This post This One Move Fixes All Your Trading Woes appeared first on Daily Reckoning.
If you make just one simple change to your stock charts, you will instantly improve your trading profits.
How can you pull off such a miraculous feat?
You’re about to find out…
What I’m about to show you doesn’t require any special skills. Heck, you don’t even need to do any math to make this quick change. Your computer will perform all the heavy lifting for you.
All you need is a candle.
No, I’m not saying you need to light a candle and pray (although let’s face it, you could probably use it). I’m saying you need to learn how to read candlestick charts if you want book consistent, double-digit trading gains.
I know many investors who aren’t familiar with candlestick charts are intimated by the bedlam of lines on the page. But once you understand the basics of candles, you’ll be able to instantly absorb all the relevant information on any candlestick chart. More importantly, you’ll be able to use that information to perfect your buys and sells. That means siphoning more money out of the markets.
Why use candles instead of a simple line chart? It all comes down to information. On a daily line chart, the closing price is plotted. That’s it. It’s not a problem if you’re only interested in the overall trend. But if you’re planning a trade, you want as much information as possible. That’s where candlesticks come into play.
Candlestick charts not only show you the closing price of a given stock—but also its opening price, its high of the day, and its low of the day.
Take a look at this example:
Depending what website you use, the charting program might display bullish and bearish candles in different colors—so keep that in mind before venturing off on your own. Typically, candles with green or white bodies are for bullish days, while red candles signify bearish days.
Now, as you can see, these candles convey a lot of information—even with just a quick glance. There are two parts of the candle you need to be able to identify to properly understand how valuable these charts are. They are the shadows and the real body.
Why are these important?
For starters, the shadows show you the daily range, which gives you a lot more context than just the open and the close. For instance, a candle with a long upper shadow indicates that the stock rose to higher levels during the trading day—but gave back much of its advance before the close.
In contrast, a bullish candle showing no upper shadow and a long real body tells you that the move higher is extremely strong, with the stock closing at its highs without a significant retreat.
Then there are candles with no real body at all. These occur when a stock opens and closes at the exact same price. They’re called dojis – and they signify indecision from buyers and sellers. Dojis can even have very long upper …read more
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