When we discuss candlestick methodology we are not just converting simple bars on a chart into the eastern system of pattern recognition the Japanese have perfected. The candles themselves have meaning, but their meaning can only be interpreted correctly in the overall context of market conditions.
I am not going to get into a full-blown course here on what candles are. I assume most of you have some level of understanding. If you don’t I must refer you to the Steve Nison materials because he does a much better job of teaching this methodology than I ever will. What I do here is add to the great work Nison has spent developing over the past 20 years.
Understand that when we talk about candlesticks, we are also talking about support and resistance levels. There are many different types of support and resistance levels. In the Elliott community we think of the rules and guidelines of the waves. The most important rule of course is the overlap rule. The overlap of the fourth and first waves is a form of support or resistance. But there are many other types.
We can consider Fibonacci retracement levels as important lines. Also, we can consider trend channel lines, prior high or lows, moving averages, and Bollinger Bands as well as gaps as the most important areas on the chart. Which one is more important? Only the market can decide that one. However, we can get a clue when we find a point on the chart where we get a cluster or confluence of relationships lining ...