Candlestick charting or candleschart analysis is an ancient investment techiniques used by the Japanese rice traders. Candlestick chart or candle chart are so called because the lines resemble candles. There are two types of candlesticks, the black candle and the white candle.
Japanese candlestick charting constructionEach candlestick represents the open, high, low and close prices just like a traditional Western bar chart. However, the additional black and white colors enhances the interpretation of price actions. And with a series of black and white candlesticks results in a meaningful picture to the trained eyes.
Despite the fact that candlestick charting has been used by the Japanese for hundreds of years, the western hemisphere only came to know about this technique in the late 1980's and early 1990's.
Today, these candlechart analysis are used internationally by traders, investors and premier financial institutions.
The benefits of using Candlestick charts:
* Are easy to understand: Anyone, from the first-time chartist to the seasoned professional can easily harness the power of candlestick 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 candlestick chart.
* Provide earlier indications of market turns: Candlecharts 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 candlestick 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, candlestick 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 candlestick 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.
Steve Nison, CMT, the author of two previous volumes on candlesticks, and an educator, trader, and seminar speaker, has written a basic workbook on the fundamentals of candlestick charting and how to interpret and use only the most significant patterns. I attended one of his Nison's candlestick workshops at an investor expo, as well as reviewed his video and found them to be excellent educational vehicles.