How to Make Money Trading with Candlestick Charts

Candlesticks perform the function of the
x-ray machine. They visually show you the
internal dynamics of the market.
A simple
analysis of the candlestick chart would then
catapult you way ahead of your competition.

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Why Bother with Bar Charts?
We could also compare bar charts with
candle charts and come to almost the same
conclusion. 
The 
candlestick 
chart
incorporates everything that a bar chart does.
In addition, it is visually more revealing. The
black (red) and white (green) colour bodies
make analyzing a candlestick chart much
easier and more intuitive. Once you start
looking at candlestick charts, other charting
techniques seem dull and arcane. By the end
of this book, you should be able to analyze
any candlestick chart within a minute. That is
my goal.

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Stochastics
This book is written to help the reader
maximize his or her investment or trading
potential. One key ingredient of this strategy
is to minimize downside risk. For this
purpose, 
we will look for highly profitable
buy trades in oversold conditions and
highly profitable sell trades in overbought
conditions.
To find out when the shares are
overbought or oversold, we need an
oscillator. I have always used the stochastics
oscillator for this purpose. It is a matter of
personal preference and the reader can
choose any other indicator he or she is
familiar with.
Note:
For those readers who are unfamiliar

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with technical indicators and oscillators, I
would recommend reading some of the
technical analysis books mentioned in the
Bibliography section of this book.
Note:
The candlestick trader need not go into
details of the stochastics indicator. It is
described here for educational reading only.
The stochastic oscillator comprises of two
lines: %K, or the raw stochastics, and %D,
which is a moving average of the smoothed
version of %K.
The following formula is used to calculate
%K:
%K = (C – L) / (H – L) * 100

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Where,
C = Closing price.
L = Lowest price in last N days.
H = Highest price in last N days.
%K gives you a percentage between 0 and
100. From this formula, it can be seen that if
the stock is closing at the highest level in N
days, %K will be 100. This %K is generally
very volatile and hence is often smoothed out
over a certain number of days. This gives a
much smoother line than %K itself. %D is
the moving average over a certain number of
days of this smooth version of %K.