In The Candlestick Course, Nison explains patterns of varying complexity and tests the reader’s knowledge with quizzes, Q&As, and intensive examples. In accessible and easy-to-understand language, this book offers expert instruction on the practical applications of candlestick charting to give every level of investor a complete understanding of this proven, profitable, and time-tested investing technique. Straightforward answers quickly clarify this easy-to-use charting method. This guide will allow readers to recognize and implement various candlestick patterns and lines in today’s real-world trading environment–giving them a noticeable edge in their trading activities.

Author’s Note:

As the first to reveal Japanese candlesticks to the West, I am pleased and proud that they have now become an important analytical tool for many traders and investors. Candlestick charts, also called candle charts, are especially potent for helping to spot early reversal signals and, when utilized correctly, can help preserve capital while increasing the percentage of successful trades. Candle charts display a more detailed and accurate map of the market than bar charts do. This is because candle charts open new avenues of analysis and offer many advantages over bar charts:

Candle charts pictorially display the supply-demand situation by showing who is winning the battle between the bulls and the bears.
Like the bar chart, the candle chart shows the trend of the market, but candles add another dimension of analysis by also revealing the force (or lack of force) behind the move.
Bar chart techniques often take weeks to transmit a reversal signal. However, candle charts often send out clues of imminent reversals in one to three sessions. The result is that candle charts often provide the opportunity for more timely trades.
Because candle charts use the same data a bar chart does (that is, the open, high, low, and close), all Western technical signals used on a bar chart can easily be applied to a candle chart. Since candles offer many advantages over bar charts, using candle charts instead of bar charts is a win-win situation because you get all the trading signals used in bar charts with the earlier reversal signals generated by the candles.

For example, say you have a long stock position. A candle pattern known as dark cloud cover takes shape. In the course of only two sessions, it completes its reversal signal. At that point you’d be wise to take your gains off the table, especially if there are other confirmatory bearish signals. Others, who don’t recognize the pattern, are not so fortunate. They may hold their position and eventually lose some—or all—of their profits.

Another advantage of candles relates to their effectiveness on charts on a wide spectrum of markets. Futures, bonds, currencies and equities, and any chart in which sessions include a high, low, open, and close can display candlesticks. Candle lines and patterns also apply to any time frame. Individual and institutional investors utilize them on weekly charts, swing and intermediate-term traders study them on daily charts, and short-term and day traders examine them on intraday charts.

In addition, candles give instant pictures of market psychology. Early Japanese traders placed great faith in interpreting the emotions of market participants. In today’s volatile markets, driven to extremes by the impact of sudden news and events, it’s easy to see why awareness of market sentiment and collective opinion is so important.

Unlike bar charts, in which opinion is not so easily spotted, one glance at a candle chart tells you instantly how people feel about a stock or market. A candle’s extended real body demonstrates definite bullish or bearish control. Conversely, a small real body indicates indecision or a tug-of-war between the bulls and bears with no apparent winner. (We discuss these aspects in Chapter Two). Both strong opinion and indecision are extremely important signals to market players, and candlesticks broadcast them quickly and efficiently.