Candlestick Trading Blog
August 15, 2008
Japanese Candlestick Charting
Japanese Candlestick Charting – Introduction Japanese candlestick charting dates back to the 1700’s where the Japanese used candlesticks to predict rice prices. They are the oldest charts on record that are used for price prediction and they are useful as a stand alone resource. They are often used in conjunction with other technical analysis tools to gain deeper insight into market conditions. Japanese candlestick charting is based on the concept of technical analysis and is considered to be the most visually appealing and helpful type of stock chart. Technical analysis is the study of price movements as reflected on price charts. Technical analysts do not study the markets to determine market sentiment, but instead believe that the stock prices, as displayed on stockcharts, indicate what is happening in the markets. In this form of analysis the key is to recognize patterns in the stock market and to act accordingly. Many investors use Japanese candlestick charting because they believe candlestick charts to be the most visually appealing and they convey price movements in a more effective and easier manner than bar charts or line charts. Candlestick charts display the open, high, low and close data points for the time period that you choose to display. These types of charts provide the investor with a way to easily see the relationship between the open and close in addition to the high and low. There is a hollow or filled body and there are long and thin lines above and below the body which represent the high and low range. These are called shadows and are also referred to as tails and wicks. If the stock closes lower than its opening price, the result is a filled candlestick. The top of the body of this filled candlestick represents the opening stock price and the bottom of the filled candlestick represents the closing price. Conversely, if the stock closes higher than its opening price, the result is a hollow candlestick. The bottom of the hollow candlestick represents the opening price and the top of the hollow candlestick represents the closing price. Through understanding how each data point is displayed on a stock chart, investors are able to identify candlestick chart formations that enable them to make quick and accurate trading decisions. There are many candlestick chart patterns that each investor must learn before they can read a candlestick chart. The most important and first pattern often learned is the doji. The doji candlestick looks like a cross, a plus sign, or an inverted cross and it forms when a security’s open and close price are basically equal. It indicates that there is indecision in the markets between buyers and sellers. In addition to the doji candlestick, Japanese candlestick charting also requires the investors to learn about chart formation such as the engulfing, the harami, the shooting star, and the inverted hammer, just to name a few. For short-term traders that practice day trading, swing trading and other types of short-term trading, continue to learn about Japanese candlestick charting and technical analysis. Through researching various technical analysis methods and different types of stock charts, you will find that Japanese candlestick charts are the best way to make a profit when trading stocks. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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