High-Powered Investing All-in-One For Dummies, 2nd Edition

Chapter 3

Charting the Market with Candlesticks

In This Chapter

Introducing candlesticks

Going over a few specific patterns

Making sense of a series of patterns

Candlestick charting displays the price bar in a graphically different way from the standard bars described in Chapter 2 of Book X:

• They're easy to use and simple to interpret. You can use candlesticks on any chart, with any other indicators, just like standard bars.
• Candlestick names are widely known and suggest other traders will see stand-out candlesticks and react in specific ways.
• Candlesticks are used mostly to identify market turning points, such as a reversal from up to down.

This chapter breaks down the components of a candlestick and covers those candlesticks and combinations that stand out the most from the dozens that exist.

Anatomy of a Candlestick

The candlestick form emphasizes the open and the close (see Figure 3-1). The open and the close mark the top and bottom of a box, named the real body. A thin vertical line at the top and bottom of the real body, named the shadow, shows the high and the low.

Illustration ...