subject: Candlestick 101 [print this page] Candlestick 101 Candlestick 101
One of the most important parts of technical analysis may be candlestick 101. The candlestick charting method was brought to the west (the United States) by a man names Steve Nisson.
Nison is known as the founding father to candlestick 101 in the western part of the world. His book, Japanese Candlestick Charting Techniques includes everything from the basics, such as constructing the candlesticks and learning the patterns, to advanced topics, such as the rules of multiple technical techniques.
The candlestick is made up of two parts, the body and the shadow. A body that is filled in means prices opened higher than they closed. A body that is not shaded means prices opened lower than they closed. Below is an example of multiple daily candlestick charts strung together to form price movement.
One of the greatest benefits to trading with candlestick charts is the ability to visually see what is going on. Other types of charts like bar and line charts have their place, but I have found for day trading with 5 and 15 minute bars especially the candlestick tells you much more about what is going on in the trend than the other types of charts that are out there.
The Hanging Man Reversal
The hanging man alone does not initiate a sell or short signal. Tuesday's price action, closing below the body of Monday does however confirm this bear signal.
While the past two weeks have produced light volume, we have a potential pullback to the prior resistance (now new support). If we are to make a new high this pattern would have failed, therefore our stop would be placed just above the highs for short positions.
In Review
There is something to be said about keeping it simple. As the saying goes "Simple yes, easy no." It is often most beneficial to trade with the least amount of clutter on your screen and fully understanding candlestick charts (I beleive) allows you to trade based off the only two "real time" indicators, price and volume. Once you cna mster price and volume the rest is gravy.
Whether you are new to candlestick charts or a seasoned pro-the reward from reading Japanese Candlestick Charting Techniques will be immediate and long lasting.
