: Above and Below

Candle type 4: Equal and Above.

Candle type 5: Equal and Equal.

Candle type 6: Equal and Below.

Candle type 7: Below and Above.

Candle type 8: Below and Equal.

Candle type 9: Below and Below.

Now go forth and test all the indicators you can. Find out what happened after each candle type.