In specialized trading,a simple candlestick pattern is an up or down trend displayed graphically within a candle graph which some think may predict an approaching market motion. The recognition of this pattern itself is usually subjective and automated programs that are commonly used in charting has to rely upon rules that are predetermined to follow the fad. These patterns are typically displayed as a set of horizontal lines that represent either a rising or falling trend. The basic idea behind the patterns is straightforward; the longer the period of time of the line,the greater the probability of the trend continued.
Many investors will purchase a stock based on the idea it is going to go up or down according to the candlesticks pattern used by their charting applications. However, while this idea may be tempting,it is really not a good one. The main reason is that all trends may differ from day to day and even hour to hour. There are instances when the market can go up but drop whenever you depart the stock exchange.
Another problem with using candlesticks patterns in your charts is they don’t provide you with a means of identifying a fad. What the charts does is allow you to easily see if the market has taken a specific pattern and moved on. For that reason,it is very important to know when to look at the graph and when to remove from it.
While most stock market patterns can be hard to interpret,it is possible to find a better feel for the tendency by paying careful attention to this volume. To put it differently,if the stock is creating a sudden rise in volume,there’s an excellent chance it will probably be going up and when it’s been decreasing for a while,it could demonstrate that the trend is starting to turn down down.
Candlestick patterns are an excellent way to evaluate the market’s direction and help you gain an understanding of the marketplace. But,keep in mind they cannot tell you the direction in which the market is headed and can only provide you with a guidepost.
There are many other indicators that may provide you a much better feeling for the direction the stock market is heading. The most important point to remember is that all of them are different and the top ones are the ones that you find that give you a sense of consistency.