Mastering Financial Pattern Recognition

Chapter 8. Advanced Candlestick-Charting Systems

So far, you’ve gotten a grand tour of the many different kinds of patterns that may be of use to you, but candlestick charting can also be creative and doesn’t have to stop at the basic construction methods. This chapter presents two candlestick-charting systems that offer diverse alternatives to the original system.

While the original system presents the OHLC data as it is, the two proposed systems covered in this chapter take a different approach to understanding the data and squeezing as much information as possible from it.

The first advanced charting system is Heikin-Ashi, which transforms the OHLC data in order to help trend followers get a less noisy view of the ongoing regime. The second charting system is K’s candlesticks, which are simply a smoothed version of OHLC data where candlestick patterns are applied in order to find more signals, all while reducing noise.

The aim of this chapter is to add these two powerful charting systems to your trading framework so that you have a different angle view. Ideally, when checking for patterns using the original candlestick-charting system, you should also check for the same patterns on these two alternative candlestick systems.

Heikin-Ashi System

The Heikin-Ashi system is also known as Heikin-Ashi candlesticks. The term heikin-ashi means “average bar” in Japanese, which is intuitive considering the way it is calculated. The main aim of creating a Heikin-Ashi chart is ...