We don’t have to be a Gordon Gekko to make money consistently out of stock market. Even in rapidly changing today’s market, one can still follow candlestick stock charting to make investment/trading decisions that can consistently help make more profitable trades than the losing trades. Here is how to decode the mystery of candlestick charts.

Disclaimer: Stock market trading is not a game of kids. Hence always caution is advised as the stakes are high. Use your discretion and cautiously invest in stocks/shares. The following are author’s views only.

Candlestick charts are invented by the Japanese and hence are very famous there. You can find volumes of books written by experienced Japanese stock traders on Candlestick charting. Japanese have a very good of dealing with the stock market. However it is to be noted that the screw-up of their stock market profits in the last two decades was because of the banks and not traders.

Either reading through “candle stick charting explained” books or looking through trading experience, there are some fundamental patterns to candle-sticks that almost always demystify the same result. Below are each of those simple but important candlesticks to look for and also the meaning/mystery behind them.

Read more in Investing
« What You Need to Know About HUD Homes
The Board of Directors »

Candlesticks Indicating Strength or Weakness

If you don’t know why black & white, red & green, dark & light colors are used in candlestick charting I would recommend a quick basic reading on candlestick charting.  Otherwise they are different ways to note the important aspect of a stock price progress through the day – that is white/green/light color for rising share price (close price greater than open price) and black/red/dark candle-stick to indicate falling share price through the day (close price lesser than open price).

The color is the most important thing to note in candle stick charts. They demystify the strength or weakness in the current trend the stock is trending into. A white candlestick indicates strength in upward trends and more white candlesticks than black indicate more upward strength than downward pressure. Vice versa applies with black candlesticks.

Hence always look for these color codes to determine if the trend is (ex. In upward trends):

  • strong (you should see long white candlesticks)
  • fading quickly due to weakness (black candlesticks after white ones)
  • new trend is emerging (one small white candle stick after few black candlesticks)
  • continuing strong upward trend (consecutive white candlesticks)

Thin Candlesticks Indicating Pressure or Buoyancy

The other candlesticks of paramount importance are the thin ones wherein the price progress through the day is smaller than the entire range of share price for the day. When a stock candlestick is thin (regardless of the color) it is either:

  • Having long upper stick or
  • Long lower stick or
  • Both sticks around the box being long.

These are the only (Doji) patterns one should look for in thin sticks. Below are four conclusions to derive from these:

  • The long upper stick indicates that upward price progress is hammered down due to pressure from the sellers.
  • The long lower stick indicates that the downward price progress is reversed due to buoyancy from buyers.
  • Both long sticks in the same day indicate no clear direction (range trading pattern). Same as small thin sticks.
  • Consecutive long sticks, upper before lower stick for strength in upward trend, lower before upper stick for weakness in upward trend.

This is the best way to decode candlestick charts to find out the emerging trend, fading trend, strength or weakness in the current. Based on what it indicates a trading decision to buy or sell is made to enter/exit or accumulate or reduce the exposure in the stock.

Good luck with you candle stick analysis and stock investment/trading!

Read More

See also