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How Do You Like Your Candles?

October 29, 2013

Over the years as a technician I've used many different charting services. In some cases the software providers don't give me the option to set up the Japanese Candlesticks the way I want them. But the problem here is that I don't think that what I'm asking for is anything earth shattering. To me it's the only way i know how to use them. Candles 101:

If the price of a stock is above the previous day's close, the candlestick for that day should be green. If the price is below the previous day's close, then it should be red. Simple enough?

10-29-13 candles colorsNow, the way candlesticks are constructed is by creating a hollow candle if the price is currently above the opening price for that day. The candle should be filled in if the price is below the opening price. Basic stuff right?

10-29-13 candlesThese two Japanese Candlestick characteristics don't have anything to do with one another. So if the price of a stock is above the opening price (hollow candle), and below the previous day's closing price (red candle) then we should obviously have a nice wonderful hollow red candle. It Should look something like this:

10-29-13 candles red hollow

And we should have a filled green candle if the close is below the open but still above the previous close. Am I asking for anything unusual here? This is the way I learned it, so I really don't know any other way.

Here is a good example from the good folks at TD Ameritrade's Think or Swim. This is $SPY on April 5th of this year putting in a red hollow candle. Seems pretty basic no? You'd be surprised at how many charting services don't let me set it up this way....

10-29-13 candles example

How do you guys like your candlesticks?

 

 

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