Candlestick lesson

[TheChartGuru]

I received this e-mail. I thought that I'd pass it along so some of our newbie and not so newbie members can grasp the idea of what I mean about reversal signals.

First of all, candlesticks are easy to read because with a very quick glance you can immediately tell whether a stock has closed up for a day or down. Candlesticks have a hollow body when the stock has closed up for the day (when compared to close of the last day). Up days are typically colored green in America. Candlesticks have a filled in body (usually red in America) when the stock has closed down for the day. On each end of the body, the each candlestick has a line which looks like the wick of a candle on each end. These "wicks" represent the high and the low. Much visual focus is given to the difference between the open and the close.

Techniques. One type of formation to look for is a large green bar at a low price. Often, times, a stock will decline strongly and then show a candlestick with a long green body right at a major market bottom. It's even better when the close is right near the high for the day and the body is extra long. Here is an example of this type of candlestick in mid June in Cemex (CX) stock. We bought this stock on our Atlas International Options service. What the long green body is telling us is that during the trading day, the bulls had control and had enough power to push the stock up. Often times, the stock goes even higher after the first candlestick. You should also look for long, red bodies, at high stock prices and the opposite effect is tradable for short trades.

Another highly effective candle formation to look for is the "Doji" candles. Doji candles have little or no bodies at all and the candle stick looks like horizontal line. It's because the open and close price are the same or very close to being the same. You can see a great example of a Doji in Google back in early July. The stock had been accumulating strongly until the candlestick formed a Doji and then fell very strongly from there. Doji's have the most strength if they are in the midst of an intermediate or long term trend. This means that the stock (or market) has as high chance of reversing the past trend right after the Doji candlestick. Watch for this formation in your trading as well. It's easy to recognize the formations when looking at candlestick charts.

The Guru has spoken

[chacho]

OK so candlestick graphs can let you know that there may be a reversal soon. What do you keep an eye on throughout the day so you know precisely when to buy?

I've been reading these forums for about a week now and really want to learn, so thanks for this post TCG, it really helps! Any suggestions on literature to read?

Thanks.
chacho

[mlegha1]

For a nice entry point or exit for that matter you need to monitor a daily chart with different time intervals like 30 min, 15min, 10 mins, 5min etc etc.
The very next day after a reversal signal is very important, the stock should open close or above the previous close.Look at the volume, monitor if there is buying on 10,5,3 min chart.Keep an eye on support and resistance and don't chase a stock if it runs away there are always others that will come your way.

[chacho]

What do you look at for support/resistance?
Thanks!
chacho

[Thierry Martin]

This is a book that has been recommended to me (haven't read it yet)



more info here

[Justmakinmoney]

I have found these links very helpful. The first one is from another post on the web site. And the second is one that I found on www.stockcharts.com.

Different Types of Indicators
http://www.stockhideout.com/announcement.php?a=2

Introduction to Candlesticks
http://stockcharts.com/education/Cha...dlesticks.html

[TheChartGuru]

Originally Posted by Thierry Martin

This is a book that has been recommended to me (haven't read it yet)



more info here

Thierry, I have two books on candlesticks, "Candlestick Charting Explained" and "Profitable Candlestick Trading", but neither of the two books combine candlesticks with the Elliot Wave principal, which along with Fibonacci retracements, interest me very much. I'm going to do more research on this book. Thanks

The Guru has spoken

[ub3rn00ber]

TCG, that was very informative. If you have any other good insight like that, please pass it along to us noobs. It would be very helpful.

[Chmiklbrothr]

Thanks for the info....would you mind posting a pic of a doji, hammer, etc....?

[chacho]

TCG, are both those books you recommended good for beginners? I'm looking on amazon and am ready to buy and learn!