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| Reversal |
| 04.05.05 (12:54 am) [edit] |
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Last week, we talk about the basic construction of a candle chart. As a brief refreshment, candles consists of a real body (black/white), with two shadow lines, one on each end. A candle chart is able to represent the highest/lowest point of the session as well as the opening/closing of each session. Now, let’s take a deeper look into some variations of the candle stick.
The reason why candle chart is such a powerful took that is widely used by traders, investors and premier financial institutions worldwide is its ability to send out earlier reversal signal compared to its counterparts. Keep in mind that, when I mentioned reversal signal here, I didn’t mean that the market turns abruptly from a full bullish (up-trend) suddenly to bearish (down-trend). There are a few possibilities where the market might go once we spotted a reversal signal, though the possibility of an abrupt change in trend should not be omitted. As the saying goes, a pictures worth a thousand words, and it’s best to explain it in these below charts:-
Figure 1.
This Figure 1 shows that after coming from an up-trend, the market meets a reversal signal (doji,which will be discussed in the next article). As we can see, the market turns abruptly in this case, which rarely happens, but still possible.
Figure 2.
In this next Figure 2, we can now see that the market doesn’t change the direction after a reversal signal shows up, instead, the market stops its prior up-trend and goes sideways (parallel) in a few session. This market is said to be taking a breath from it’s prior trend. From there, it might go down-trend or up-trend, depends on the market element.
Figure 3.
Figure 3 shows that an up-trend market meets up with a reversal signal, traded for a few sessions sideway, and continues on it’s up-trend.
And so, we can see from these charts that a reversal signal is actually an early indication of market turns. This will greatly help investors on entering or exiting, or in a better context change their current standings accordingly to the market signal sent out, with a better timing. As quoted from the father of all candle chart (Steve Nison) :-
…… always imagine a reversal signals as a car’s break light. When u see a car in front flashing it’s break light, it doesn’t mean that it is going to reverse. It might stop there for a while (trade sideways as in Figure 2), or it might keep on going forward (as in Figure 3), and there is a possibility that it might reverse (Figure 1), so, just remember the term reversal. It actually means A Change Of Trend…….
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| My First Trading Journal. |
| 03.29.05 (3:15 pm) [edit] |
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I have longed for this journal. It's just that everytime i wanted to start one, there's some other things that came across it. I finally decided to put on hold everything and make this thing come true, or else i think it is not going to happen. Anyway, from here, I will be reporting all the skills that i've learnt from my mentor, about trading in stocks and options. I will post up all everything that I know about trading in shares and options. I will share with you the skills and tools that I use to achieve my goal, including fundamental skills(reading company annual reports) and technical skills(candle charting techniques). I will list down all my personal trades and how i fare in the market. I will write down all the lessons and tips that I picked up during each trade, be it a positive or a negetive trade. Last but not least, i will do my best to keep this Trading Journal alive by updating it every week. :)
Anyway, let's get started here. To stsart off, let me begin my first journal with a brief explaination on the basics of the Candle Chart.
I was first introduced to Candle Charting technique from my mentor, and since then, have been studying it passionly. The very real candle chart was actually being used very early on in Japan. The father of all gods of this Candle chart, which did a lot of research, improvice it and print it out in a book and bring in the technique from the east to the west of Steve Nison.
As we can see, the candle stick is mainly made up of 2 things, the real body, and the shadow. If the real body is a white bar, it represents a rising trend, (meaning that the closing for that day is higher than the opening), and vice versa. Different colour codes is used across the world, but a simple rule apply to all. The lighter color is at most time represents a rising trend, while a darker one represents the opposite.
If the candle is at a rising trend, the lower part of the real body represents the opening price , while the top part represents the closing (Vice versa for the falling candle). Now that we're clear about the body representation, it leaves us with only the shadow, and this is easy. Regardless of whether it's a black/white candle, the lower tip of the shadow is the lowest point the market reaches on a specific session, while the top tip of the shadow is the highest point the market reaches on that particular session. Well, i guess that's all for now. For best research tool, i would recommand bigcharts.com. It gives a big, huge clear chart, which can be broken down to as small as a 5 minute chart, to as long-a-period as 5 years. Give it a try ;) |
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