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What are Candlesticks?
By Steve Nison
“A good beginning is the most important of things.” (Japanese proverb)
WHAT ARE CANDLESTICKS?
Japanese candlestick (also called “candle”) chart analysis, so called because the lines resemble candles, have been refined by generations of use in the Far East. These charts are 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.
Click to enlargeCONSTRUCTING THE CANDLESTICK LINE
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.
USING INDIVIDUAL CANDLE LINES
Click to enlargeA 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.
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