The candlestick patterns analysis, or as it's often called, the candlestick charting is an old investment technique which was then used by the rice traders in Japan. It is called as such because each line resembles candles.
Two types of candlesticks are used for the system - the black and the white candle. Each of these candlesticks show the open, close, high and low prices which is similar to the bar chart typical to the Westerners. The interpretation of the price dynamics though, are defined by the added black and white marks on the candlesticks. This makes it easier to describe a very necessary imagery of the trend to the trained eyes.
It was only in the 1980s when the Westerners knew about this systematized technique, which many are grateful for because of the benefits and advantages of its usage. This is why the candle chart analysis is not just used in small-scale industries but also by investors, traders and top financial companies worldwide.
So what are the benefits of using the candlestick charting? Here are some.
- First off, it is very comprehensible. From the amateur chartists to the professional ones, anyone can easily understand the techniques of analyzing candlestick stock. It is mainly because similar data, which are required to assemble a bar chart (includes the high, low, open and close prices) can also be applied for the candlestick chart analysis. It is also very direct. Add to that, there are a lot of packages that will instantly draw them for traders - like the trade station and super charts. The names for the candles are also varied and can be remembered easily.
- It also supplies pertinent information about the patterns of market turns. Due to the method of reading the interpretations in candlestick trading, the system can propagate reversal symbols, which are relatively more visual, in several sessions, instead of the bar chart, which commonly spends weeks for a reversal signal to be sent. This implies that the candlestick charts which are embedded in these market turns will be repeatedly in progress of the common indicators which will aid you in getting in and out of the market with the right timing.
- Another benefit you can acquire from using the candlestick analysis is that it provides you with very unique insights for your market. It does not only present you with how the trend is peaking but also it shows you the force which hammers the move - which cannot be presented through the bar charts.
- It also improves the Western charting analyses. The candlestick chart is highly compatible to any of the present Western technical tools or software used in market analysis. However, candle charting provides you great timing and benefits in trading - both of which are not accessible with the bar charts. This innovation in systematizing the techniques used can jump on those who use only the typical charting Western technique. You can also embed these into candlestick software to make the job easier for you.
- Also, you can synergize the common bar chart with the candlestick chart, along with the traditional market indicators. They are the best means of spotting good opportunities and sorting out time trades with other indicator types.
- Lastly, it describes market momentum. The way it is illustrated and explained does not only provide the price direction. It describes the relationship behind the prices by the body through graphs - with some additional visual edge, which can be seen in the way they are illustrated.
If you know the basics of candlestick charting, or maybe you can try to attend a tutorial on charting and search wiki for the how to's of the technique, it will probably be a lot easier for you to excel in the stock market today.