Candlestick charts are a visual representation of the battle between bulls and bears taking place in the market. It takes time for this battle to take shape. Candlestick patterns in very short time frames used for scalping and some other daily trading strategies may not give signals that can be interpreted and traded correctly.
In the last decade, e-commerce has become very popular. What this means is that a significant volume of trading takes place outside of normal market hours. This trade can cause patterns to appear that do not reflect the whole picture on a candlestick chart.
For example, ABC stock is listed on the NYSE. NYSE officially opens at 9:30 a.m. M. EST for operations. The opening price of ABC shares is $ 60 per share. However, this stock had been trading online in the hours before the market at as low as $ 59. Now, the opening of the New York Stock Exchange may not be a true reflection of where they had been. trading the shares initially that day.
What this means is that the open recorded on the candlestick chart is not accurate. Now, suppose that ABC shares never trade at $ 59 during the day. Therefore, the low on the candlestick chart may not be an accurate description of the day’s price action.
Therefore, e-commerce makes these charts somewhat inaccurate. Combine this with the fact that in short periods of time, the candlestick charts are not very accurate. These charts are valid for periods of 1 hour or more. Just keep these two limitations of the candlestick charts.
Other than that, candlestick charts are a powerful tool in the hands of an experienced trader. When an experienced trader combines these charts with technical indicators, this combination can produce highly accurate trading signals.
Candlestick patterns can be a good buy and sell signal when combined with a technical indicator such as RSI or Stochastic. There are simple and complex candlestick patterns. Single bar candlestick patterns are easy to spot, however two and three bar candlestick patterns do not appear very often, but when they do they are very accurate and can be very profitable to trade.
Now Yahoo Finance is a great free resource that you can use to create candlestick charts for any stock by simply entering the ticker symbol. You should play with the options available for Yahoo Finance. This will help you learn a lot of new things about candlestick charts.
