When I first started trading bar charts back in the early eighties, bar charts were the normal method used to record prie hiostory but this started to change after Steve Nison wrote the book – Japanese Candlesick charting techniques and today, Japanese candlestick charts are far more popular than bar charts - so why do so many traders use them?
Advantages of Candlestick Charts
There fun to learn and use and have a certain mystisim about them, with their exotic names such as the hanging man and dark cloud cover.
For the inexperienced trader, they can give a deeper insight into price action because they are so visual and give the user a clear view of the relationship between the open, high, low and close of the candle.
Candlestick chart formations will also generate more trading signals than a traditional bar chart but this doesn't mean that a more is better in terms of trading signals generated but it does give the trader more options in terms of generating trades from charts.
Candlestick charts are also flexible and just like bar charts can can be used alone or in combination with other technical analysis tools such as - moving averages and momentum oscillators and methods of trading such as, Dow Theory or Elliot Wave theory.
There easy to learn and all the information you need to know is available free online and all Forex brokers, will have this method of charting on there charting platforms.
Limitations of Candelstick Charts
As with any charting techniques candlestick chart patterns are subjective, in terms of their use and while candelsticks are a useful method, its up to a trader to interrprut them and apply them to generate trading signals.
They don't generate price targets but I don't see this as a problem – you can always use support and resistance lines or add other indicators or techniques to give you targets or simply use another candlestick chart formation to offset the trade.
I have read lots of private traders and sellers of trading systems, saying that candelstick charts offer more reliable trading signals than using bar charts but this is not so. This is because as we have said above charting is an art not a science. The idea that one candlestick chart formation is more accurate than another is rubbish but there are many vendors who sell trading strategies which say there are – don't believe them. This method of charting, requires practice and patience to learn and you need to think about the set ups before trading them. There are a huge number of possible set ups, you need to study each one and decide the formations to trade with your strategy.
Should You Use Candlestick Charts?
My own view is there a great way to learn trading and you will see the psychology of the market in the formations and get a real feel for price action and the way it evolves. So is it better than using just a bar chart? The answer is no it depends on the user and also, many people prefer bar charts because they are actually simpler and don't distract the trader from areas of support and resistance which many traders, use to key off to generate trading signals with their trading strategies.
As a general comment, I use mostly bar charts in my trading strategies but do like to use reversal candlestick formations in combination with momentum oscilators to generate trading signals when prices move to overbought or oversold but this is just my preference. I think all new traders just use this method f charting to get the feel for price action and see how they get on with this methodof trading. As with all trading techniques, its up to the user to decide whih techniques are best for them and there is no universal answer to this question.
Try this method of charting though and you will find it fun to learn, it will give you a deep insight into price action so I think its a method of trading which all beginners should at least consider.