Why Should We Use Candle Sticks

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Candlesticks trading techniques we use today originated from the Japanese in the 1700s. This technique was developed by a Japanese man by the name of Munehisa Homma. He was a rice merchant from Sakata Japan who traded in the Ojima Rice market in Osaka during the Tokugawa Shogunate. He is considered the father of Candlesticks. Another important figure is Steve Nison. He is credited for translating the entire Japanese Candlestick books into English. For that he is regarded as the father of modern candle sticks.

I found out about Candlestick trading 8 years ago. I have tried bar charts and also line charts but I still like candle stick best as it gives me the visual effect which is able to tell me better the emotions of the market. Have a look at the diagram below to see what I mean.

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From the 2 diagrams above, we have the bar chart on the left and candlestick chart on the right. We can clearly see that we have a bullish momentum going on here if we see the candle stick chart but we cannot have that feeling when we see the bar chart. Trading is all about understanding the emotions of the market. Who’s emotion? The big boys’ emotion! To understand the big boys’ emotion, please got to my article titled “How to identify the correct support and resistance”.

Let us now look at the bar chart and candle stick chart when they are grouped as one.

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We just see a bunch of straight lines moving downwards. All that is clearly visible is the high and low of the price.

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This is the same chart as above but I have converted it into candle stick chart instead. From the chart we could already see more black candles than white candles which signify the market is in a strong down trend and also where the market sold off the most. Studies have proven that our brain would be able to digest more information when colour is involved.

Candles enhances emotion

Candles come in shape and sizes and the size is related to the momentum.

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From the diagram above, big candles at A sparked the move upwards. This was followed by the second big candles right after the first big candle A. Then momentum tapered off where we saw small body candles labeled as small candles A. Big candles B started the next upwards thrust momentum and again the momentum tapered off at small candles B. Then big candles C started the move downwards.

As you can see I personally like to look at the big white candles or big black candles otherwise known as Marubozu candles. The candle is usually characterized by either a long white or long balck body with small wicks or no wicks at all. The body is usually three times longer than its previous candles body. This usually signify a change in momentum or the last puff. These candles are also where I get hints from the chart the market makers participation.