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Candlestick Charting – Adding a Visual Dimension To Your
Trading
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Article
Candlestick Charting – Adding a Visual
Dimension To Your Trading
Candlestick charting is great for traders wanting an extra
edge in their quest for profits
This is due to the way the candle bodies are drawn, that
gives a better insight that is visual, and shows trader psychology.
More traders than ever are using candlestick charts due
to the extra trading edge they can get with this form of charting
- if you have not used them before, then this article is for
you.
Candlestick charts are not new, and have been used for hundreds
of years by Japanese traders to predict and act on market movements.
Candlestick charting giving greater insight into human psychology
In the 1700's, Homma, a Japanese trader in rice, noticed
how the price of rice was influenced by human psychology as
much as the supply and demand situation. Homma used candlestick
charts to trade rice and amassed a huge fortune in the markets.
In fact, it was rumored he never to have had a single losing
trade!
Human psychology has never changed, and has remained constant
over time - candlestick charting is therefore just as useful
today, as it was hundreds of years ago.
The Re-emergence of Candlestick Charting
Steve Nison, book, "Japanese charting techniques,"
bought candlestick charting back into the public domain in the
1990s. Currency traders soon started using candlestick
charting instead of bar charts for greater insight into market
movements.
So why use Candlestick Charts?
1. They complement other Technical Tools
You can use candlestick charts as you would use the common
bar chart, and you can combine them with traditional market
indicators. Candlestick charts are a great way to spot opportunities,
and then filter, and time trades with other indicators.
2. Spotting trend changes
Because of the way candlestick charts are viewed, they can
give warnings of market reversals, far more visually than traditional
bar charts.
If you look at candlestick charting, the human psychology
of the move literally jumps out the page at you.
3. Straightforward to use
Candlestick charts use, the same open, high, low and close
data that traditional bar charts use, and are easy to draw.
In addition, there are many packages like supercharts and
tradestation that will draw them automatically for traders.
The different candle names are also easy to remember.
4. Define market momentums
The way the candlestick chart is drawn not only gives the
direction of price, but also the momentum behind the move.
The candlestick chart graphically illustrates the relationship
behind the open, high, low, and close by the body - and adds
an extra visual edge, due to the way they are drawn.
The candlestick has a wide part, called the "real body."
This real body represents the range between the open and close
of that day's trading.
When filled in black, the real body means the close was
lower than the open.
If the real body is empty, it means the opposite - the close
was higher than the open.
Above and below the real body we see the "shadows."
We see these as the wicks of the candle (which give them their
name), and the shadows actually show the high and the low of
the day's trading.
If the upper shadow on the filled-in body is short, it indicates
that the open that day was closer to the high of the day. On
the other hand, a short upper shadow on a white, or unfilled
body shows the close was near the high.
A Visual Aid to Give You an Edge
Candlestick charts should be used rather than traditional
bar charts because they give you an extra visual dimension.
Regardless, of whether you are a day trader, position trader,
system trader or a trader who likes to make your own trades,
there is really nothing to dislike about candlestick charts!
Easy and fun to use, and providing a greater insight into
market moves, along with the ability to use in any type of trading,
means if you aren’t already using candlestick charting, then
its time to start.
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