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“ A good beginning is the most important
of things.” (Japanese proverb)
This section discusses
only a few of the scores of candle chart patterns. There are
many important candle patterns and trading tactics not discussed
in this basic introduction. As such, do not trade based on
the limited information. The goal of this section is to illustrate
how candles can open new and unique analytical doors, not
to provide a trading methodology. For example, there are many
times candle signals should be ignored. This is where experience
with candle charts comes in.
Japanese candle chart analysis, so called because the lines
resemble candles, have been refined by generations of use
in the Far East. These charts are now used internationally
by traders, investors and premier financial institutions.
Candle charts:
- Are easy to understand: Anyone, from the first-time chartist
to the seasoned professional can easily harness the power
of candle charts. This is because, as will be shown later,
the same data required to draw a bar chart (high, low, open
and close) is used for a candle chart.
-
Provide earlier indications of
market turns: Candle charts
can send out reversal signals in a few sessions, rather
than the weeks often needed for a bar chart reversal signal.
Thus, market turns with candle charts will frequently be
in advance of traditional indicators. This will help you
to enter and exit the market with better timing.
-
Furnish unique market insights: Candle charts not only show
the trend of the move, as does a bar chart, but, unlike
bar charts, candle charts also show the force underpinning
the move.
- Enhance Western charting
analysis: Any Western technical tool you now use
can also be used on a candle chart. Candle charts, however,
will give you timing and trading benefits not available
with bar charts. This merging of Eastern and Western analysis
will give you a jump on those who use only traditional
Western charting techniques.
 The
broadest part of the candlestick line is the real body. It
represents the range between the session's open and close.
If the close is lower than the open the real body is black.
The real body is white if the close is higher than the open.
The real body is white if the close is higher than the open.
The thin lines above and below the real body are called the
shadows. The peak of the upper shadow is the high of the session
and the bottom of the lower shadow is the low of the session.
The color and length of the real body reveals whether the
bulls or the bears are in charge. Note that the candle lines
use the same data as a bar chart (the open, high, low and
close). Thus, all Western-charting techniques can be integrated
with candle chart analysis.
At Candlecharts.com, we have found the candles are most potent
when merged with Western technical analysis. Accordingly,
we harness the best charting techniques of the East and West
to provide you with uniquely effective trading tools.
A critical and powerful advantage of candle charts is that
the size and color of the real body can send out volumes
of information.
For example:
- a long white real body visually displays the bulls are in charge
- a long black real body signifies the bears are in control.
- a small real body (white or black) indicates a period in
which the bulls and bears are in a "tug of war" and
warns the market's trend may be losing momentum.
While the real body is often considered the most important
segment of the candle, there is also substantial information
from the length and position of the shadows. For instance,
a tall upper shadow shows the
market rejected higher prices while a long lower shadow typifies
a market that has tested and rejected lower prices.
The slogan of our firm is "Helping Clients
Spot Market Turns Before the Competition." This
is based on the powerful fact that candle charts will often
provide reversal signals earlier, or not even available with
traditional bar charting techniques.
Even more valuably, candle charts are an excellent method
to help you preserve your trading capital. This benefit alone
is incredibly important in today's volatile environment.
L et's look at an example of
how a candle chart can help you avoid a potentially losing
trade.
Exhibit 1 (below) is a bar chart. In the circled area of Exhibit 1, the stock looks strong since it is making consecutively higher closes. Based on this aspect, it looks like a stock to buy.
Exhibit 1
The candle chart, uses the same data as Exhibit 1 (above),( remember, a candle chart uses the same data as a bar chart; open, high, low and close.) Let's now look at the circled area on the candle chart in Exhibit 2 (below). Note the different perspective we get with the candle chart than with the bar chart. On the candle chart, in the same circled area, there are a series of small real bodies which the Japanese nickname spinning tops. Small real bodies hint that the prior trend (i.e. the rally) could be losing its breath.
Exhibit 2
As such, while the bar chart makes it look attractive to buy, the candle chart proves there is indeed a reason for caution about going long. The small real bodies illustrate the bulls are losing force. Thus, by using the candle chart, a trader or investor would likely not buy in the circled area. The result -- avoiding a losing trade.
This is but one example of how candles will help you preserve capital.
Candles truly shine at helping you preserve capital!
With candle charts, one can use candle charting techniques, or Western techniques, or a combination of both. This union of Eastern and Western techniques provides our clients with uniquely effective tools to help enhance profits and decrease market risk exposure.
A Japanese proverb says, "His potential is that of the fully drawn bow- - - his timing the release of the trigger." The timing of the "release of the trigger" depends on many factors not addressed in this pamphlet. However, while this pamphlet provides only a basic introduction to candle charts we hope you have discovered how candle-charting techniques open new and unique doors of analysis.
As a final note, there have recently been books, articles, and seminars from so-called "candlestick experts" who make no reference to where they found their information about candlesticks. Even more worrying for you as a trader is that they are making up their own candlestick signals without any historical basis.
Conversely, all of the candlestick patterns and signals I've revealed have been confirmed by more than one Japanese source (Japanese traders, Japanese books, etc.). From my vast array of candlestick resources, there is absolutely no mention of many of these "new" patterns I see tossed around by other writers and speakers.
As the Japanese proverb says, "If you wish to know the road, inquire of those who have traveled it."
©2005
Nison Research International Inc./Candlecharts.com All
rights reserved. No part of
this publication may be
reproduced, stored in a retrieval system, or transmitted,
in any form or by any means: electronic, mechanical, photocopying,
recording, or otherwise without the prior written permission
of Nison Research
International Inc. Brief excerpts my be made with due acknowledgment.
This publication is designed to provide accurate and authoritative
information in regard to the subject matter covered. It
is distributed with the understanding that the publisher
and author is not engaged in rendering legal accounting
or other professional service. If legal advice or other
expert assistance is required, the services of a competent
professional person should be sought. From a Declaration
of Principles jointly adopted by a Committee of the American
Bar Association and a Committee of Publishers Associations.
Nison Research International, Inc. does not guarantee
or warrant that readers who use the strategies herein will
achieve favorable results. Nison Research international
Inc. disclaims responsibility for any adverse consequences
that might arise directly or indirectly from the use of
strategies discussed in this publication.
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