Candlestick Charting with Steve Nison

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Candlestick Charting Explained

“A good beginning is the most important of things.” (Japanese proverb)

View the Candlestick Charting Glossary
View the Western Technical Indicator Glossary

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Candlestick patterns are a form of technical analysis and charting used in the stock market, forex market and all other markets. And they can be used in all time frames, from those looking for long term investments to those who use swing trading or day trading, The power of candlesticks (also called Japanese candlestick charts) is that they excel at giving market turning points and when used properly can potentially decrease market risk exposure.

You may have of some common candlestick chart patterns or candlestick terms like bullish engulfing pattern, doji, dark cloud cover, hammer and shooting star.

This section discusses only a few of the scores of candlestick chart patterns. There are many important candlestick patterns and trading tactics not discussed in this basic introduction. The goal of this section is to illustrate how candlesticks (and especially Nison candlesticks) can open new and unique tools for technical analysis, but since this is an introduction this will not provide a trading methodology. For example, there are many times candlestick signals should be ignored. This is where experience with candlestick charts comes in.

WHAT ARE CANDLESTICKS?

Japanese candlestick chart analysis, so called because the candlestick lines resemble candles, have been refined by generations of use in the Far East. Candlestick charts are now used internationally by swing traders, day traders, investors and premier financial institutions.

Candlestick charts:

  • Are easy to understand: Anyone, from the person new to technical analysis to the seasoned professional trader can easily harness the power of candlestick charts. This is because, as will be shown later, the same data required to draw a bar chart (high, low, open and close) is used for a candlestick chart.
  • Provide earlier indications of market turning points: candlestick charts can send out reversal signals in a few sessions, rather than the weeks often needed for a bar chart reversal signal. Thus, market turns with candlestick charts will frequently be in advance of traditional indicators. This will help you to enter and exit the market with better timing.
  • Furnish unique market insights: candlestick charts not only show the trend of the move, as does a bar chart, but, unlike bar charts, candlestick charts also show the force underpinning the move.
  • Enhance Western charting analysis: Any Western technical tool you now use can also be used on a candlestick chart. Candlestick charts, however, will give you timing and trading benefits not available with bar charts. This merging of Eastern and Western analysis will give you a jump on those who use only traditional Western charting techniques.
  • Can be used in all markets such as the stock market, forex market, or futures or commodity markets and can be a powerful trading tool for option trading.
  • Are used by those who do day trading, swing trading, active investing and for investing.

WHAT ARE NISON CANDLESTICKS?

If you're serious about learning how to use candlestick charts, you owe it to yourself to do it the right way.
With Nison candlesticks – candlestick training the right way- you can be sure you are getting the correct candlestick training. There are a lot of so-called teachers out there who have good intentions when it comes to explaining candlesticks. But the truth is they haven't done the work, or done the years of research, it takes to become The Expert at candlestick charting.

Remember these Japanese candlestick chart patterns were refined by generations of use. As the first to reveal candlestick charts to the Western world, I have painstakingly unraveled candlestick tradingtactics from the original Japanese sources and the top Japanese traders. The danger to traders is when other trainers – while well intentioned, begin adding their own variations and candlestick chartpatterns that aren’t part of the original set of Japanese candlestick patterns. Or, even more dangerous to your trading capital is when they teach candlesticks incorrectly. This false information is what causes many traders to lose real money. But it doesn't have to be that way. That's why I work so hard to teach you candlesticks the right way with Nison Candlesticks.

The bottom line is this training works.

CONSTRUCTING THE CANDLESTICK LINE

The broadest part of the candlestick line is the real body. It represents the range between the session's open and close.

Constructing the Candle Linecandlestick figure constructing

If the close is lower than the open the real body is black. The real body is white if the close is higher than the open. The real body is white if the close is higher than the open.

The thin lines above and below the real body are called the shadows (sometimes called candlestick wicks). The peak of the upper shadow is the high of the session and the bottom of the lower shadow is the low of the session.

The color and length of the real body reveals whether the bulls or the bears are in charge. Note that the candlestick chart lines use the same data as a bar chart (the open, high, low and close). Thus, all Western-charting techniques can be integrated with candlestick chart analysis.

At Candlecharts.com, we have found the candlestick charts are most potent when merged with Western technical analysis. Accordingly, we harness the best charting techniques of the East and West to provide you with uniquely effective trading tools.

USING CANDLESTICK CHARTS

A critical and powerful advantage of candlestick charts is that the size and color of the real body can send out volumes of information.

For example:

    • a long white real body visually displays the bulls are in charge
    • a long black real body signifies the bears are in control.
    • a small real body (white or black) indicates a period in which the bulls and bears are in a "tug of war" and warns the market's trend may be losing momentum. As the real body gets smaller we ultimately wind up with a doji which is a candlestick line which has an equal open-close and thus no real body.

Constructing the Candle Line

Doji

doji

While the real body is often considered the most important segment of the candlestick, there is also substantial information from the length and position of the shadows. For instance, a tall upper shadow shows the market rejected higher prices while a long lower shadow typifies a market that has tested and rejected lower prices.

Candlestick charts will often provide reversal signals earlier, or not even available with traditional bar charting techniques. Even more valuably, candlestick charts are an excellent method to help you preserve your trading capital. This benefit alone is incredibly important in today's volatile environment.

Let's look at an example of how a candlestick chart can help you avoid a potentially losing trade.
Exhibit 1 (below) is a bar chart. In the circled area of Exhibit 1, the stock looks strong since it is making consecutively higher closes. Based on this aspect, it looks like a stock to buy.

What is this bar chart saying?
candlestick chart stock chart 1

The candlestick chart below uses the same data as Exhibit 1 (above), (remember, a candlestick chart uses the same data as a bar chart; open, high, low and close.)

Let's now look at the circled area on the candlestick chart in Exhibit 2 (below). Note the different perspective we get with the candlestick chart than with the bar chart. On the candlestick chart, in the same circled area, there are a series of small real bodies which the Japanese nickname spinning tops. Small real bodies hint that the prior trend (i.e. the rally) could be losing its breath.

What is this candle chart saying?
candlestick chart stock chart 2

As such, while the bar chart makes it look attractive to buy, the candlestick chartproves there is indeed a reason for caution about going long. The small real bodies illustrate the bulls are losing force. Thus, by using the candlestick chart, a swing trader, day trader or even if you do active investing would likely not buy in the circled area. The result -- avoiding a losing trade.

This is but one example of how Japanese candlestick charts will help you preserve capital.

Nison Candlesticks truly shine at helping you preserve capital!

CONCLUDING COMMENTS

With candlestick charts, one can use candlestick charting techniques, or Western techniques, or a combination of both. This union of Eastern and Western techniques provides our clients with uniquely effective tools to help enhance profits and decrease market risk exposure.

A Japanese proverb says, "His potential is that of the fully drawn bow- - - his timing the release of the trigger." The timing of the "release of the trigger" depends on many factors not addressed in this pamphlet. However, while this pamphlet provides only a basic introduction to candlestick charts we hope you have discovered how Nison candlestick trading techniques can help enhance profits and decrease market risk.

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