July 20, 2018

Candlestick Charting and the Novice Trader

Morning StarWhenever attempting any new undertaking, it is always best to start simply by using time proven methods.  For anyone considering online trading, there are no better recognized techniques than the art of mastering candlestick chart formations.

A Little Candlestick Charting History

Candlestick charts have been around for centuries and were first used by a rice trader by the name of Homma Munehisa.  The rationale behind candlestick charting is that there is an irrefutable connection between the supply and demand of any product which is reflected in the price. The theory behind candlesticks also holds that prices in any market are greatly influenced by the psychology and emotional attitudes of the market participants.  Fear and Greed are two of the psychological attitudes that cause prices to move in any direction and candlestick charting reveals these emotions like no other form of analysis can. [Read more…]

Trading Options with Candlesticks

Bullish EngulfingStatistics show that over 80% of options traders lose money. Because of their very nature, stock options seem to stack the odds against the trader from the very start. Profiting in stock options requires the trader to correctly analyze and predict a future price move. Then the trader will have to successfully forecast the timeframe when that move is going to happen! Finally, the trader must also know how big that price move is going to be! The combination of these three factors makes it extremely difficult for the average trader to enter an option trade successfully.

So how can candlesticks turn these disadvantages onto advantages? When trading using candlesticks we find an answer to each of the elements that make up a successful option trade.

First is the price move itself. As a trader becomes more and more proficient with reading candlestick patterns they also become more accurate in determining changes in market direction. Candlestick reversal patterns have the unique ability to give us a visual snapshot of market psychology and when it is changing. Determining when this change takes place gives the candlestick trader an edge in entering a successful trade, either by entering an established trend or an even more profitable change in market direction. [Read more…]

Why Trade With Candlesticks?

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. [Read more…]