V.9:12 (495-498): Candlesticks And Preserving Capital by Gary S. Wagner and Bradley L. Matheny

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.