2/27/2015

UnderstandingCandlestickCharts:TechnicalPrimerTheStreet

UnderstandingCandlestick
Charts:TechnicalPrimer
By JonasElmerraji

| 02/01/1110:29AMEST

ExclusiveFREEReport:JimCramer'sBestStocksfor2015.

BALTIMORE(Stockpickr)Asanyrealworldpractitioneroftechnicalanalysiswill
tellyou,chartsareparamounttofindingprofitabletrades.Butlikemosttoolsofthe
trade,there'smuchmoretoreadingastockchartthanjustlookingatalinefromone
pricepointtothenext.
Technicaltraderslookatabevyofdifferentcharttypesthatgivethemasignificant
advantageoverthestandardlinechartsmostretailinvestorsarefamiliarwith.Today,
we'regoingtotakealookatthebasicsofreadingthemostpopular:thecandlestick
chart.
Intechnicalanalysis,chartsarecrucialbecausetheyprovideagraphicaldepictionof
priceaction,thesinglemostimportantindicatorofastock'sbehavior.Whilethe
legaleseonyour401(k)'smutualfundprospectusesmaywarnyouthat"Past
performancedoesnotguaranteefutureresults,"successfulquantitativeandtechnical
tradershaveshownthat,insomecases,pastperformanceisactuallyhighly
correlatedwithfutureresults.

Related:MustSeeCharts:Abbott,Toyota,Schlumberger
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2/27/2015

UnderstandingCandlestickCharts:TechnicalPrimerTheStreet

That'swhypriceactionissoimportant.Becauseastock'spricefluctuatesinresponse
tofundamentalandeconomicfactors(suchasearningsnumbersorjobsdata),price
istheonlymetricthatencompassesallotherrelevantmetrics.Asaresult,market
technicianscangetcuesabouttrendsandpsychologicalpricelevelsbypaying
attentiontoprice.
Ofcourse,theimportanceofpricemeansthatit'sextremelyimportanttopicktheright
kindofchart.
Whilethesimplelinechart(whichgraphsastock'spriceovertimeasasingle,
horizontalline)maybethemostwellunderstoodcharttype,it'sfarfromthebest.
Overtime,aslewofdifferentchartingtechniqueshavebeendevelopedincluding
barchartsandpointandfigurechartstogivetradersmoreinformationinthesame
space.Thecandlestickchartisarguablythemostpopularyou'veprobablyseenthem
before.

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2/27/2015

UnderstandingCandlestickCharts:TechnicalPrimerTheStreet

Above:AdailycandlestickchartoftheS&P500index,includinganumberof
technicalindicators.
Thebenefitsofcandlesticksaremajor.Whilealinechartgivesyouonlyonedata
point(normallythecloseprice)forastockatanypointintime,candlesticksactually
giveyoufive:open,close,low,highanddirectionofmovement.That'sasignificant
advantagewhenyourtradingdecisionsarebasedentirelyonpriceaction.

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Che

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UnderstandingCandlestickCharts:TechnicalPrimerTheStreet

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