The Power of Japanese Candlesticks

  1. There are 3 major types of charts depicting price actions, namely line chart, bar chart and Japanese Candlestick chart. Which one is the best? 
  1. In trading, we always want to catch the turning point of a trend in order to reap the maximum profits. 
  1. We don’t want to enter when the price has already moved considerably. Unless you offer to be locked at the top or bottom voluntarily. Timing is everything. 
  1. So, what is a turning point? A turning point is a time when the market sentiment is changed. 
  1. The change of market sentiment can be from bullish to bearish or bearish to bullish. (Note that it could also be from bullish or bearish to no trend.)
  1. The Japanese Candlestick Chart is the ideal chart for analyzing the market sentiment. 
  1. A Japanese Candlestick is constructed by the 4 critical prices in a specified time frame: Opening price, Highest price, Lowest price and Closing price (OHLC). 
  1. The market sentiment is revealed through the elasticity of the OHLC. 
  1. Consider this case. Stock A opens at $10 and is pushed down to $3 and wandering at this price level throughout the day. The price is then pushed up to $5 right before the market closes.
  1. Consider another case. Stock B opens at $10 and is pushed down to $3 and wandering at this price level throughout the day. The price is then pushed back up to $9 right before the market closes. 
  1. Which stock has higher elasticity? Stock B. 
  1. Which stock has a higher chance to go up next day? Definitely Stock B. 
  1. The elasticity of the OHLC is depicted in a single candlestick, commonly named as the Japanese Candlestick. In the case of Stock B, the price elasticity can be drawn as a beautiful candlestick pattern named Hammer. 
  1. In conclusion, Japanese Candlestick Chart is the preferred chart when it comes to analyzing the market sentiment as to predict the price movement.

---Your Way to Becoming a Profitable Trader---

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