Charting University » Candlesticks » About Candlestick Charting
Candlestick Charting Advantages
1. Candlesticks draw pictures which are easy to understand
Anyone, from the first-time chartist to the seasoned professional can easily grasp the power of Candlestick charts. Unlike Western charting, Candlestick analysis does not require the knowledge of intricate formulas or ratios. Nor does it require time consuming amounts of education to be effectively utilized. Candlestick patterns result in clear and easy to identify patterns that demonstrate highly accurate turns in investor sentiment.
2. Candlesticks often provide early indications of market turns
Candle charts can send out reversal signals in real time (based on your chart timing), rather than the weeks often needed for many Western indicators. This is important because it provides you with information which can assist you in entering and exiting stocks, futures, and index markets with better timing.
3. Candlesticks provide unique market foresight
Candle charts provide information that shows the trend of the move and the force behind it.
4. Western charting techniques can be enhanced by Candlesticks
Any Western charting tool that you currently use can also be worked alongside of Candlesticks. Candle charts however, will give you timing and trading benefits. This merging of Japanese and Western chart analysis offers traders a technical advantage over those who use only traditional Western charting.
5. Candlestick lines can be drawn in all time frames
Whether you are a short-period day trader who trades several times per session, a swing-type trader who may hold for several days to weeks, or a long-term investor, Candlestick charts can be used across any time frame. The formations are the same, just calculated inside the various timings. This is extremely advantageous because once you learn the patterns they can be used in any trading vehicle and timing.
6. Preservation of your trading capital
Once you can recognize the topping (resistance) and basing patterns (support) of Candlesticks, you will see the "cautionary signals" of a trend change long before many other traders or investors do. Certainly before the financial media does!
What does it all mean?
1. The wide colored portion of the Candlestick is termed as the "Real Body", or just the "Body". This signifies both the Open and Close of the session.
2. "Long Bodies" indicate strong buying or selling. The longer the body is, the more intense the buying or selling pressure.
3. "Short bodies" imply very little buying or selling activity. These are formed during tight range bound sessions.
4. "Long green Candlesticks" show strong buying pressure. The longer the green Candlestick, the further the close is above the open. This indicates that prices increased considerably from open to close and buyers were aggressive. Bulls were in full control!
5. "Long red Candlesticks" show strong selling pressure. The longer the red Candlestick, the further the close is below the open. This indicates that prices fell a great deal from the open and sellers were aggressive. Bears were in full control!
6. The red or green color of the "Real Body" reveals whether the bulls or the bears were in charge during the Candle's particular time setting. Note that the candle lines use the same data as a bar chart (the Open, High, Low and Close). However, much more data is provided from a Candlestick in the bigger picture of things.
Candles are most powerful when used in conjunction with traditional Western charting techniques. In our nightly chart emails we provide formations to you from the best charting techniques of both the East and West. This provides you with a uniquely effective chart reading for the upcoming day(s).
What do the Shadows, also known as Wicks, mean?
The upper and lower "shadow" on Candlesticks provide important clues about the trading session.
"Upper shadows", above the Body, signify the session high.
"Lower shadows", below the Body, signify the session low.
Candlesticks with "long shadows" indicate that trading action occurred well past the Open and/or Close of the given time period.
Candlesticks with "short shadows" indicate that most of the trading action was confined near the Open and/or Close of the given time period.
If a Candlestick has a "long upper shadow" and "short lower shadow", this means that buyers were strong and bid prices higher, but for one reason or another, sellers came in and drove prices back down to Close the session back near its Open price.
If a Candlestick has a "long lower shadow" and "short upper shadow", this means that sellers were strong and forced price lower, but for one reason or another, buyers came in and drove prices back up to end the session back near its Open price.