Why Candlestick Charts are Replacing Bar Charts by Steve Nison

[Scubawarrior]

One of the most important attributes of candlestick charts is that since they contain the same open, high, low and close data as bar charts, we can apply all Western techniques to them. Additionally, the candles give buy or sell signals earlier than bar charts. Indeed, these are two reasons why there is no doubt in my mind that just as candle charts replaced bar charts over 100 years ago in the East, they will replace bar charts in the West. And the reason I can be so confident about this prediction is simple. You give up nothing by using a candle chart instead of a bar chart (since you can use the same techniques such as moving averages, volume, etc). PLUS with a candle chart you get reversal signals before those who use bar charts. So why would anyone use a bar chart?

Indeed, those who use bar charts are at a severe disadvantage to those who take advantage of candle charts. In this issue I will show an example of this.


Many of you are familiar with the candlestick pattern call the Bearish Engulfing Pattern. As displayed below, it is when, during an ascent, a black real body wraps around a preceding small white real body. This black real body need not wrap around the prior session's shadows.

The closest Western analogy to the Japanese engulfing pattern is the outside reversal session. In classic Western technicals, this occurs when, during an up trend, a new high for the move is made. Then on that same session, the market closes under the prior session's close (some traders require that it close under the prior session's low and not just the close)

Let's now turn our attention to the DAX volatility chart .A rally commenced with the successful test of the bottom of the rising window (the Japanese refer to gaps as windows and the bottom of a rising window often becomes support). This rally then stalled with a bearish engulfing pattern a few weeks later. All criteria of this pattern were met—the market was ascending and then a black real body engulfed (hence the name "engulfing pattern") the prior small white real body. So with the candles we had a clear warning overhead, ala' this pattern, that the bears were taking control from the bulls (note also the very long upper shadow of that small white candle. This bearish shadow was another clear sign the market was rejecting higher levels.)

Note how the second candle in that bearish engulfing pattern failed to reach a new high for the move (the session before had a higher high). Consequently, if this was drawn as a traditional bar chart, it would not have been a reversal signal via an outside reversal session (since it didn't make a new high). Thus, based on this bar chart technique of outside reversal, there was no clue of a turn. But, with a candle chart, all that is needed for the bearish engulfing pattern is for black real body to wrap around a white real body, which is what happened in this instance. This is a typical example of how the candles provide a potent timing advantage over traditional bar charts.


Also, observe on the DAX how the highest high of the two candle lines that make that up the bearish engulfing pattern became resistance. This is a very important use of that pattern.


For those who are still using bar charts....forget it! 

[RedHot]

Bom artigo,
eu há mt tempo que só uso candlesticks

abraço

[rmachado]

Scuba.

Dava para colocar o Link? É que por aqui não consigo imprimir...

Já agora ficava a sugestão a Administração.. Print Topic...

[Francisco Monjardino]

Scuba.

Dava para colocar o Link? É que por aqui não consigo imprimir...

Já agora ficava a sugestão a Administração.. Print Topic...

Boas Rmachado,

No canto superior direito de qualquer página do fórum, tens disponível umm botão IMPRIMIR....


Em relação ao artigo, Muito Obrigado Scuba por mais um excelente post do Nison.

Manda vir mais, como sabes sou um admirador do seu trabalho e do "poder" dos candles.



Um  abraço,

[rmachado]

Que tou cegueta....

Obr Francisco