Candlestick Charting For Dummies

Russell Rhoads, PhD, is head of research at EQDerivatives and an Associate Clinical Professor at the Kelley School of Business at Indiana University. He has over three decades of experience focusing on trading and the financial markets. Rhoads is the author of the previous edition of Candlestick Charting For Dummies.

• Introduction 1About This Book 1Foolish Assumptions 2Icons Used in This Book 2Beyond the Book 3Where to Go from Here 3Part 1: Getting Familiar with Candlestick Charting and Technical Analysis 5Chapter 1: Understanding Charting and Where Candlesticks Fit In 7Considering Charting Methods and the Role of Candlesticks 8Getting a feel for your options for charting 8Realizing the advantages of candlestick charting 9Understanding Candlestick Components 9Working with Candlestick Patterns 11Simple patterns 11Complex patterns 12Making Technical Analysis Part of Your Candlestick Charting Strategy 12Trading Wisely: What You Must Understand Before Working the Markets 13Trading can be an expensive endeavor 13Paper trading costs you nothing but time 14Develop rules, and stick to them 14Chapter 2: Getting to Know Candlestick Charts 17Recognizing the Many Benefits of Candlestick Charting 18Seeing is believing: Candlesticks are easy to read 19Spotting bears and bulls quickly 20Seeing into the future (sort of) 21Showing price patterns 23Admitting Potential Candlestick Charting Risks 25Comparing Candlestick Charts with Alternative Charting Methods 26Line charts 26Bar charts 27Point and figure charts 28Chapter 3: Building a Base of Candlestick Chart Knowledge 31Constructing a Candlestick: A Core of Four 32Price on the open 32High and low prices for the session 35Price on the close 37Considering Additional Information Included in Candlestick Charts 39Volume 39Open interest 40Technical indicators 42Fundamental information 43Chapter 4: Using Electronic Resources to Create Full Charts 49Turning to the Web for Candlestick Charting Resources 50Using Yahoo! Finance 50Working with Barchart 53Charting on CNBC.com 54Creating Candlestick Charts with Microsoft Excel 55Finding the data for your chart 56Making sure that the data is in the correct format 56Building an Excel candlestick chart 57Adding a moving average to an Excel candlestick chart 58Adding a trendline to an Excel candlestick chart 60Adding volume data to an Excel candlestick chart 61Selecting Charting Packages and Apps 63Remembering a few key points when selecting charting software 64Considering a few charting package options 65Part 2: Working with Simple Candlestick Patterns 69Chapter 5: Working with Straightforward Single-Stick Patterns 71The Bullish Long White Candle 72Understanding long white candles 72Identifying the three variations of the long white candle 76The Bullish Dragonfly Doji 78Recognizing a dragonfly doji 79Trading based on a dragonfly doji 80The Bearish Long Black Candle 82Understanding long black candles 82Identifying the three variations of the long black candle 84Trading based on long black candles 85The Bearish Gravestone Doji 89Identifying the gravestone doji 89Trading based on gravestone dojis 90Chapter 6: Single-Stick Patterns That Depend on Market Context 93Understanding Market Environments 94Recognizing the three market states 94Identifying the market trend 94Delving into Dojis 96The long legged doji 96Other dojis 101Looking at Other Patterns: Spinning Tops 105Identifying spinning tops 105Using spinning tops for profitable trading 106Discovering More about Belt Holds 109Spotting belt holds on a chart 109Buckling down for some belt hold-based trading 110Deciphering the Hanging Man and the Hammer 113Spotting the hanging man and the hammer 114Trading on the hanging man and the hammer 114Chapter 7: Working with Bullish Double-Stick Patterns 119Bullish Reversal Patterns 120Bullish engulfing pattern 120Bullish harami 124Bullish harami cross 127Bullish inverted hammer 129Bullish doji star 132Bullish meeting line 135Bullish piercing line 136Bullish Trend-Confirming Patterns 139Bullish thrusting lines 139Bullish separating lines 142Bullish neck lines 144Chapter 8: Using Bearish Double-Stick Patterns 149Understanding Bearish Reversal Patterns 149The bearish engulfing pattern 150The bearish harami pattern 153The bearish harami cross pattern 155The bearish inverted hammer pattern 158The bearish doji star 160The bearish meeting line 162The bearish piercing line or dark cloud cover pattern 165Making a Profit with Bearish Trend Patterns 168The bearish thrusting lines 168The bearish separating lines 171The bearish neck lines 174Part 3: Making the Most of Complex Patterns 177Chapter 9: Getting the Hang of Bullish Three-Stick Patterns 179Understanding Bullish Three-Stick Trend Reversal Patterns 180The three inside up pattern 180The three outside up pattern 183The three white soldiers pattern 185The morning star and bullish doji star patterns 188The bullish abandoned baby pattern 191The bullish squeeze alert pattern 193Working with Bullish Three-Stick Trending Patterns 196The bullish side-by-side white lines pattern 197The bullish side-by-side black lines pattern 200The upside tasuki gap pattern 203The upside gap filled pattern 205Chapter 10: Trading with Bearish Three-Stick Patterns 209Understanding Bearish Three-Stick Trend Reversal Patterns 210The three inside down pattern 210The three outside down pattern 213The three black crows pattern 215The evening star and bearish doji star patterns 218The bearish abandoned baby pattern 221The bearish squeeze alert pattern 223Forecasting with Bullish Three-Stick Trending Patterns 226The bearish side-by-side black lines pattern 226The bearish side-by-side white lines pattern 228The downside tasuki gap pattern 231The downside gap filled pattern 234Part 4: Combining Patterns and Indicators 237Chapter 11: Using Technical Indicators to Complement Your Candlestick Charts 239Using Trend Lines 240Drawing trend lines 241Considering trend line direction 242Taking advantage of automated trend lines 242Using Moving Averages 243Selecting appropriate moving average periods 244Using simple moving averages 245Using other types of moving averages: What have you done for me lately? 247Combining two moving averages 248Combining three moving averages 249Examining the Relative Strength Index 251Calculating the RSI 251Reading an RSI chart 252Cashing in on Stochastics 253Grasping the math behind the stochastic oscillator 254Interpreting the stochastic oscillator 254Buddying Up with Bollinger Bands 256Creating Bollinger bands 256Chapter 12: Buy Indicators and Bullish Reversal Candlestick Patterns 259Buying with the RSI and Bullish Reversal Candlestick Patterns 260Using the RSI to pick a long entry point 260Using the RSI to pick long exits 262Buying with the Stochastic Indicator and a Bullish Reversal Candlestick Pattern 264Using the stochastic indicator to pick a long entry point 264Using the stochastic indicator to pick long exits 266Chapter 13: Sell Indicators and Bearish Reversal Candlestick Patterns 269Shorting with the RSI and Bearish Candlestick Patterns 270Picking short entry points with the RSI and candlesticks 270Using the RSI to help pick short entry and exit points 272Using the Stochastic Indicator and Bearish Candlestick Patterns for Shorting 274Picking short entry points 275Deciding when to get in and out of shorts 276Chapter 14: Using Technical Indicators Alongside Bullish-Trending Candlestick Patterns 279Using Trending Patterns for Buying and Confirmation 280Buying trend lines with bullish candlestick patterns 280Determining sales and stop levels with trend lines 282Combining Moving Averages and Bullish-Trending Candlestick Patterns 285Using moving averages with bullish-trending candlestick patterns to confirm trends 285Setting stops with the moving average and bullish-trending candlestick patterns 287Chapter 15: Combining Technical Indicators and Bearish-Trending Candlestick Patterns 291Combining Lines with Candles for Confirmation 292Analyzing short trades with trend lines and bearish patterns 292Bearish trend lines and candlestick patterns leading to short entries and exits 294Combining Moving Averages and Bearish Patterns for Shorts 296Pinning down short entry points and confirming trends 297Picking shorts with moving averages and candlesticks 299Part 5: The Part of Tens 301Chapter 16: Ten Myths about Charting, Trading, and Candlesticks 303There’s No Difference between Candlesticks and Bar Charts 304Market Efficiency Makes It Impossible to Beat the Market over the Long Run 304Only a Full-Time Professional Can Make Money in the Markets 305Technical Analysis Is Nothing More than Reading Tea Leaves 305Charting Is for Short-Term Traders Only 306You Must Be Rich to Start Trading 306Trading Is an Easy Way to Get Rich Quick 307Candlestick Charts Require In-Depth Data and Are Difficult to Create 307The Trading Game Is Stacked against the Small Trader 308Selling Short Is for Professional Traders Only 308Chapter 17: Ten Tips to Remember about Technical Analysis 309Charts Can Give False Signals 309You Will Run into Skeptics 310There’s No Definite Right or Wrong Opinion of a Chart 310A Single Chart Doesn’t Tell a Whole Story 310Charting Is Part Science, Part Art 311You Can Overanalyze 311Develop a Backup System 312Error-Free Data Doesn’t Exist 312No System Is Silly as Long as It Works 313Past Results Don’t Always Predict Future Performance 313Index 315