Candlestick Charts
As a learning trader, this will be one of the most important pages of Main Street beats Wall Street for you to master.
There are two types of ways to analyze the price of a stock, fundamental analysis and technical analysis. At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements.
Fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a company’s actual business and its future stock price. On a broader scope, you can perform fundamental analysis on industries or the economy as a whole. The term simply refers to the analysis of the economic well-being of a company as opposed to only it’s price movement. Fundamental analysis is used by all successful longer term investors to gauge the price of a stock and where the price might go based on the fundamental financials of a company.
The technical analyst is seeking to answer the question “how are other traders viewing this stock, and how will that effect the price in the immediate future.” Technical analysis deals more with the psychological component of trading a stock, and is influenced for the most part by trends and also emotionalism. Being more of a “Swing Trader” trading short term options, I rely more on technical analysis which helps me determine where a stock might go in the shorter term.
There are a number of stock charts a trader can study when doing their technical analysis but for me the only way to go is Candlestick Charts. As you will see, the candlestick chart is the most effective way to gauge the sentiments of other traders. There are also Bar Charts, Line Charts and Mountain Charts that many investors use, but as a trader I recommend Candlestick Charts. I NEVER make a trade without looking at the Candlestick Chart! I will give you an example of each chart but this section is about Candlestick Charts only. The Bar Chart is the most similar to Candlesticks which I will explain below. The Line Chart is very similar to the Mountain Chart but as you can see everything below the price line is shaded in the Mountain Chart for clarity. Many long term investors like the Line and Mountain Charts. You will see them used on the financial TV shows. All three of these charts below show the same time frame of the same stock.
Bar Chart
Line Chart
Mountain Chart
Now that you see these three snap shots of the Bar Chart, Line Chart and Mountain Chart, let’s get into the subject of this page which is Candlestick Charts. As you see in the Bar Chart, each line represents a day and it would be the same for a Candlestick Chart. There would be one candlestick per day. There are other time frames you can set your chart on. For instances, you can set your chart to have one candlestick per month, week, day, 60 minutes, 30 minutes, 15 minutes, 10 minutes, 5 minutes and you can even set your chart to give you a separate Candlestick for each minute. The charts with more frequent candlesticks are used more by day traders for technical analysis.
The history of Candlestick charting is quite interesting. Candlesticks are an ancient Japanese method of technical analysis used in trading rice in the 1600’s. It was used in trading rice contracts from 1710 onwards. Candlesticks originated in Japan so candlesticks are also called “Japanese Candlesticks” or simply “Japanese Candle”. At this time only physical rice was being traded. Later a futures market emerged where ‘coupons’ were issued, which were records of promise of delivery of rice at a future time. This is the beginning of futures trading.
Candlestick technical analysis were introduced to the Western world by Steve Nison in his book, Japanese Candlestick Charting Techniques. Below I included Steve’s entire book. Hit the link and read away!
Below is an example of a Candlestick Chart. You will see a big difference from the other charts.
Candlestick Chart
As you can see the Candlestick Chart is much easier to look at then the other charts. The Bar Chart will give you the same information but as I said this chart has more clarity. In our examples each Candlestick represents one day. This chart has red and green Candlesticks. You will also see charts with black and white Candlesticks. I like to use the red and green with the black background exactly the way you see the chart above.
Green Candlestick
The green rectangular part of the Candlestick is called the Real Body. The line above the real body is called the Upper Wick or Upper Shadow. The line below the real body is called the Lower Wick or lower shadow. When you have a green Candlestick, that stock was up on the day.
The bottom of the green real body is where the stocked opened for the day.
The top of the green real body is where the stock closed for the day.
The bottom or lowest point of the lower wick is the lowest price the stock hit during the day.
The top or highest point of the upper wick is the highest price the stock hit during the day.
Red Candlestick
When you have a red candlestick, the stock was down on the day.
The top of the red real body is where the stock opened for the day.
The bottom of the red real body is where the stock closed for the day.
The top or highest point of the upper wick is the highest price the stock hit during the day.
The bottom or lowest point of the lower wick is the lowest price the stock hit during the day.
White Candlestick
The white Candlestick is the same as the green Candlestick, an up day.
Black Candlestick
The black Candlestick is the same as the red Candlestick, a down day.
I put the black candle on a gray background for easy visibility. Some traders like to look at black and white and some like to look at red and green. Whatever your preference is. I like the red and green with the black background.
Now that you see and know what an individual candlestick looks like. And you know what each part of the Candlestick represents, I must go to a different teaching method. For me to completely show you the world of Candlesticks I would have to write a book or dedicate an entire website to the subject. I decided to do some homework for you, find some very good websites already on the web and include the links below. I also have some links to some very informative Candlestick Youtube training and strategy films. I will also update this page and add links to any other sites I find and feel will be helpful. This “Main Street beats Wall Street” page will have enough information to make you a Candlestick master.
This first site called “Intro to Candlestick Charts” is an informative site put out by StockCharts. It’s an introductory site. It will use black and white Candlesticks. Remember, a white candle is an up day and a black candle is a down day
The Basic Language Of Candlestick Charting
As you read these sites I’ve linked into Main Street beats Wall Street, don’t worry about seeing similar material in different sites. It’s always good to get different perspectives. This is a very good site for beginners. It gets into the names and descriptions of different candlestick patterns you want to look for when reading your Candlestick Charts. Some patterns show bullish signs and some show bearish signs.
Tradimo is also a intro site. This is a good site because it includes a short 5:49 film. This film explains the parts of the candlestick, including colors. What I like about this film is it covers Candlestick time frames. As I said above, most charts show daily Candlesticks. This short film explains 1 minute and 5 minute Candlesticks and how this more frequent Candlesticks might help day traders. After the film this site shows examples of Candlesticks to watch for when trading. Candlesticks with long bodies, short bodies, long wicks, short wicks etc. You will also learn some names of different shaped Candlestick and what they mean.
Everything you want to know about candlesticks
A book by Mark Rose
“Everything you want to know about Candlesticks” is a complete book by Mark Rose. Pretty much it will tell you everything you want to know about Candlesticks. I include this book along with other books and sites because It’s always good to get different perspectives.
Japanese Candlestick Charting Techniques
A book by Steve Nison
Steve Nison is the master of Candlesticks. He went to Japan to study and brought the Candlestick concept to the western world in the 1980’s. This is a must read! I have a copy of the book and refer to it often if it’s in my possession. I lend it out quite often
This site is very short but is shows some very important patterns to watch for that indicate a reversal in the trend.
The 5 Most Powerful Candlestick Patterns
A very good site which shows the importance of Candlestick Patterns and what they mean. This page also has many links to further your education.
By Stephen Bigalow
Stephen Bigalow is another master. This site is a short book that shows the 12 major signals to look for when trading. This is a very clear, easy to read book that will give you some great information. A must read!
Bloomberg Visual Guide to Candlestick Charting
A book by Michael C. Thomsett
This is a 374 page book that wasn’t as easy to read as Steve Nison or Stephen Bigalow. Maybe because his name is Michael and not Steve lol. I also have an options book by Thomsett which also was not my favorite. However, this book has a lot of great info and it’s worth reading after you read Nison and Bigalow.
A Youtube video by Steve Nison
This is a short youtube video by Steve Nison which covers Candlesticks from the beginning. It’s only 9:30 long and remember Steve is the master. You must watch or read anything he offers. With any youtube video you have to get through the ads before it starts. No big deal! They’re short!
A Youtube video by Stephen Bigalow 123.11
This is a longer youtube video by Stephen Bigalow. It’s 123:11 long but Stephen Bogalow is a master and it’s a must watch. He talks extensively on breakout patterns. He explains how certain Candlestick patterns can predict a breakout of a stock. It’s a great time to get in with the buying of the stock or for you option buyers, a chance to make big profits.
I love Candlestick technical analysis and I like the way this page came. As you see when it comes to Candlesticks there’s just too much information for me to write on a page of Main Street beats Wall Street. I hope you enjoy all parts of this page, links and videos. When you are done with everything you will notice how much of it is repetitive. As I said in the beginning of this site, with basketball I teach by repeating a subject every day. I didn’t teach a particular offense or defense in one day. I broke it up and teach a little each day and repeated drills everyday. I believe it sinks in better. Check out one of these links each day or once a week and you will master Candlesticks Charts.
If you need more information when watching the Youtube videos, just go to the side bar when watching a video and you’ll see many, many more to click on.