Candlestick Charting

The Candlestick Trading Bible

Candlestick Trading for Maximum Profits

Get Instant Access

The first recorded futures transactions occurred in the 1700s in the Japanese rice markets, where Munehisa Homma amassed a fortune trading the market. His system included the study of price action, the psychology of the market, and the seasonality of the weather. Candlestick charts evolved from Homma's system and are the subject of this chapter. This section covers the fundamentals of candlestick charting and explains how to utilize candle charts to analyze, enter, and exit trades.

The main advantage that candlestick charting provides over bar charting is that the candlestick provides immediate visual recognition of the open, the high, the low, and the close. Many traders who employ candlestick charting techniques set their charting software so that the candlesticks are one color for a lower close than the open (such as red or black as shown in Figure 3.1) and another color for a higher close than the open (such as green or white as shown in Figure 3.2). For the purpose of this book, a candle with a higher close than the open will be referred to as a white candle. A candle with a lower close than the open will be referred to as a black candle. A single candle does not tell you if the close is higher or lower than in the previous time period. The single candle only shows whether the close is higher or lower than the open for each candle.

Each candle has different characteristics that provide insight into price movement by the distance between the open, the high, the low, and the close. The candlesticks formed for each time session also indicate if the price movement shows a level of increasing or decreasing pressure by the size of the candle, or its "real body." Each candle pictured has a differ-

FIGURE 3.1 Selling, or Short

Low-

FIGURE 3.1 Selling, or Short

low-

figure 3.2 Buying, or Long ent characteristic that represents the difference or the distance between the open, the high, the low, and the close. Candlestick charting techniques can be used from data for whatever time period you are looking at from as little as one minute to one hour, one day, one week, or one month. The candle still allows for use of traditional Western philosophy of technical analysis of pattern recognition, trend-line support and resistance, and other helpful tools as we will go into in detail in Chapter 5.

Was this article helpful?

0 0

Post a comment