Technical Analysis

Technical Analysis – Simple and Perfect – CandleStick Charts (Lesson 1)

This will be a series of lessons I will share based on everything I have learned and still use in regards to technical analysis. In this post we will be talking about candlestick charts I am hoping this will help a few of you dive into the wonders of understanding how to utilize technical analysis in your own trading and investing.

If you have any questions feel free to email me or send me a message on Instagram or twitter. I will do my best to offer you advise that will guide you to what you are looking to achieve.

Disclaimer

Nothing I share on any of my outlets and even private correspondence should constitute as financial advice.

While I have over 6 years of trading knowledge, I do not have any formal education or certifications that indicate I am a financial advisor.

Trading is one of the hardest and cut throat industries, if you will be going against the sharpest, most intelligent, heavily informed, irrational and in most cases, unethical minds in the world.

Trading is not a get rich quick scheme, if anything it will rip money out of your hands to put it into the hands of better investors.

You will be one of your greatest enemy, and losing discipline will be your undoing.

Your goal should be survival and trying to stay in the game for as long as possible. The only way to achieve this is by expanding your skillset and understanding the enemy, having a bulletproof game plan and picking your trades extremely carefully.

If this seems like something you are willing to fight for everyday, you are ready to play.

Technical Analysis

Technical analysis is the art of making probabilistic forecasts of price based on price history. It is important to understand that price does not need to react in accordance to price history. We use it purely to improve the odds in our favor.

Technical analysis is used to identify risk-defined entries and exits. In other words, technical analysis is primarily a risk management tool.

Let’s say you are a bullish trader, based on fundamentals (news, changes and updates, etc.) technical analysis can be a tool you use to find a favorable position where it would be best to enter into a risk defined position. The past does not offer you any knowledge, it is only there to improve your probability of a successful trade.

Candlestick Anatomy

There are many versions of a price chart, a simple Japanese candle, Bar candles, Heikin Ashi, Line, Renko, etc. For our purposes we will be focusing on the default Japanese candle sticks.

Color

Bearish candles have a red color. These candles indicate the closing price was lower than the opening price in a given timeframe.

Bullish candles have a green color. These candles indicate the closing price was higher than the opening price in a given time frame.

Bodies

Bearish candles are the red candles and the upper part of the body is the opening price and the lower part of the body is the closing price.

Bullish candles are the green candles and the lower part of the body is the opening price and the upper part of the body is the closing price. Shown in the image below.

Japanese CandleStick anatomy

Wicks

Upper Wick – Highest price at the selected time frame.

Lower Wick – Lowest price at the selected time frame.

Simple right?

Candlestick OHLC

On most platforms, when you hover your cursor over the candle, you should be shown the OHLC.

  • Open
  • High
  • Low
  • Close

These are extremely useful when mapping out major price points and levels such as,

  • Weekly Open
  • Daily Open
  • High of Day
  • Low of Day
  • Precise High Price
  • Precise Low Price
  • Check if price closed above a swing point.
OHLC

How to use a strong understanding of candlesticks to improve my trading?

A very simple strategy is using the weekly open/close or daily open/close

Use the weekly open to set a horizontal weekly support.
We can see the daily price never closed below the weekly open. Instead a SFP formed, you could have secured nearly 14% gains with this simple setup.

Start with understanding the simple concepts, practice them and with the correct discipline it’s possible to make excellent trading plays with this alone. It’s too often I see traders getting obsessed with confluence and having too many indicators on their charts. A successful trader is able to minimize the amount of work required to make great trades.

Time Frames

Your chosen time frame will represent the period one of your candles represent.

So on the daily time frame, each candle is one full day. On a hourly time frame, each candle is one hour. The OHLC can be used to get you data specific to the time frame you selected for the candlestick.

Note: Higher time frames are comprised of lower time frame candles. For instance, the one hour candlestick is comprised of four 15 minute candlesticks, two 30 minute candlesticks, sixty 1 minute candlesticks, etc.

The closing of a candle is extremely significant. Pay attention to when a candlestick closes and only take trades before or after a close. This is especially important in higher than Day time frames. A lot can change between the open and close, that is why wicks exist. As a new trader it is a good idea to wait for candle closes on the time frame you are trading on before getting into a position.

Tip: As a new trader, use and focus on higher time frames. The noise in lower time frames can be enough to give you mixed signals and fall prey to poor setups.

I like to use a combination of Daily (D1), 4 hours (H4) and 1 hour (H1) time frames.

Here is a setup I am currently taking. Could not get more simple. Once the daily closes, I will either take a long above 9485 or a short to 8924 to keep it simple.

On the next post, I want to build more knowledge on candlestick patterns. Thank you for reading, up to this point, if you have any questions, feel free to reach out to me by email, twitter or Instagram and I will do my best to help you out!

Additional Resources:

Check out baby pips! They have fantastic resources to understanding simple concepts.

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