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The Japanese art of candlestick trading has been around for nearly four centuries. Japanese rice traders successfully used these signal formations to amass huge fortunes.
Since then, the signals have been refined, tested, and utilized in a variety of markets.
Wherever an instrument can be traded in an open market by traders, candlestick signals can be used to profit in such markets.
Candlestick signals depict change in investor psychology. They visually show a trader the
sentiments of the other traders in that particular stock or market. It does not matter if the signals are applied to commodities. stocks or futures.
Candlestick signals work with all of them. It does not matter whether the market is the Nasdaq. the Nikkei, the German DAX, or the Nifty.
All of these markets can be analyzed and traded using candlestick charting.
Why do people around the world pour their hard-earned money into the financial markets? Why do they not keep their money invested in fixed price no risk certificates?
The answer is obvious. They take the risk of investing in stock, currency, and futures markets in order to get higher returns on their money. The allure of hitting it big in the stock
market keeps their dream of financial independence alive. They look for a good nest egg to be built from the gains in the market for a comfortable retirement.
Yet the percentage of investors that actively manages its portfolios is paltry compared to those who keep pouring money into the market hoping they would strike gold someday.
(Henceforth we will use the terms “market” and stock market to include the stock. commodity and the currency markets.)
Ask yourself which category you fit in from among the following:
- You listen to analysts on TV to get recommendations for buying stocks.
- You subscribe to a stock picking service for your stock investments.
- You try out the latest stock picking software, lose money and start all over again.
- You get your stock investment ideas from your friends, your colleagues or the local tea vendor.
- You have tried all of the above, lost money and given up on the stock market altogether.
Basic Candlestick Trading
This chapter is not going to be an essay on the science of psychology – though it would be very interesting to know what reputed psychologists like Carl Jung and Freud would think about the art of trading!
This chapter will hopefully link in your mind the importance of the psychological underpinnings of trading stocks.
If someone were to ask me what percentage of trading is comprised of psychological warfare, I would put the number between 85% and 95%.
The stock market is essentially a game of fear and greed. Supply and demand are by-products of these two emotions battling it out for dominance in the market.
Fear And Greed
Fear creates panic. And panic creates supply in the marketplace.
Greed produces exuberance, giving rise to the demand.
As humans, we cannot escape these two emotions while trying to make money in the marketplace.
When you watch a stock you own go down, you get overwhelmed by fear and anxiety. Such emotions create havoc in the mind:
How low will the stock go and how much will I lose?
- What if my spouse/parents/friends find out about this pathetic losing trade I made?
- Should I get out now?
- What if the stock turns around as soon as I sell it? How much of a fool would I be
Notice the Fear
On similar lines, what do you think when the stock you don’t own, but wanted to own, keeps going up?
- I always knew this would be a 10-bagger.
- Should I buy it now? If I don’t, and it goes up even more, what a fool I’ll then be.
- This is the stock to own, let me get in now.
- Everybody I know owns this one, I have to buy it and ride it up. And, on and on.
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How To Make Money Trading with Candlestick Charts PDF Free Download