How to Make Money Trading with Candlestick Charts

Using candlestick signals with moving
averages enhances the returns on
investment many-fold.
These moving
averages provide support and resistance to a
trending stock just like the trend-lines we
drew in the previous section of this chapter.
The most common moving averages are the
simple MA and the exponential MA. For our
discussion purposes, we will stick to the
simple moving average (SMA). Readers
should refer to other technical analysis books
if they want further information on
exponential MAs.

---

The simple MA is defined as follows:
Moving Average (N) = (A1+A2+A3+ . . . + AN) / N
Where N = the period over which the average is
calculated.
A1 . . . An = closing prices over the last N days.
This is a dynamic curve and is calculated
every day after prices close. Most money
managers in the world use 50 MA or 200
MA. For trading purposes, having a 20- or a
30-day MA is optimal. The key to using the
correct moving average is to let the stock
chart tell you. Pull up a chart and put various
moving averages on it. This is very easy
nowadays with online charting. All you have
to do is select “Simple Moving Average”
and type in different numbers like 20, 30, 50,

---

etc. Once you have these lines on the
candlestick chart, select the one from which
the stock bounces off (reverses or supports)
from the most. That is the moving average to
use.
Candlesticks are excellent for finding
reversal situations. They tell you the
internal dynamics of the market. However,
they do not give you a target price
. You can
calculate the price targets using other tools
of technical analysis. One way is to see
where the dominant moving averages are.
Stocks will usually tend to fluctuate around