Visual Guide to Candlestick Charting Bloomberg Financial Series

Today, a majority of chartists and technicians are familiar

with candlestick charting patterns. However, many

chartists are not certain about how to interpret the dozens

of indicators found through candlestick analysis, or

how to use candlesticks along with other indicators to

confi rm reversal and continuation forecasts. Th is has

led to the desire among traders for a consistent, reliable,

and powerful system that supplies them with more and

better information.

As a part of this desire among traders for more and

better information, the enthusiasm for candlesticks as

informative representations of price movement is due to

their many attributes, including:

1. Instant recognition. Th e signifi cance of a series of

candlesticks is recognizable at a glance. A strong

upward or downward movement is visible not only

because of the direction of price trends, but also

because of the color of candlesticks. Th e strength

or weakness of momentum is further visible in the

evolving height of candles, the volatility of trading

range, and the special meaning of exceptionally large

or small sessions.

2. Valuable confi rmation. Technicians know that any

indications of signifi cance (breakout and a new trading

range, resistance or support testing, and gapping

action, for example) need to be confi rmed before entry

or exit should occur. But how do you confi rm and

then decide before the important and expected price

movement takes place? Th e answer is found in candlesticks.

Anticipating price movement rather than

following it helps every trader improve the timing of

entry and exit through the use of candlesticks to confi

rm traditional charting patterns and indicators.

3. Variety of indications. Th ere are dozens of candlestick

indicators, and each has a specifi c name. How many?

Th is book defi nes and illustrates approximately 200

candlesticks and related terms. Th e distinction between

the number of sessions involved with a particular

candlestick indicator can be confusing; for this

reason, the terms used in this book are “sign” (single

candlestick), “move” (two-session indicators), and “pattern”

(three sessions). While the time span of sessions

may vary from seconds or minutes up to hours, days, or

even weeks, the chart examples provided in this book 

are those of daily charts; and the sessions are described

as “days”—however, the observations of indicators and

their meaning apply equally to charts of all durations.

4. Applicability for a range of trading purposes. Candlestick

signs, moves, and patterns provide valuable

price movement insight for a range of purposes. Th ese

can be used not only as confi rmation tools, but also

to augment day trading or swing trading strategies,

timing of options trades, identifi cation if current price

volatility, and even for timing of purchases as part of a

value or growth investing strategy.

Th is book provides a convenient and easy-to-use

summary of candlestick patterns. It is arranged in the

following chapters:

???? Types of charts. Candlesticks are the most valuable of

charting systems; this section compares them to line

charts and OHLC varieties.

???? Th e history of candlesticks. Here are brief explanations

of where Japanese candlesticks were fi rst used

and how they became popular in American technical

analysis.

???? Candlesticks and their attributes. Th is is a summary of

the parts of the candlestick and what each reveals, in

terms of shape, size, and color.

???? Pitfalls of candlesticks. Like all systems, candlesticks

cannot guarantee 100 percent accuracy in timing of

entry or exit. Th ey can provide improvement over analytical

skills and the timing of entry and exit. However,

traders should be aware of the pitfalls within the world

of candlesticks as well as the advantages.

???? Confi rmation. Th e key to all technical analysis is confi

rmation, the verifi cation of what one indicator reveals

with the same prediction off ered by a separate

indicator.

???? Th e six basic candlesticks. Although there are dozens

of possible candlestick indicators and combinations,

they all consist of combining six basic candle types.

???? Candlestick alphabetical entries. Th is section contains

entries with descriptions as well as two illustrations

for each: a small view of the candlestick followed by an

actual example on a chart of one of 50 selected stocks.

???? Noncandlestick confi rmation indicators and terms.

Th ese are traditional Western indicators (as opposed

to Eastern, or candlestick types) used to confi rm what

candlesticks fi rst predict, or that predict changes that

are then confi rmed by candlestick indicators. Th e section

also explains principles of technical analysis related

to overall methods, or to both Eastern and Western

charting techniques.

???? Answers to Test Yourself, for e-book users, are provided

through the previous sections of the e-book. Th ese

consist of multiple-choice, true/false, and chartcompletion

exercises.

???? Bloomberg systems. A brief explanation of how the

Bloomberg terminal provides basic keystroke commands

to begin the process of using candlesticks and

their charts.