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Trading Tools Ė Candlestick Charts

Candlestick analysis goes back to the rice traders in the 1700ís. Initially technical analysis was introduced by the Japanese in the 1600ís but it wasnít until the 1700ís that Homna, a Japanese rice trader, discovered a link between supply and demand of rice. Additionally, he determined that the rice markets were strongly influenced by the emotions of traders. Homnaís established principles as they relate to rice trading and technical analysis lead to the basis for Japanese Candlesticks and Candlestick Chart analysis. This type of analysis is one of the most valuable trading tools still in use to this day by forex traders, stock traders, commodity traders, etc.

Candlestick analysis is a powerful tool used by traders because it provides an alert that a trend change may be in process. In todayís article we will discuss the many benefits of trading using Candlestick chart patterns and Candlestick chart formations.

First of all, Candlestick charting techniques can be used by all traders because they can be used for all time periods. Additionally, the candlestick trader is able to take advantage of price movements as soon as possible in the event of a surprise announcement. That way they donít have to wait to find out what direction the trend will eventually take. This provides great insight and foresight to the trader who can determine which Candlestick signal may be forming. With this foresight comes great potential for profit.

Candlestick charts are one of many great trading tools because they are considered by traders to be more visually appealing and easier to interpret. Traders are able to immediately compare the relationships between the open and close and the high and low because it makes the price action picture easy to determine. When analyzing candlestick patterns, traders pay attention to the open and close as well as the body of the candlestick. These relationships provide vital information. For instance, a filled candlestick, where the close is less than the open indicates to the trader that there is selling pressure. Conversely, a hollow candlestick, with the close greater than the open, indicates to the trader that there is buying pressure.

Those stock traders that use candlestick analysis as one of their trading tools, are more quickly able to identify different types of price action that tend to predict reversals or continuations in trends. This is one the most difficult facets of trading and when traders combine candlestick trading with other types of technical analysis tools, there is great potential for profit and traders can more accurately select their entry and exit points.

Those traders that incorporate candlestick analysis into their every day trading produce consistent and high profit potential for strong returns.


Market Direction: It is just as easy to profit when the market is moving down as it is when the market is moving up. Candlestick analysis provides a very easy-to-use visual analysis. The signals provide the information needed to make an assessment of what direction the market is going. As illustrated in the Dow chart, the Evening Star signal started a downtrend that was easily exploited. The downtrend remains obvious without the appearance of two simple parameters, a candlestick buy signal followed by a close above the T. line. The Candlestick Forum has been recommending the short funds for the past few weeks.

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Why the short funds versus individual stocks? The short funds have diversification. They will follow the market direction in general. Although we have individual stocks shorted in the portfolio, it becomes a more difficult to find viable short candidates would most stocks are already in oversold conditions. Obviously, individual stocks have more risk. A strong short signal could always be interrupted by specific announcements in that company. Short covering could move the price in a positive direction at any given time.

Short funds provide the same bullish signals and patterns as any other trading entity. They are also leveraged. Some funds have two times leverage, others three times leverage. Spreading the risk in a short funds allows for purely playing the market direction. The accuracy of candlestick analysis makes utilizing the leverage that much more beneficial.

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This does not leave out shorting of individual stocks. The market direction allows for profiting from the strong sell signals. These signals can be additionally confirmed with gaps down in price. Combining market trend analysis with strong candlestick sales signals produces powerful profit potential. The more probabilities that can be put into your favor, the higher the potential for big profits in the portfolio.

Candlestick charts provide an accurate picture of a trend direction. How you exploit that information is up to you. It could be with the use of options, futures, or leveraged funds. The first element of successful investing is being able to identify profitable situations. Candlestick analysis has been developed over the centuries to do just that. Learning how to take advantage of that information is a process of knowing which trading entities will benefit the best.

Chat session tonight at 8 PM ET for members.

Good investing,

The Candlestick Forum Team


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