Would you like to learn about a type of commodity trading chart that is more effective than the charts you are probably using now? If so, keep reading. If you are brand new to the art/science of chart reading, don’t worry, we are going to discuss candlestick charting. This stuff is powerful, but it is really quite simple to learn and the results can be impressive!

Technical Analysis…a Brief Explanation
Stock technical analysis is simply the study of companies and their stock prices as reflected on price charts. Whether these charts employ candlestick charting or are simple bar charts, technical analysis assumes that current prices should represent all known information about the markets. Prices not only reflect facts, they also represent human emotion and the psychology and mood of the moment. Prices are, in the end, a function of supply and demand. However, on a moment to moment basis, human emotions…greed and fear, panic, hysteria, elation, etc. also dramatically affect prices. Markets may move based upon people’s expectations, not necessarily facts. A market "technician" attempts to disregard the emotional component of trading by making his decisions based upon chart formations, assuming that prices reflect both facts and emotion.  Charts, even those using only the basics of Japanese Candlestick charting, help the successful investor to compile data into a useful format.

Bar Chart Basics
Both standard bar charting and basic candlestick charting are commonly used to convey price activity into an easily readable chart. Usually four elements make up a bar chart, the Open, High, Low, and Close for the trading session/time period. A price bar can represent any time frame, as shown with the horizontal element of the bar. The total vertical length/height of the bar represents the entire trading range for the desired period. The top of the bar represents the highest price of the period, and the bottom of the bar represents the lowest price of the period. The Open is represented by a small dash to the left of the bar, and the Close for the session is a small dash to the right of the bar. At this point, you might be asking yourself why you need to know candlestick chart analysis if you understand a bar chart. Having said that, let’s look at the stock investing basics of Japanese Candlesticks now.

Candlestick Charting Explained
The answer to the question above may not yet seem obvious, but the results are. Basically, candlestick charts are much more visually appealing and informative than a standard two-dimensional bar chart. As with a standard bar chart, candlestick chart patterns have the basics as well; OPEN, HIGH, LOW and CLOSING price for a given time period are included. The body of the candlestick is called the “Real Body” and it represents the range between the open and closing prices. A black, or filled-in, body represents that the commodity or stock closed lower than its open, or in a bullish condition. When the body is open or white, the commodity or stock closed higher than its open, indicating a typically bullish condition. A thin, vertical line that may be found above and/or below the real body is known as the “Upper” or “Lower” “Shadow”, and its presence represents the high or low price extremes for the trading period. Now that you have the basics of the candlestick charting, let’s compare them to bar charts.

Comparing Candlestick Charting and Bar Charts
Lacking the Shadows of a basic candlestick chart, a bar chart cannot reflect the difference between a price extreme and a high or low. For example, a stock that opened high, but traded low for the day would not be accurately depicted in a bar chart. In a basic Candlestick chart, however, the Upper Shadow would show the extreme of the opening price as well as the trading range for the day.  In this example, the basic candlestick chart formation more accurately represents the trading of the day. In addition, since the stock closed lower than the open, the Real Body would be black; indicating that the day’s trading was bearish. A typical bar chart is simply unable to provide this level of information. And remember, these are just the basics of a candlestick chart!

In conclusion, even the most basic of candlestick charting methods provides its user with a valuable technical analysis tool. When used with a productive stock investing system, you can successfully analyze stocks and their trends before you invest. Why use a limited bar chart when you can have the power of candlestick charting? Your bottom line will know the difference!

The selling of Thursday indicated that the markets are starting to tire. The DOW almost formed a Bearish Engulfing signal. The term 'almost' means that the DOW opened within one point of a true Bearish Engulfing signal. An 'almost' signal is not the same as a true signal, but it still can be construed as a weak potential. The Nasdaq showed weakness. An "almost" Dark Cloud signal, although showing weakness, is not a true sell signal. The lack of a strong reversal signal continues to make the trend the predominant factor.

DOW

The lack of a break out move up through the recent highs is producing indications that the market is starting to get toppy. A sideways trading environment may be forming because there has not been a dramatic sell signal such as a huge reversal signal, or a gap down open. The 20 day moving average is staying fairly close to both indexes. It needs to continue to act as support. Further weakness in this market warrants taking some profits in long positions and start adding some short positions to the portfolio.

NAS

When market conditions start to show a lack of direction, candlestick signals and trend lines become a good combination for analyzing a price trend. The information conveyed in a candlestick signal provides valuable information. Being able to see a trend line or a trend channel helps with analyzing what other investors are doing. Signals forming at the top and the bottom of a trend channel provide much more visual clarity as to what a trend is doing. As illustrated in the NTLI chart, a trend channel as well as candlestick signals forming at support at the moving averages provides a clearer analysis of what this price is doing on pullbacks.

NTLI

If a price is trading in a pattern, analyzing what signals are forming when the pattern is broken provides for fast executions. If a trend is obvious, then the price action should be anticipated. A breach of that price pattern reveals that new investor sentiment has taken over. Drawing trend lines and trend channels is a valuable tool when incorporating candlestick signals into the analysis.

Chat session - There will be an open chat session tonight at 8 p.m. ET. Learn what strategies should be utilized when the markets may be going into a sideways trading channel.

Special Announcement *** New Release *** How to Draw Trendlines

If you've read Chapter 8 on "Profitable Trading Insights" by Tina Logan in Steve's Book - High Profit Candlestick Patterns - Then you already know Tina Logan's detailed and user-friendly writing style will provide you with specific illustrations and explanations on the correct way to utilize trend lines. Over 30 pages of illustrated, step-by-step instruction on the proper usage and How to Draw Trend lines. Offered Exclusively though The Candlestick Forum.

Trend lines are crucial skills for becoming a Master Chartist.

More Info