Trading with Candlesticks

Another day of market info and knowledge sharing!

I have decided to add some fun facts to complement each day's analysis. This is to spice things up. I did like to differentiate myself from the regular columnists in the newspapers.

Before I begin my column on Candlesticks, Friday's market bounced back rather well. The STI closed up 62.27 points to finish at 3126.87 and closing in on what it lost in the past 2 days. This is either a clear sign of a range market or a show of regained strength in a very early part of a new market cycle. We shall continue tracking the performance and sentiments of the market to know for sure. My outlook stands at "Range" in the short-term for now.

Now for Candlesticks.
I have mentioned Candlesticks many times in my daily analysis but have never explained it properly. Candlestick charts are an option for technical analysis of charts. This option can be found in your internet trading account or sites like on Yahoo! Finance.

Now what makes a Candlestick?
A candlestick of each trading day is formed using 4 prices: Open, Close, High and Low. The Open and Close prices make the body of the candle. The gap between opening and closing prices determines the height of the candle. If the day closes higher than it opened, a white candle is formed. A black candle is formed in the opposite situation. The High price determines the point of the top wick and the Low price determines the point of the leg. For example, a counter opens at $2, hits a low of $1, rises to $5 and closes at $4. A white candle of $2 in height is formed, it has a top wick of $1-high and a $1-long leg.

How to use candlesticks?
Candlesticks can be used to judge market sentiment, giving rise to buy signals or sell signals. This is to put it simply. One of the better free resources that I have found is the Candlestick Trading Forum. Here you can find out what candlesticks mean and much more information on candlestick patterns which I shall not repeat here.

I shall be covering other topics regarding technical analysis and simple techniques that are commonly applied to chart reading. Watch this space!