Candlestick Charting--The unknown indicator Message Board

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Strategies & Market Trends : Candlestick Charting--The unknown indicator

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To: The Perfect Hedge who wrote (1122)	1/25/1998 3:48:00 PM
From: Esteban	Read Replies (1) of 1589

Glen, Re: I'm on the verge of trashing the candle charts.I've been faked out so many times with the candles on EVI?I'm dizzy! I think it's important to keep in mind the place of candlestick charting in the grand scheme of technical analysis. They are short term indicators. You have to keep in mind the context of the candlesticks in relation to the overall chart. They're inavaluable for timing trades based on other factors, technical or otherwise. Example: If a stock is trending and you want to buy a pullback, a very good entry point would be when a reversal pattern forms. This can get you an entry right near the bottom of the pullback if the pattern holds. OTH if the stock is in a downtrend and you get a reversal pattern, odds are if there is a reversal it won't be significant until other factors point to a bottom and a major reversal. So when one tries to use candlesticks to predict major reversals, he is playing a low odds game because V reversals usually fail and downtrends are naturally punctuated by several failed up moves. Now if a double bottom forms or the downtrend line is broken or your indicators are diverging from price and you get a candlestick pattern, you have improved the odds considerably and the candlesticks give you the opportunity to get in at a low price. Remember though that the pattern, indicators or your interpretation can be wrong, so it's important to have a stop point in place. Another point: One thing to keep in mind with candlestick charting is that the first requirement for almost every pattern is a trend of at least a few time periods to reverse. You can avoid being whipsawed by confilicting patterns that are very close or alternating by ignoring the ones that have nothing to reverse. Of course you still need a stop point where you figure the original pattern was wrong. Like you, I've been frustrated with candlesticks at times. I look at this technique now as a way to get better entry or exit points and not as a stand alone method. Esteban

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