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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Dominick who wrote (4318)	9/21/1999 6:04:00 PM
From: TraderAlan	Respond to of 18137

Dominick, That's a tough one. Think it has to do with both visual "power" and the element of different color (white/black, red/green) for whether the bar closed higher or lower than the open. Also the shadow area is much more prominent on candles and bars. IOW you can easily see the range extremes. Candles also allow for greater trendline and S/R violation. Often an important line will cross the open or close, rather than high or low. Alan

To: Dominick who wrote (4318)	9/22/1999 1:49:00 AM
From: -	Respond to of 18137

Dominick, The reason the candles are so useful relates to the way the human eye processes graphical information (it's often coarsely modeled as a low-pass filter or integrator WRT colors, which tends favor certain ways of representing complex numerical information). The bottom line is that candles add color and graphical information correlated to the underlying numbers, that the brain can take advantage of. That's why they work (for some;) With a candle, the "body" of the candle (prices between open and close), whether up (generally light) or down (generally dark) almost jump out at you off the chart. Candle theory holds that this is the most important price region. The remainder of the candle, although still significant, are just the "tails" -- the thin lines on top and bottom (when present) which by design are not as dominant in form. So obviously, candles highlight the "body" of the price action well. What is less obvious and often overlooked is that, for most users (this is all pretty subjective), a candle tends to also do a better job of highlighting the relative price difference between bars (candles) - e.g. after a period of acclimation a gap between yesterday's close and today's open is more quickly/readily apparent to most, when looking at candles. Because of that, I can look at a candle chart and much more readily grasp what's going on with overnighters and morning shorters, compared to a bar chart... you can scan a few months very quickly. The big thing that is different with candles (ties to the graphic aspect) is, on a daily chart for example, the candle is designed to highlight the relationship for prices relative to today's OPEN very clearly... so the philisophical tenant underlying the candle's construction is, you must believe that the opening price is very important (instead of, say... yesterday's close wherein you might prefer bars, for example). For example today, that characteristic will highlight how strong some of the internets were (opened gap down, on what turned out to be the low of the day, and put in tremendous rallies). One thing to note, an artifact of this -- on a lot of stock charts you'll see on many bars a "down" candle (dark) on a day that was actually an "up" day (today's close was higher than yesterday's close); say on a day that started with a gap up (and vice versa for down days - they'll many times have bullish candles). A bar chart can do this too, but you have to study them more and think about them to "get at" the information -- with a candle it just leaps out at you. Finally, candles make it very easy to see important patterns in price action like Harami's, Doji's, inside days, cloud cover, three crows, etc. which are useful and significant in reading price action if you know what to look for in what context (e.g. many times, ISpec will scalp the futures in her live chatroom by properly interpreting an individual candle, read in the right TA context). You can do all this with bar charts just as well, but candles make it a lot easier. Check out Nisson's books, also Greg Morris has come out with an excellent book ("Candlesticks Explained"). The Morris book, although not as classic of work, is enough and it's available in paperback. Some candle educational material on ISpec's www.intelligentspeculator.com site, and there are several good websites dedicated just to candle theory/education, I think they're referenced in the thread summary. I prefer candles on the daily charts, and bars for intraday stock timeframes most of the time but candles for watching the S&P futures intraday. Switching from bars to candles is tough transition, takes a few weeks -- generally hard the first week or two but ultimately rewarding. -Steve