Technical Analysis With Candlesticks

Technical analysis is a visual way to predict future of the stock/futures market based on the history of its trend. This trend can happen in a sudden rush or over a period of time. If you are a longtime investor knowing the fundamentals of the asset is important. For a trader, knowing the direction of the trend is essential. Technical analysis is not an exact science, and therefor the  subject of much criticism. These so-called experts claim that, due to market efficiency, someone that uses technical analysis is doing little more than guessing. Market efficiency means that all the available information is already calculated in the stock prices, and that you can only guess how the price will behave in the future.

These experts might be right if it wasn’t for the fact that there are a significant number of traders who are able to consistently make profits in the stock/futures market. Technical analysis is one of the main tools they use. If technical analysis is a tool, than candlestick charting is the power that makes it run. There are many successful traders who utilize the technicals without candlesticks, however knowing just some of the candlestick patterns will make you more profits. Take for example the open and closing tick on a typical chart. What has happened between those two actions? A candle will light the way.

For those of you not yet familiar with candlestick charting, I will  try to give a brief but accurate explanation.  The Chinese invented the market concept, and the Japanese perfected charting techniques with the use of the candlesticks. It is easy to understand this complex system, if, as I’ve already mentioned, we simply break it down to the ticks on the chart you follow every day. We know that the lower tick is where the stock opened and the higher is where it closed. Now if we made the two lines parallel and connected them, what would we have? A candle. However, during that movement, the stock might have gone lower or higher then where it opened or closed, so our candle has formed a tail and a wick. Is it starting to make a little sense to you? Can you see the advantage of knowing this information, for getting in and out, and setting a stop loss?

Take these examples:

1. Let’s assume a stock opens twenty cents higher than it closed yesterday. It later closes ten cents higher than that. Should we get in? Not necessarily. Because as the candlestick showed us, even though it had a thirty-cent swing from the day before, a long wick was created. This meant that it went even higher then it eventually settled on. That tells us that the pressure to go higher wasn’t strong enough. We will put it on our watch list, and keep a keen eye on it.

2.A few days passes with similar results. Suddenly there is a break in the resistance. The stock has formed a candlestick with a long tail. What does this convey? We might put a buy signal for a couple of cents  higher than it has previously gone, because the long tail tells us that the bulls are ready to take over.

3. Ideally you want to wait for clusters to form. Of course the greatest indicator is a long candle. One that opens and closes with hardly any wick or tail.

There are many “characters” in the Candlestick System. I attended a $2000 workshop to learn this type of charting. However, you can learn these methods for literally pennies, compared to what I spent. If you have the right trading company that offers Candlestick Charts, make sure they also have penny stocks. Many of them don’t cater to “Pink Sheets”. ( If you have not yet discovered the world of penny stocks, please refer to
Penny Stocks Big Bucks )

To properly consider what software will best suit your needs, we must first determine a mutual understanding. Most investors who use the internet, know about swing trading. If you are not a day trader or long term investor, you are a swing trader. Many so-called experts lump all online traders into the bag of day trading. For the sophisticated observer it is plain to see the obvious differences. A day trader rides the rush of the asset, while a swing trader diagnosis the trends and holds onto it as long as the momentum  last. If we are in agreement on these points than you will be able to comprehend the following suggestions I strongly feel is necessary for any software to be useful.

1. It must be able to offer live streaming technical data.    (Otherwise the program is merely educational)   
2. The platform should defiantly include candlestick charting.
3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage’s technical data are too small to be useful)
4. It must be cost effective. (Most good systems can be purchased for between one and two hundred dollars)

I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site Market Mentalist you will find all you need to know about investing online. You will find an abundance of articles and product information on Technical Analysis With Candlesticks
There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

About the Author

Now in my late 50′s, I consider myself to be a Jack Of All Trades And Master Of a few things. I was a struggling actor for 25 years. During that time I learned a little about a lot of things, and would like to pass along some of that knowledge. As an experienced trader, I can tell you that this the time to take advantage of the market and Technical Analysis With Candlesticks

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