If you are new to Candlestick charts,
do not be intimidated. They use exactly the same information that
is contained in more traditional bar charts: open, high, low and
close. If a bar in a bar chart is worth a thousand words, however,
the same information presented in a candlestick is worth 10,000 words.
Were it not for the exotic names of some of the patterns and components
of this charting technique, you probably would have started using candlesticks
long ago. My advice, at least when first starting out, is to forget
about the pattern names. Instead, concentrate on the information
provided. Look at one bar (candlestick) at a time and consider what
it means. Soon, I think you will see the strength this very visual
charting technique offers. Perhaps you are more comfortable with
the term "pattern recognition". Candlesticks are a very effective
method for defining such patterns.
Usually, one of the prerequisite elements
of applying candlesticks is to first identify the current market trend.
Many of the widely known candlestick patterns are reversal patterns.
The first step to identifying a reversal is to know what you are reversing
from. That makes candlesticks ideal when combined with the
Indicator (please review the Trend
Table top right corner - click on any index name in the table for a current
chart including the MTCI). Candlestick patterns utilized in conjunction
with the proprietary MTCI, have been highly refined beyond what you find
in text books on the subject.
My purpose is not to teach candlestick
charting or sell the idea of candlesticks. My purpose is only to
make money. I believe candlesticks, combined with my other work,
provide an incomparable tool in explicitly defining the Index and ETF
Component Analysis trading program. Candlesticks are ideal when
building a totally objective computer program. On the other hand,
aside from an occasional mention in example charts, you will probably
never hear me talk about candlesticks or their patterns. The information
presented here is information I reference on occasion myself. I
thought it might also be of interest or possible help to you. Patterns,
however, discussed in this section are the "text book" definitions.
Index and ETF Component Analysis defines these patterns significantly
beyond what is presented here before utilizing them in the program.
DID CANDLESTICK CHARTS COME FROM?
Analysis based on trends
in market psychology has its roots in Japanese rice trading in the 1700's.
One of the most famous traders of the day, a man named Homma, discovered
that studying the emotions of a market could be very useful in determining
Although it is not known
whether Homma can be credited with developing candlestick charts as we
know them today, it is under the same principles that led to their evolution
and wide-spread acceptance among Eastern traders since the late 1800's.
Candlestick charts have been a commonly practiced analysis technique ever
since, and it is quite clear that Eastern traders have long given great
weight to how market psychology effects future trading.
Don't let the Oriental mystique deter
you from using candlesticks. Candlesticks are just a tool.
A very good tool, but a tool. I, too, wish some of the pattern names
would go away, but that is the worst of the technique. Frankly,
you do not have to call any given pattern anything as long as it works
and you know what it looks like.