Reading Candlestick Charts Like A Professional

Candlestick patterns are used by each and every kind of trader. Day trading and swing trading utilize candlesticks as a way to read chart patterns quickly and efficiently, while getting the same data offered by bar and HLOC charts. Professional traders love candlesticks because they can be read much quicker than a bar chart, while also allowing a different kind of technical analysis known as candlestick reading.

Modify for Your Style

Your trading style has much to do with whether or not candlesticks can become a part of your everyday trading technique. Developing a trading plan around candlesticks can be difficult, and thus, it is best to use candlesticks to supplement an already complete trading plan. There are many trading seminars put on by professional traders to study the key to candlestick investing and why chart patterns exist.

Candlesticks are just one of many tools to make consistent profits. Just as Japanese traders have used for hundreds of years, candlesticks can show chart patterns before they happen. For example, a large wick with a small downward body at the end indicates indecision, or that the market may be ready for a reversal. It would be hard even for a professional trader to see this without the graphical display that candlesticks give to an investor.

Use Your Own Plan

Investing is difficult enough without the use of candlesticks. Many traders prefer to use their own basic trading plan and then incorporate candlestick chart patterns as a confirmation. The day trader prefers these candlestick chart patterns because scalping and other short term positions have very small windows of opportunity. Candlesticks let you read and comprehend more data in less time.

A complete trading plan should allow for some candlestick patterns and other chart formations. A well worked strategy can handle the addition of a candlestick confirmation, while less complex strategies might not be diverse enough to accompany candlesticks. Many profitable trading strategies use a mix of both, straight technical analysis mixed with candlestick reading to produce consistent profits.

Use a Planner

A trading plan planner will help you throw in a mix of candlesticks without overdoing your strategy with too many variables. For the most part, a candlestick chart is just like a bar chart, but is also its own technical indicator. For instance, a small cross-like candlestick often means the bottom or the top of a chart, thus buying or selling should ensue depending on current momentum.

About the Author:
Leroy Rushing is an active, professional day trader; trading coach; and author. He is the Founder and CEO of Trading EveryDay, a distinguished provider of educational trading products and services that are available worldwide. Trading EveryDay also has many articles with unique perspectives on day trading.

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Candlestick Charting and Reversal Patterns - The Hammer Candle

The popularity of candlestick charting has soared in recent years. But many traders still have questions about candlestick theory and practice. In this second of a series of articles on candlestick charting and reversal patterns we will examine the hammer. The hammer can come in a few different variations and their implications can be both bullish and bearish depending on where the hammer forms. The bearish version of the hammer is called a “hanging man” and we will look at this candle as well in this article.

The hammer and hanging man look exactly alike, but have different implications based on the preceding price action. We look for the hammer to form at the bottom of a downtrend, signaling bullish price action, possibly leading to a change in price direction. The hanging man forms at the top of an uptrend, signaling a bearish selling day letting us know that the uptrend is losing steam and may possibly turn and head south.

Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The hammer gets its name by the shape of the candle which looks like a square lollipop. The body of the hammer may be clear or filled, with the clear body being a bit more bullish. Hammers are most consistent when they occur at support in an uptrend or sideways trends. If a hammer forms near support levels, then the likelihood of a strong bullish reversal is high. The hammer must come after a prolonged downtrend. Like all candle lines, the hammer is equally potent on weekly charts, or any other time frame.

The inverted hammer appears in a market that opens at or near its low, creating a candle with a small real body. The price then moves higher in the trading day giving the inverted hammer its shadow (handle) and then comes back to close near its low. The inverted hammer is simply an upside-down hammer. What happens on the next day after the Inverted Hammer pattern is what gives traders an idea as to whether or not prices will go higher or lower. Look for confirmation, either bullish or bearish; to determine the likely direction the trend may take.

The hanging man is a bearish reversal pattern that can also mark a top or resistance level. The hanging man is a hammer that forms after an uptrend and gets its name from the way it looks on the chart…hanging at the top of a trend. Look for the hanging man to form at points of resistance on the price chart to further enhance the bearishness of the formation.

All hammer candle variations as well as the hanging man require confirmation of the next day’s candle. While these are powerful candles, many times they may only signal the weakening of the previous trend and not the actual bottom or top.

B.M. Davis is an active trader, trading coach and the publisher of Candlestick Trading For Maximum Profits. If you would like more information about candlestick trading or charting please visit http://www.candlestickcourse.com

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