Candlesticks And Preserving Capital
by Gary S. Wagner and Bradley L. Matheny
Candlestick analysis, the Japanese charting method introduced by Steve Nison to Western technicians
only a few years ago, has been slowly gaining acceptance to help the technician make profitable trading
decisions. As candlesticks become more common among Western technicians, an amalgam of
candlesticks and traditional Western analytical rules will emerge. An important but often overlooked
trading rule that may benefit is the use of protective stop-loss techniques to preserve capital and
encourage sound money management.
Traders must cultivate the use of stop-loss techniques in order to become successful, because his or her
success is not gauged by a single trade but rather in overall performance. Traders know they must
maximize profits and minimize drawdowns if they are to succeed. Professional traders know that risk
definition is a primary component of the trading formula.
Every trader is different, and so each has a unique form of capital preservation they rely on. Candlesticks
offer three pattern groups that aid in the protection of trading equity. Often they are referred to as the
"three Cs" of candlesticks.