Symbols Numerics

K (fast) stochastic oscillators, 263 D (slow) stochastic oscillators, 263 5-day moving average, 253-254, 256, 257, 258-260 10-day moving average, 259-260 20-day moving average, 255, 256, 258-260 24-hour electronic trading high and low prices, futures, 36-37 volume, relationship to, 25 30-minute chart, 74-75 200-day moving average, 253 abandoned baby bearish, 229-231 bullish, 199-201 affordability and trading choices, 15 after-hours trading high and low prices, futures, 36-37 volume,...

Technical indicators

Numerous technical indicators may automatically appear on the charts you generate. Technical indicators are ways of analyzing current trends in the market in hopes of being able to predict future trends. You can usually expect to see some sort of average of closing prices (a moving average), and possibly another basic technical indicator, on a chart. Don't let them rattle you, because you can remove them if you want, or even better alter them to your personal preferences. (I discuss a variety...

Deciphering dividend dates

When it comes to dividends, consider four important dates l The date the dividend is declared by a company I The date the stock trades with an adjustment for the dividend, or the exdividend date If you own a stock the day before the ex-dividend date, then you receive the dividend. If you buy it on the ex-dividend date, you don't receive the dividend. For trading purposes, focus on the day before the ex-dividend date, because that's when you want to own the stock to receive the dividend. The...

Getting Familiar with Candlestick Charting and Technical Analysis

In the first part of this book, I introduce candlestick charting and some other basic charting concepts. You may be wondering what advantages candlesticks have over other types of charts. Believe me, the rewards are plenty, and you can read all about them in Chapter 2. Want to know what price data elements are combined to generate a candlestick That's all contained in Chapter 3, along with some information on how to embrace the other types of data that you may run into when reviewing...

Working with Simple Candlestick Patterns

Part II features descriptions and explanations of some of the most basic and common candlestick patterns. The simplest candlestick patterns involve just one day or one period of price data, and you can find information on those patterns in Chapters 5 and 6. Two-stick candlestick patterns are one step up from those basic patterns, but just a single step up in complexity can provide quite a bit of additional information and versatility. Some extremely helpful two-stick candlestick patterns pop up...

Picking short entry points with the RSI and candlesticks

Candlestick Patterns Entry Exit

When using the RSI combined with a candlestick pattern to pick a good time to enter a short position, you want to see an RSI reading over 70 (or your personal overbought level) that coincides with the formation of a bearish candlestick pattern. If you have your eye on a chart and you see those two things come together, get your short pants on (That's just a figure of speech, of course I encourage everyone to wear pants of an appropriate length while trading.) What better way to master these...

Using the RSI to help pick a long entry point

In this section, Figure 12-1 provides a solid example of the type of situation that calls for using the RSI in combination with a bullish reversal pattern. This chart is from Applied Materials (AMAT), which is a very large technology company that creates machinery used to manufacture semiconductors. The free-wheeling, rock 'n' rollin', throw-caution-to-the-wind experts in this industry refer to it as the semiconductor equipment industry. A three inside up reversal pattern appears after a couple...

Admitting the Potential Candlestick Charting Risks

After more than 15 years of using candlestick charts to inform my trading decisions, I can honestly say that I have a difficult time coming up with any substantial arguments for using other common types of charts over candlestick. In the interest of fairness, however, and to help you realize the truly versatile and useful nature of candlesticks, I offer a couple of minor potential chinks in the candlestick chart's armor 1 They don't work in the very short term. Candlestick charts are an...

Recognizing the Many Benefits of Candlestick Charting

Trading, investing, and charting styles are plentiful. You can spend hours debating what type of approach to the markets is the best. For me, and for a growing number of other traders, the benefits of a candlestick chart versus other types of charts aren't really debatable. Let me tell you why. Changes and developments in the way stocks and other securities are traded (and when they're traded) have made trading an increasingly complex undertaking. (For more info, see the nearby sidebar, What...

Finding the data for your chart

Before you can create an Excel candlestick chart, you need to compile the right data. There are multiple sources for data, and a quick Internet search can turn up dozens of options, some of which I explore earlier in this chapter. (See Turning to the Web for Candlestick Charting Resources.) Of those options, I typically use Yahoo Finance for its ease of use, and that's the source I proceed with in this section. (See the section Using Yahoo Finance for charting, trading, and investing.) To get...

Points and confirm trends

Because trendlines are so useful for trend confirmation, you can trade with confidence when you combine bullish trendlines with bullish candlestick patterns. That tandem can help you decide when to stick with a position or initiate a new one. It's pretty obvious where a trendline should be drawn on a chart, but sometimes you may question its placement. Don't stress about it too much, because as a trend goes along and changes, you can always alter the trendline accordingly. I present a couple of...

Combining Patterns and Indicators

I begin Part IV with Chapter 11, which offers a more in-depth discussion of several other technical indicators. It's useful for any trader to understand a variety of indicators because you can use them alone, to confirm your candlestick signals, and in combination with candlestick patterns. Although candlestick patterns alone have proven to be reliable trading tools, using them in combination with other indicators can greatly enhance their ability to predict the future direction of a market or...

The bullish squeeze alert pattern

Squeeze Pattern

The bullish squeeze alert pattern is one of my very favorite bullish patterns. It's a versatile three-stick pattern, and it pops up on a relatively frequent basis, meaning that the opportunities to trade it are more common than some of the other patterns I discuss. Spotting the bullish squeeze alert pattern The rules that govern the formation of a bullish squeeze alert allow for a little wiggle room. The strictest rule is that the first day of the pattern must be a down day. After that, the...

The bearish squeeze alert pattern

Like its bullish counterpart from Chapter 9, I'm fond of the bearish squeeze alert. This signal either works or doesn't work quickly, and it appears frequently because the criteria for the pattern are relatively flexible. Familiarizing yourself with the bearish squeeze alert pattern The bearish squeeze alert pattern can take on a few different forms, and you can get a feel for one of them by reviewing Figure 10-16. The first day of the pattern has to be a down day, and the longer the better....

Combining three moving averages

Two moving averages can be pretty useful company, but is three a crowd Who really needs to use three moving averages Believe it or not, some very successful longer term trading systems make comparisons using three moving averages. The technique is useful because it allows the market to be defined as having no trend, as opposed to either an up or downtrend. You may be thinking, No trend The market and stock prices change daily There has to be a trend But some markets (and individual stocks in...

Realizing the advantages of candlestick charting

You'd be hard pressed to find someone who's more enthusiastic about candlestick charting than yours truly. I can go on and on about the advantages that candlesticks afford. If you want to read more of my gushing about the many great advantages of candlestick charting, turn to Chapter 2, but here are my top reasons il One of the best features of candlestick charting in general is the visual appeal and readability. You can glance at a candlestick chart and quickly gain an understanding of what's...

Understanding Charting and Where Candlesticks Fit In

Taking a look at options for charting and why candlesticks are superior Making sense of candlestick construction Exploring the wide variety of candlestick patterns Using technical analysis alongside your candlestick charts Understanding a few trading and investing basics 7 he advent of the Internet has leveled the playing field for securities traders. Access to markets once meant placing orders through a broker, and now it's little more than a couple of mouse clicks away. Commission rates are...

Creating a candlestick chart on Yahoo Finance

Using Yahoo Finance to build a candlestick chart is a breeze. All you need is a computer with an Internet connection. To generate a chart, work your way through the following steps 1. Get to Yahoo Finance from the main Yahoo page by clicking Finance or by using the URL www.finance.yahoo.com. 2. Enter the symbol of the stock or index you want to chart in the bar to the left of the Get Quotes button, and then click that button. That click takes you to an information page for the stock or index...

Seeing is believing Candlesticks are easy to read

It sounds pretty simplistic, but one noteworthy advantage candlesticks have over other charts is their readability. For many people who strain to read the fine print and also for the younger traders who don't want to deal with the headaches that can come from staring at bar charts all morning, candlesticks are an attractive option. Consider Figure 2-1, which displays a bar and a candlestick in a side-by-side comparison. Figure 2-1 gives you a basic idea of why candlesticks are easier to read,...

Using Technical Indicators Alongside Bullish Trending Candlestick Patterns

Combining trendlines with bullish-trending candlestick patterns Making profitable trades with moving averages and bullish-trending candlestick patterns ou can combine candlestick patterns effectively with a variety of technical indicators to produce information that helps you decide when to put on and get out of trades. Like candlestick patterns, many technical indicators tell you when a trend is about to reverse, but several others can let you know that a prevailing trend continues. These...

Buy Indicators and Bullish Reversal Candlestick Patterns

Making successful long trades by combining the relative strength index and candlesticks Using stochastic indicators and candlestick patterns for profitable long trading rhis chapter clues you in on the ways in which you can begin combining your trading tools to make your trades even more efficient and profitable. More specifically, the strategies I describe in the next few pages help you understand how you can use two buy indicators (the relative strength index RSI and stochastics) in tandem...

How This Book Is Organized

I've organized Candlestick Charting For Dummies into five parts. Each part offers a different set of information and skills that you can take away to incorporate in your personal trading strategy. You get a feel for candlestick basics or understand some simple candlestick patterns and how to trade based on them. You tackle some more complicated patterns and figure out how it's possible to use candlesticks in tandem with other popular technical indicators. The possibilities for candlestick...

Using the RSI to help pick long exits

An additional benefit to using technical indicators for determining entry points is that they may also help you figure out when it's time to exit a position. When used properly for entries, an indicator tells you when to buy an oversold security or sell short when a security's price reaches an overbought level. You can take advantage of that same concept when deciding when to exit trades. For example, suppose you took a long position on a stock when you saw that its RSI was oversold, and as a...

Table of Contents

About This Conventions Used in This What You're Not to Foolish How This Book Is Part I Getting Familiar with Candlestick Charting and Technical Part II Working with Simple Candlestick Part III Making the Most of Complex Part IV Combining Patterns and Part V The Part of Icons Used in This Where to Go from Part I Getting Familiar with Candlestick Charting and Technical Chapter 1 Understanding Charting and Where Candlesticks Fit In Considering Charting Methods and the Role of Candlesticks 10...

Creating Candlestick Charts Using Microsoft Excel

Microsoft Excel is an excellent tool for running all sorts of financial analyses. One of the great features of Excel is its charting tool, and, of course, that tool includes candlestick charts as one of its choices. In this section, I explain the process for creating a candlestick chart with Excel, from finding and entering the data to building the chart. I even clue you in on a few ways to add some additional information to your Excel candlestick charts, including moving averages, trendlines,...

Understanding Candlestick Components

You can't trade and invest effectively by using candlestick charts unless you understand candlestick patterns, and you may have a very hard time understanding those patterns if you aren't familiar with basic candlestick construction. Candlestick charting starts with the knowledge of what it takes to make a candlestick and how changes in that basic information impact a candlestick's appearance and what it means. For starters, you need to know what goes into creating a candlestick's wick (the...

Using moving averages and bearishtrending candlestick patterns to pick short exits and select stop levels

Moving averages can be a huge help when you combine them with bearish-trending candlestick patterns to pick short trade entry points, but you can also use that dynamic duo to help you determine stop levels and exit points I wrap up this chapter with a couple of examples that show you how to do just that. A single moving average and bearish pattern for a short trade and trade exit signal Figure 15-7 features a chart of the stock for the media conglomerate Time Warner (TWX). This chart has a...

Bearish trendlines and candlestick patterns leading to short entries and exits

Trendlines are useful not only for determining the ideal time to get into a short trade but also for figuring out when to exit. This section focuses on the ways you can evaluate trendlines alongside bearish-trending candlestick patterns to pick the best time to cover a short. Shorting and covering using a trendline combined with a candlestick pattern Figure 15-3 features a chart of the stock for one of The Big Three Ford Motor Company (F). The candlestick pattern highlighted on the chart in...

Picking long exits and determining stop levels with trendlines and bullishtrending candlestick patterns

Entry And Exit Candlestick Patterns

In addition to confirming trends and letting you know when to get in on a long trade, trendlines can also help with your decisions on when to exit a trade. Put simply, a bullish trendline may serve as an exit point when it occurs in a bullish trend. It's not always easy, because trendlines are constantly changing, but that can also be a plus because the trendline is moving in the same direction of your position (higher). Sound confusing Let me clear things up with a couple of examples in the...

Buying with the Stochastic Indicator and a Buttish Reversal Candlestick Pattern

Stochastic Patterns Trading

The stochastic indicator is another very useful indicator for detecting overbought or oversold security conditions. It has two components the slow and the fast stochastic. When the fast is under the slow, there's a downtrend in place, and when the fast is higher than the slow, there's an uptrend. The slow and fast stochastic indicators oscillate between 0 and 100 and have fairly complex look back periods, much like the RSI. (See Buying with the RSI and Bullish Reversal Candlestick Patterns...

Using moving averages with bullishtrending candlestick patterns to confirm trends

If you haven't yet made your way through my discussion of technical indicators in Chapter 11 or you need a refresher, the first rule of thumb with using moving averages as trend indicators is if a security's price is above the moving average, an uptrend is in place. With that in mind, take a gander at my first example of combining moving averages with bullish-trending candlestick patterns. Charting the moving average and a bullish-trending pattern Figure 14-5 is a chart of the stock for Yum...

Creating candlestick charts on Big Chartscom

BigCharts.com is easy to navigate, and with just a few clicks you can generate terrific charts. To create a candlestick chart, take the following steps 2. Enter a stock symbol in the bar at the top of the page and click Advanced Chart. That click takes you to a page that features a one-year bar chart for the stock you entered. 3. Click Chart Style on the left side of the page. A few drop-down menus appear. 4. Select Candlestick from the Price Display drop-down menu. 5. Select your preferred...

You can spot bears and butts quickly

Knowing a security's closing price relative to its opening price during a certain period is vital information. Candlestick charts allow you to quickly identify the days when a closing price is above an opening price and vice versa. I like to think of the daily price action as a battle between bears and bulls. Bears win when the price of a security closes lower than its open, and bulls win on the days when the close settles higher than the open. Figure 2-2 is a great example of bearish and...

The downside tasuki gap pattern

Tasuki Gap

The downside tasuki gap pattern is the mirror image of a bullish version that you can read about in Chapter 9. Compared to the other bearish three-stick trending patterns in this chapter, this pattern is more useful for you if you're looking to put on a new trade. This is because of the higher closing price that occurs when the close of the third day moves into the gap between the first and second day. Understanding how to identify the downside tasuki gap pattern The downside tasuki gap begins...

Using the stochastic indicator to help pick a long entry point

You can use the stochastic indicator to determine a good time to buy a stock if you watch for instances where the slow and fast levels both trade below the oversold level of 20, and then the fast stochastic crosses over or goes higher than the slow stochastic. I've always felt confident in the stochastic indicator because of that feature even though the levels are technically oversold, it's not truly a buy signal until the trend starts to move just a little bit higher. And it's even more...

Reading an RSI chart

As with many technical indicators, RSIs are much easier to digest in chart form. In Figure 11-9, the lower chart is a daily six-month long chart on Intel, (symbol INTC). The top section of the chart is a basic candlestick chart depicting the price action in Intel stock from July to December 2007. Numerous bullish and bearish candlestick formations are charted on this chart, but for now, just focus on the RSI component. In the bottom quarter of the chart in Figure 11-9, there's a slow-moving...

Using the RSI to help pick short entry and exit points

Entry And Exit Candlestick Patterns

You can combine the RSI with your candlestick patterns to pick wise entry points for a short trade. But that's not the whole story. You can also use that same combination of trading tools to indicate when you should exit a short. Figure 13-3 presents a situation in which a combination of the RSI and a bearish candlestick pattern can show you when to get in and out of a short position. The chart is for Peabody Energy (BTU), a mining company that focuses on coal production. Peabody Energy's...

Adding volume data to an Excel candlestick chart

Volume Chart Excel

The most difficult type of add-on for Excel candlestick charts is a volume chart. There are a lot of additional steps involved with this operation, and if it gets to be too taxing, you may want to leave the volume charts to the free online charting services described earlier in this chapter or the charting packages discussed at the end of the chapter. In order to create a chart with candlesticks on top and volume on the bottom (the standard presentation), download the data from Yahoo Finance in...

Picking short entry points

Picking the best entry point for a short can be a difficult undertaking, but using the stochastic indicator as a supplement to your candlestick patterns can make the task much easier. For a prime example of how the stochastic indicator can be used with a bearish candlestick pattern to pick a short entry, take a look at Figure 13-5. In the figure, you see a chart of Convergys Corporation (CVG), a provider of specialized software solutions for business customers. Its headquarters is in...

Short trades and trend confirmation with trendlines and bearish patterns

Selecting the most appropriate time to get into a short trade can be a trying task. Timing is critical, and any decision-making help can be a real blessing. Luckily for you, considering trendlines and bearish-trending candlestick patterns together can provide just that type of help. I show you what I mean in this section with a couple of real-world examples. A short trade example with a bearish trendline and candlestick pattern You can find the first example in Figure 15-1, which features a...

Building an Excel candlestick chart

Excel is a great way to get your feet wet building a chart. It also gives you some experience as to what's behind the chart. Commercial packages that do all the work for you don't give you that type of experience. At the time of this writing, I used Excel 2003, but I was just starting to work with the 2007 version. The 2007 version is quite a change from the 2003 version and is a little different to use. However, there are added features in the 2007 version that make it worth your while. Also,...

Using the moving average and bullishtrending candlestick patterns to pick long exits and determine stop levels

Making a wise decision when it comes time to pick an exit point or stop level for a long trade can be the difference between booking a tidy profit and suffering a frustrating loss. In the preceding section, I explain how you can use moving averages when you're deciding when to get in on a long trade, but you can just as easily use them when you're trying to figure out when to exit a trade. If you're in a long position and a moving average reading tells you that the trend is headed for a...

Generating candlestick charts on CNBCcom

Here's how to take advantage of CNBC.com's free candlestick charting offerings 1. Direct your Internet browser to www.cnbc.com. Near the top of the page, you'll see a box for entering a symbol, with the links Quote and Chart directly above it. 2. Click Chart, enter your symbol, and click the Go button to the right of the box. You should see a line chart for the stock you entered. 3. On the Chart Style drop-down menu, select Candle. The chart is refreshed, and a candlestick chart appears in...

Adding a trendline to an Excel candlestick chart

Another function you can enjoy when using Microsoft Excel for charting is the trendline function. It's found in the same area as moving averages see the preceding section , so if you can add a moving average, you can easily add a trendline. A trendline is a line that indicates the direction of a trend either higher or lower. The line is usually drawn based on the lows in the case of an uptrend or the highs based on a downtrend of the price action in the trend. For more information on trendlines...