This lesson we will continue to explore the world of technical analysis. I would like to take some time and go over charting, in particular candlestick charting. The Japanese created candlesticks as a technical analysis tool to trade rice. Steve Nison was the one who brought candlesticks to the English speaking public in the 90’s. Candlesticks offer a wealth of price information to traders. In this lesson we will focus on the basic structure of a candlestick and some common and useful reversal formations.
Candle sticks consist of a body and its shadow. The body is the difference between the opening and closing prices of the time frame the candlestick represents ( for example 5 min,15 min,1 hr etc). The shadows represent the high and lows of the time frame. Candlesticks are much easier to explain with pictures, so please refer to the video for a better explanation.
Candlestick reversal formations are one of the easiest charting formations to recognize and good start to start becoming a guru on chart formation. Candlestick formations can be broken into three basic categories: single double and triple formations. In the video I will focus mainly on single and double reversal formations.
I would like take a moment and emphasize an important trading concept. When looking for a trading candidate it is important not to rely on just one form of technical analysis. You should have a few tools in your arsenal to point you in the right direction. Think about it like your out hunting for deer. If your looking for deer and you see some deer dung on the ground, are you going go marching off in the woods randomly, probably not. Now lets say with the dung there are some tracks and you can see which direction they are going, now you have a more successfully hunt, add a deer call and you have a even better chance at a successful hunt. So just because you see a candlestick reversal formation, that doesn’t meant you have a good trade (so don’t go wondering off in the woods). But if you combine a candlestick formation with a pivot point, now that a much better candidate.
Hope you enjoyed