Japanese candlestick charts have been around for centuries and have become increasingly popular among stock traders. Some have heard of candlestick charting and really don’t understand the benefits candlestick analysis can provide. Others use candlesticks on their charts but don’t fully appreciate the power of the signals given by candlesticks. Candlesticks are the study of price action and its ability to gauge market psychology.
I believe today’s trader is so inundated with trading systems based on indicators that they forget (or maybe never knew) that the origin of Western Technical Analysis was also based on price action. Before the computer, technicians would plot daily price movements on graph paper with pencil until familiar patterns would form allowing them to also have a peek into the psychology of the market. In my opinion this is becoming lost by today’s market technicians.
Don’t get me wrong! I’m not against the use of indicators if they help the trader. But it’s important to remember that indicators are mostly numerical algorithms of price movement itself! Forgetting price action and price patterns, even when using Western analysis, is forgetting why price action analysis became so effective in the first place.
So, back to candlesticks… As I said before, candlesticks are nothing new. Their signals have been around for hundreds of years as they were used by Japanese commodity traders’ centuries ago. They don’t involve complicated formulas or extensive calculating processes to master. Candlestick charting is so simple in fact that I believe the simplicity is the reason some traders give candlestick trading nothing more than a passing glimpse.
Most traders who truly investigate candlestick charting as a way of analyzing market psychology and put forth an honest effort into learning the simple signals candlestick charting provide will really see a difference in their trading success. Candlestick signals provide extremely accurate results when used with a little common sense and the right approach.
Japanese candlestick charting won’t take months to master. In fact, with just a few weeks of practice the patterns can be easily memorized. The trader will begin to see these patterns reveal themselves on the charts soon afterward. More importantly, the trader will also begin to understand market psychology and the implications these simple patterns on price moves.
If you haven’t tried Japanese candlesticks as a means of analyzing your investments, I urge you to give them an honest try. I believe you’ll find them as easy as they are profitable.
