Candlestick analysis is a handy technical tool for providing nuance and insight into stock price patterns, but traders should avoid five key mistakes.
Candlestick patterns have long been a favorite tool of many technical traders, offering a more nuanced view of a stock or market beyond what you can see in the garden-variety bar chart or minimalist line chart.
Yet there are dozens, if not hundreds, of variations in candlestick patterns, and just as many, if not more, interpretations of what they may indicate. That means it’s important to grasp a few basics and understand that candlestick analysis really comes down to one thing: price behavior.
Candlesticks can help traders decide on potential price inflection points and opportunities over relatively short time frames, such as eight to 10 trading sessions.
Here are five mistakes that technical traders often make with candlesticks.
FIGURE 1: LIGHT THE WAY.
For the daily candlestick chart in this example, a higher closing price than the previous day has a green body, while a lower close is shown in red. To change charts to Candlesticks, log in to the thinkorswim® platform and click Style > Chart type > Candle. Chart source: TD Ameritrade’s thinkorswim® platform. Data source: NYSE. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Editor's note: This article was originally published in January 2015.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Investools, Inc. and TD Ameritrade, Inc., are separate but affiliated companies that are not responsible for each other’s services or policies. Devin Ekberg is not a representative of TD Ameritrade, Inc.
Investools® does not provide financial advice and is not in the business of transacting trades.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.