This Blog might be best viewed on a largish Screen - you are gonna struggle to see the Chart and Candlesticks adequately using a Fone Screen.
As you know, I continually bleat on about flippin’ Candles - drives you all nuts right? Anyway, I had been working on the Spreadbet Blog Series and fancied knocking up a quick, easy and nearly fun Blog draft - with the intention that it would probably see the light of day in March ish (and so it has !!).
I have had a lot of Readers ask me about Candles and I seem to have ignited some interest (geddit?), so I fancied a Blog on it. My thinking was that I would randomly pick a Chart of a Stock and then point out how Candlestick Charting techniques enable me to ‘read’ what the Share Price is doing and have some idea of its future moves - the ability to peek into the near future, now that would be handy, would it not?
In reality, I couldn’t just pick any old Stock - I tried to do this and ended up with some highly illiquid piece of AIM Junk that would make my job very hard - Technical Analysis of any type does not work as well on Small Choppy Illiquid Stocks, although it does have some use if you keep it simple. So, I decided to go FTSE350 and randomly picked out this Chart of Grafton Group GFTU (below), from the list that ShareScope chucked out at me.
As ever, Simplicity is always best, particularly with Technical Analysis of any sort. In essence, there are 2 overall types of Candlestick Patterns - Reversal Patterns and Continuation Patterns. The latter are far harder to understand and less useful anyway, so I will ignore them in this Blog (if you want more detail on Continuation Patterns and Candlestickery in general, then pop over to Wheelie’s Bookshop and get a copy of ‘Candlestick Charting for Dummies’ via www.wheeliedealer2.weebly.com).
Click this link to go to a Wikipedia Page which covers the common Candlestick patterns (this link is also at the bottom of my ‘Useful Links’ webpage) http://en.wikipedia.org/wiki/Candlestick_pattern
This means that we are really concerned here with ‘Reversal Patterns’ - which means they are Patterns (or single Candles) that form when an Uptrend (or Upmove) or Downtrend (or Downmove) is coming to an end and is most likely going to change direction and go the other way. Many of the Candle Patterns I highlight below are ‘Context Sensitive’ - this means they only work after a clear Downtrend or clear Uptrend. If they appear in a Sideways Move, then they have no real relevance.
As you will see in the Chart, I have put Black Circles around the Candlesticks I want you to look at, and I have numbered them for easy description and identification. I have also put in 2 Arrows that will be described at the end. I have done a Bullet List for the numbers that follows below the Chart. I have also repeated the Chart further down the page to try and make it easier to read.
Ok, I hope you liked that, now the Arrows:
It is worth noting that I have kept the above discussion limited purely to the Candles - so you can see their Power without complicating things too much. In practice, if you combine these Indicators with simple things like Trend Channel lines, RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence), you have a pretty powerful and practicable, Short Term and timely, Prediction Tool. How cool is that?
To be frank, it amazes me how few people use these tricks - simply by reading this Blog you probably are now hugely ahead of the vast majority of Market Participants - this stuff can give you a real and useable ‘Edge’.
Most free Charting Packages will enable you to show Candlestick charts from a Menu rather than simple ‘Line’ charts. I know the ADVFN app on my Fone and Tablets has this function - I use it all the time.
It is worth realising that Candlesticks are ‘fractal’. This means they work on any timeframe - and once you get in the habit, it will amaze you how good they are. You can use on perhaps as little as 5 minutes right up to Months - through a wide span including 15 minutes, Hours, Days, Weeks etc. I use Daily Candles as my main tool and use Weekly ones at the Weekend - Weekly ones are brilliant because as with anything in Technical Analysis, Longer Term Trends/Indicators dominate over Shorter Time Periods.
Hopefully from this Blog you will get a feel for how useful Candles can be - pick up ‘Candlestick Charting for Dummies’ and you can read a lot more on it and boost your knowledge.
Right, I got some washing up to do, see ya, wd
6/3/2015 05:38:02 pm
The continual legal disclaimer that "past performance is not an indicator of future performance" does not really seem to stack once one is educated in candlestick methodology. Good summary WD.
7/3/2015 04:04:07 pm
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