Stocks & Commodities V. 22:11 (22-27): Candlestick Trading Principles by Steve Nison, CMT

Stocks & Commodities V. 22:11 (22-27): Candlestick Trading Principles by Steve Nison, CMT

Candlestick charts are available almost everywhere. Are you using them to their fullest potential?

Until I wrote about the technique of Japanese candlestick charting in the 1980s, they were unknown in the Western world. Since then, candlesticks have become ubiquitous, available in almost every software and online charting package. Why have candlestick charts become so popular? The answer is simple. When properly used, candlesticks let you seize trading opportunities by pinpointing early market turns and minimizing losses.

However, the Japanese say that “a wise hawk conceals its claws,” and with the popularity of candles comes misuse. Too many of those applying candlesticks are using them incorrectly. With this in mind, I have designed 12 trading principles to help traders capitalize on candlestick charts by bolstering trading performance, decreasing market risk, and correcting the most common mistakes. I don’t have enough room to address them all in this article, but I will address four of the 12.

TRADING PRINCIPLE 1: Candlesticks are easy to use but powerful in diagnosis.

Since candlestick charts are now so accessible, why not learn how to harness their potential? What good is it to have them around unless you can use the insights they can provide?

Nonetheless, some technicians believe candlesticks aretoo complicated or there are too many patterns to understand. Untrue. Candlesticks are so easy to use and so powerful that once you learn even the basic concepts you’ll never go back to a bar chart. In addition, while there may be many candlestick signals, there are only a dozen or so key signals and patterns. I will explain how even a single significant candlestick can offer important trading insights.