Stock Charts: Why use them?
Stock charts provide the investor a visual representation of a stock over a period of time. This allows you to assess stock market trends (uptrend or downtrend), to determine which levels are providing support and resistance, and many other aspects.
Technical analysts and chartists use stock charts to analyze an extensive display of securities and forecast future price movements. The word "securities" refers to any tradable financial tool or quantifiable index such as stocks, commodities, bonds, market indices, or futures. Any security with price data over a period of time can be used to form a stock chart for analysis.
Stock charts are helpful for use in stock market technical analysis and can also be useful in fundamental analysis. A graphical historical record makes it easy to see the effect of significant key events on a security's price, its performance over a period of time and whether it's trading near its highs, its lows, or in between.
Bar charts, line charts, point & figure charts and candlestick charts are four of the most popular methods for exhibiting price data using stock charting. A brief description of each is provided below.
Bar Stock Charts:
The high, low and close are required to form the price plot for each period of a bar stock chart. The high and low are represented by the top and bottom of the vertical bar. The close is the short horizontal line crossing the vertical bar. On a daily stock chart, each bar represents the high, low and close for a particular day when trading in the stock market.
Line Stock Charts:
Some successful traders consider the closing level to be more important than the open, high or low. Line stock charts are also used when open; high and low data points are not available. At times only closing data are available for certain indices, thinly traded stocks and intraday prices.
Point & Figure Stock Charts:
Point & Figure stock charts are based only on stock price movement, and do not take time into consideration. Little or no price movement is considered irrelevant and therefore only price movements that surpass specifically indicated levels on stock charts are recorded. The focus on price movement makes it easier to identify support and resistance levels, bearish breakdowns, and bullish stock price breakouts.
Candlestick Stock Charts:
For candlestick charts, a daily candlestick is based on the open price, the intraday high and low, and the close. The open, high, low and close are all required. A weekly candlestick analysis is based on Monday's open, the weekly high-low range and Friday's close. Black candlesticks form on stock charts when the close is lower than the open and white candlesticks form when the close is higher than the open. This is also known as the black body or white body. The lines above and below on stock charts are called shadows and represent the high and low. Candlestick stock charts have become very popular in recent years since their origination in Japan 300 plus years ago. Many traders and investors believe that candlestick chart patterns are simple to read.
Market Direction: What are some of the things that tug on our emotions, making investing that much more difficult? Have you ever held onto a position because it was not quite back up to where you bought it? Have you ever sat there wondering why your stocks aren't moving in a rip roaring bull market? Have you ever asked yourself why you keep doing the same stupid mistakes over and over?
We have all done that. This is the voice of experience, one of the worst investors in the world UNTIL CANDLESTICK SIGNALS CAME ALONG!!! Most investors buying stocks because they anticipate a price moving up based upon fundamental analysis or their technical indicators. They may not have a particular time frame; they just project the price moving higher in the future. Candlestick analysis completely alters an investor's thinking. Candlestick signals provide a format for what a price "should" be doing. As described many times in our description of candlesticks, the Japanese Rice traders identified signals and patterns that produced profits with an extremely high degree of accuracy. That is the format! Understanding what should happen, based upon witnessing specific signals and patterns, allows an investor to dramatically improve their control of their profitability.
Have you ever held onto a position because it was not quite back to where you bought it? We all have. Why? Because of our emotions. We buy a stock because our superior mental analytical (capabilities???) assess that this stock price should move up. When it goes down, our emotional endomorphins get insulted. We can't sell until it climbs up to where we bought. Otherwise, our self image of our analytical abilities gets traumatized. Utilizing the information within candlestick analysis, you will not have to go through that trauma. The signals tell you when to get in and when to get out.
Have you ever sat there wondering why your stocks aren't moving when the market is moving up? Learning how to analyze where the buyers and the sellers are placing their funds, you can eliminate that problem. Simple visual analytical techniques can be applied when using candlestick signals. They identify what price movements should occur. You become more acclimated to participating in price moves that are corresponding with the markets versus waiting for your positions to move with the market. The Candlestick Forum's Online Training program will be instructing investors how to be proactively investing. The major advantage of candlestick analysis is the massive amount of statistical information built into the graphic formations. If you have made stupid mistakes in investing over and over, you are not alone. But the simple common sense observations that the Japanese Rice traders have identified for us over the past few centuries can greatly alleviate the goofy emotional mistakes we are all capable of repeating time after time.
If A and B occurs, C should occur. If A and B and C occurs, D should occur. The advantage candlestick signals present is a high degree of statistical correctness. If one set of signals occurs forming a pattern, an expected result should occur with a high percentage probability. From that result, the next result should occur. This is not difficult to take advantage of if you have investment data that has produced consistent results in the past. Candlestick signals are the most researched, utilized, and aged technical analysis components in the history of the world. Use them to your advantage. Click here for more details for the online training program.
If A and B produce C, and appears to do so with great consistency, you can eliminate emotional mistakes, hoping, and wondering why your investments are not moving with the markets. That was observed in our extremely profitable trade in DRL.
DRL
What should a Fry Pan Bottom pattern produce if it confirms? A very strong price move. What should be expected after a very strong price move? Profit taking! Candlestick signals can identify whether a pullback is profit taking or a full-scale reversal.
Indecisive formations occur on the pullback, what does that illustrate? The selling is not very convincing. What could be the next profitable trade? Taking advantage of a Jay-hook pattern.
BRY
Investor sentiment does not change from year to year, decade a decade, century to century. Patterns will always be identified. The human emotions remain the same throughout history. When you can visually recognize a high probability pattern, you will know what the results should be. You have the advantage of seeing whether those results are working by knowing what is represented in candlestick signals.
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Good investing,
The Candlestick Forum Team
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