In the daily epic struggle between buyers and sellers, technical analysis shows who is winning. If buyers are in control then prices go up, if sellers are in control then prices go down.
Everyday a battle is played out between buyers and sellers. Buyers drive up the prices and sellers drive down the price. A perfect example of this is at the seafood markets. Normally prawns sell for around $25 per kilo. At Christmas time, prawns sell for about double, at around $50 per kilo. Why the big difference?
In any market, buyers drive up the price and sellers drive down the price. At Christmas time because there is a large number of buyers, they drive up the price. It’s the same as in the sharemarket- buyers drive up share prices and sellers drive them down. Candlesticks is a way of looking at the battle between buyers and sellers to see whether share prices are being driven up or down.
Candlesticks are a short term trading tool which is usually used to try and figure out whether buyers or sellers have the power in the short term (5-7 days)
A candlestick needs four pieces of information: the opening price and closing price and then the highest and the lowest price reached for the period.
The rectangle part of the candlestick is called the body and represents the difference between the opening and closing price. If the opening price is lower than the closing price than the body is white or green. If the opening prices is higher than the closing price than the body is black or red.
The long lines above and below the body represents the trading range. The top of the line is the highest price traded for the period. The bottom of the line is the lowest price traded.
If buyers are in control then the share prices usually goes up. If sellers are in control then the share price usually goes down.
They say a rising tide lifts all ships and so can a bull market. Technical Analysis or charting can help determine if we are in a rising market or a falling one. After all, around 3 out of 4 stocks follow the general market direction.
In this first bar, you can see that the price opened near the low and then ended near the high so the buyers were in control. Its body is white or green. It’s quite a bullish signal going into the next day of trading with trading likely to start with the buyers in control and prices moving up.
Conversely, if the day’s trading starts near the top and ends near the bottom, it means that the sellers are in control, driving the share price downwards. The body of the candlestick is black or red. It’s a bearish signal indicating that sellers are in control and the next day of trading is likely to start with sellers in control and prices moving down.
The middle ground is balance, where no one wins the battle. Usually this signals consolidation and then potentially a change in direction.
It’s all about the body
The body can let us about the strength of the move. The longer the body then the stronger and more intense the move was. A long white or green body signals strong buying power which will most likely see the price continue to move upwards. A long black or red body signals strong selling power with price most likely moving downwards.
Short bodies on the other hand, signal balance in the buyers and sellers. This signals low volatility which means that the price may be looking to break out.
Long Lower Shadow – the lower line must be the same or bigger than the body. The longer the lower line then the more reliable the signal.
Marubozu White – usually a signal that shows a continuation of an uptrend
Long upper shadow – the upper line must be the same or bigger than the body size. In fact the longer the upper line then the more reliable the signal.
Marubozu Black – usually a signal that shows a continuation of a downtrend.
There are many, many patterns of candlesticks which can give us insight into where price may be headed. I hope that this introduction has sparked enough interest to continue on and learn about candlestick patterns
Information from Julia lee thanks to >> the Hubb website.
Financial seminars / hapenings 2008 Perth WA
Topic: 2008: The Year Ahead, Chris McGrath – Australian Stockbroking & Advisory Services Ltd
When: Tuesday 5 February
Where: State Library Theatre, Alexander Library Building. Entry is via either of the two main entrances – Perth Cultural Centre entrance in the James Street Pedestrian Mall or Francis Street.
Time: 12 noon – 1pm
Cost: $5 (incl. GST). Tickets can be purchased at the door 30 minutes prior to the presentation.
Chris will review 2007 and outline the likely sectors and stocks to watch in 2008. He will also cover the broader Australian and overseas economic outlook and how this will impact the sharemarket over the next 12 months.
Chris has had 9 years experience as an Investment Manager and is currently State Manager for Australian Stock Broking and Advisory Services (ASANDAS). His previous experience was in the fields of management consulting and management training. He has been conducting Stocks to Watch talks and lectures for the last 6 years.
We recommend arriving early to avoid disappointment. No bookings taken.
Delivering Shareholder Wealth by Mining & Exploration Success, Chris Bonwick of Independence Group NL
View presentation slides (PDF 2MB), Tuesday 13 November, 2007
Beyond Greed & Fear – The real psychology of Investors, Gary Norden of Marketwise Traders
View presentation slides (PDF 252KB), Tuesday 2 October, 2007
Stocks to Watch, Chris McGrath of ASANDAS
View presentation slides (PDF 166KB), Tuesday 5 June, 2007
A Super Future before us, Aaron Ross-Connolly of ABN AMRO Morgans
View presentation slides (PDF 177KB), Tuesday 15 May, 2007
After Tax Returns, George Vassos of Vanguard Investments
View presentation slides (PDF 234KB), Tuesday 6 March, 2007
Economic Overview 2007, Kate Hillyar of Credit Suisse Asset Management
View presentation slides (PDF 487KB), Tuesday 6th February, 2007
Non-Voting Ordinary Shares
ASX has released a public consultation paper (PDF 166 KB) requesting feedback on a proposal for ASX to amend its listing rules to allow quotation of non-voting ordinary shares, subject to certain safeguards. ASX invites submissions by Friday 7 March 2008.
2008 ASX Omnibus Listing Rule Amendments
ASX has released details of proposed omnibus listing rule amendments (PDF 260KB). ASX invites comments on any of the proposed listing rule amendments by Friday 15 February 2008.
ASX Submission to ASIC Consultation Paper 86: Competition for Market Services
On Friday 17 August 2007, ASX forwarded a submission to ASIC (PDF 291KB) in response to its Consultation Paper 86: Competition for Market Services – trading in listed securities and related data. ASX provided another paper of supporting analysis on 27 September 2007.
You can now trade FX on ASX, as well as Indices, Gold and ASX’s top 50 companies
Reflecting the successful launch, ASX has increased the range of ASX CFDs (PDF 82KB). Want exposure to the US Dollar, the Yen or even the Dow Jones Industrial Average index? With ASX CFDs it’s now as easy as buying shares on ASX. Explore the wealth of information on our website.
Upcoming events (More upcoming events)
2008: the year ahead
Stocks to watch
Taking control of your super
A preview of 2008
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Why are candlesticks important?
Julia Lee explains how to use candlesticks to predict short term gains.