How do you examine your investments? For example when you look at charts, what type of charts do you use? For all of my investing life I have exclusively only used simple line charts. Usually I added a few moving averages to assist, but not much else. If I really want to be a better investor or even a medium-term trader I need more in my toolbox than just simple line charts and moving averages.
Realizing what I was using for charts wasn’t enough I recently took on learning the basics of candlestick charting. My first major step was purchasing the book “Japanese Candlestick Charting Techniques” by Steve Nison. This book is considered the bible of candlestick charting – at least for those of us in the West. As the title infers, this is an ancient Japanese charting methodology originally developed during the 1700’s for rice trading. Impossible as it may seem that something developed so long ago would be applicable to today’s modern markets, candlestick charting is still very, very, very relevant.
Along with overall price direction, a candlestick chart integrates opening, high, low and closing prices all into one chart. As such you can quickly gleam a lot more information from a glance at a candlestick chart than you could ever get from a line chart. Although this method provides no insight into price targets, the information you can collect can be very critical in forecasting/confirming stock price reversals and continuation patterns. Although I’m still in the process of reading the book I don’t see how I could ever exclusively rely on line charts again – not if I want to be a serious investor!
Prior to reading this book and researching some basic principles online I admit I was intimidated by candlestick charts. I had heard of terms like doji, dark cloud cover, harami, evening star and it was just too much – who has the time to learn all of that? That attitude was very shortsighted and close minded, two characteristics I’m sure no successful investor possess. I implore you not to make the same mistake I did! I can guarantee once exposed to the numerous benefits of this charting method you’ll be a convert too.
I still have a ways to go in Nison’s book, but I know from what I’ve already read this new knowledge will make a huge difference. In the future I hope to incorporate and share candlestick charts in all my analysis. Only time will tell if this new tool will provide me with better investing results.