• Candlestick Charts

Candlestick charts are the oldest form of charting but their use in western markets is relatively new. They were introduced in the early 1990’s just at the beginning of online retail brokers. Candlesticks Charts are the most used in charting today and are used by most retail traders for short-term trading in stocks, options, Forex, futures, commodities, and Exchange-Traded Funds. They can also be used on indexes, industry indexes, etc. The term “candle” comes from the Japanese who created this form of charting for their rice commodity exchange during the 1600’s. The candlesticks on the chart look like real candles of that era, hence the name. Although we must modify how we interpret candlestick patterns for our western automated marketplace, these charts are far superior to any other form of charting at this time.

Candlestick charts are far easier to read and provide more information than Bar Charts, Line Charts, Point and Figure Charts, Kagi Charts, or other non-candlestick charts. All trading instruments from option contracts to futures and Forex can use candlestick charting to plot and follow price action and to plan exits and entries. Candlestick Charts provide the most graphical view of what is going on with price. Since every transaction, no matter how small or how large, is recorded and documented, it is possible to make a precise and highly accurate recording of what price is doing.

But for most people who are just starting to learn about candlesticks, the task may seem daunting as there are so many different candle patterns all having strange Japanese names. Then too, most candlestick books offer complicated methods and confusing explanations that can frustrate the average trader.

Candlestick charts have the same data as a bar chart, but by using “candles” it becomes much easier to see what is going on with price. The graphical view is vastly different and far easier to read and interpret than a line or bar chart. This speeds up the analysis dramatically and eliminates common errors and mistakes that occur when you use bar charts. On down days the candles turn black, and on up days the candles are white. This immediately tells you whether the stock moved up that day or down, AND the candles show you how much it moved.

Very long candles tell you the stock price moved several points. Small candles tell you that the stock didn’t move much.

Chart provided by TC2000, a Worden Charting Software ©copyright 2007–2018 with our thanks.

By studying the relationship and the different kinds of candlestick patterns that form, traders can learn to reliably determine what the stock will do over the next few days to few weeks. This is why candlestick charts have become so popular so quickly. However, it is important to realize that the traditional candlestick charting was developed for the rice commodity markets in ancient Japan.  

Most Japanese candlestick books teach the traditional Japanese form of candlesticks. These are the ancient patterns that formed in those days. To understand Japanese candlesticks, you must first understand the culture and society under which they were created. Ancient Japan was a warlord state that also had a highly developed national passion for beauty and artistry. Every person was expected to write poetry. They had a deep respect for nature and artistry.

Each candlestick for charting has an elegant descriptive name for its perceived role in the prices of rice. Terms such as “dark cloud” and “three rivers” all express the reverence the Japanese have for nature and beauty.

Many candlestick names also include war terms such as “three soldiers” and “night attack". This was due to the 200-year war between Samurai Clans that ended in a unified Japan.

Because of this love of nature and attention to detail, Japanese candlesticks have a vast number of Japanese names for every unique candle that might form. This creates a complex, hard to remember, and even more difficult to use list of candlesticks that might form. TechniTrader has created a unique method of using candlesticks, simplifying the candles and identifying only those that work optimally and occur frequently in our western markets.

The Rice commodity market of ancient Japan was a very different place from the markets of the U.S. and most western markets of today.

First of all, everything about the markets moves much faster today due to online trading and High Frequency Trading, where orders are executed and processed by high-speed computers. Contrary to popular opinion, it is much more complex with 9 different levels of what is called “Market Participants.” Each group trades or invests for very different reasons with different agendas and goals, experience, knowledge, and access to critical information.

Also there is a huge difference between the eastern and western mindset. In the eastern culture, people think very differently than in the western culture.

Most candlestick books do not teach buy and sell signals, but tell traders to use candlesticks as a confirmation of an indicator crossover. 

However, since price is the most important aspect of a chart, it makes far more sense and is far more reliable to use a candlestick pattern as the buy signal. Indicators are used to confirm the strength of that buy signal.

In this way, you can learn to do what the Professional Traders, Market Makers, and Institutional Traders do: Use a controlled order for precision entries and exits.  

For example, below is a candlestick buy signal that only TechniTrader teaches. It is called the springboard, and it occurs often in lower-priced stocks poised to move up quickly. It is a very reliable candlestick buy signal based on a group of candles forming in a specific way. Volume and the institutional accumulation indicators which are the bars below candlestick price, confirm there is sufficient energy and buying activity behind price to move it up for good swing trading profits.


Chart provided by TC2000, a Worden Charting Software ©copyright 2007–2018 with our thanks.

The stock moves up quickly with swing trading profits.


Chart provided by TC2000, a Worden Charting Software ©copyright 2007–2018 with our thanks.

Most retail traders AND independent investors find reading candlestick charts to be fun and easy compared to other types of charts. Only candlestick charts can be used in all financial markets and trading instruments. Candlestick Chart Analysis Training is available from TechniTrader.com; visit our website for more information.