Admitting the Potential Candlestick Charting Risks

After more than 15 years of using candlestick charts to inform my trading decisions, I can honestly say that I have a difficult time coming up with any substantial arguments for using other common types of charts over candlestick.

In the interest of fairness, however, and to help you realize the truly versatile and useful nature of candlesticks, I offer a couple of minor potential chinks in the candlestick chart’s armor:

bullet They don’t work in the very short term. Candlestick charts are an excellent display of price action, but for some extremely short-term trading strategies, the patterns that reveal themselves on a daily candlestick chart may not develop on the much shorter time frame — five minutes or less, for example.

I like to think of candlestick charts as a visual representation of the battle between the bulls and bears, which is played out in the price action of a stock. That battle takes some time to play out, so patterns on a very short-term chart may not produce signals that can be properly interpreted and traded.

Candlesticks aren’t as useful to intraday “scalping” or day trading strategies where hold periods are generally shorter. This speaks more to the utility of the chart and the intended behavior of the trader. ...

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