Candlestick Patterns in Stock Trading Jan25


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Candlestick Patterns in Stock Trading

There is an analytical tool commonly called candlestick patterns that is used often in the analysis of stock trading. Many people have found success using these patterns across different types of investments. This article will present a brief outline of the origin of this tool and its basic understanding.

Sometime in the 18th century there was a Japanese rice trader named Homma Munehisa that first developed the candlestick methods. His basic premise was that a relationship existed between supply, demand and the price of rice. This theory was later expanded to include any product.

The theory also stated that along with this relationship there was a unique attribute of the price. Prices are affected by the attitudes and psychological opinion of the people in the marketplace. The candlestick patterns began in Japan as a way to predict the movements of the rice market. In the 19th century the analytical tool made its way to America and was adapted to all investment markets.

Candlestick Patterns – The Basics

Candlestick patterns are so popular with trading newcomers due to their ease of use. Investors that have used them successfully claim that they are an important tool in helping them decide whether to buy or sell, as well as when to do so, in any market.

Candlestick patterns depict the high, low, open and close price across a given time period. The time period can be as small as a few minutes and as large as many months. The name Candlestick comes from visual appearance of the pattern.

Normally, a rectangular body is drawn to represent the opening and closing prices. One line above the body represents the activity above the closing – opening range. The highest point of the line shows the highest price of the investment during that activity period. Another line is drawn below the body to show the activity less than the closing – opening range. The lowest point of the line represents the lowest price of the investment during that activity period.

Many times colors are used, depending on which software or company reports the patterns. For example, one company will color the rectangular body black if the opening price is less than the closing price, while a white rectangular body would represent the opposite.

Many different candlestick patterns have surfaced since this method first began appearing many years ago. Investors have found success using these patterns due their accuracy in reflecting the feelings of a market.

The ease of use and the simple design of candlestick patterns make them quite attractive to people who are just beginning to invest in markets. The vital ingredient for any investor to realize success is the ability to understand and identify previous patterns. When the investor sees this pattern begin to materialize again then he/she can take the appropriate action in the marketplace.

Candlestick patternsĀ have been around for over 200 years and are proven to be accurate tools for investors. It would be a wise time investment to learn more about these patterns for anyone that would like to be an active trader.