Читать книгу The Power of Japanese Candlestick Charts - Fred K. H. Tam - Страница 5

This book is about applying the popular time-tested Japanese candlestick technique to spot market turning points. After all, making money from the markets is all about predicting correctly when the market is about to turn, and the Japanese candlestick technique does this job superbly.

I find the candlestick technique very applicable for trading actively traded financial instruments such as stock indices, foreign exchange (forex), commodities futures, and stocks. This is because most, if not all, financial instruments tend to exhibit short-term rallies only to be followed by short-term corrections regardless of their time frames. Their trading cycle ranges from 5 to 15 candles (see Figure P.1 and Figure P.2).

Figure P.1 Gold 15-Minute (2014) – Trading cycles range from 5 to 15 candles

Figure P.2 Dow Jones Industrial Average Daily (2010) – Trading cycles range from 5 to 15 candles regardless of the periodicity of the chart

It is fun to be on the right side of the market, buying at or near market bottoms and selling at or near market tops. But the question is, “How do I know if today's market action constitutes a market bottom?” Conversely, after a sharp rally of a few sessions, what signals are there to tell you that your stocks have topped out and are due for a correction?

Questions like “Is this the right time to buy?” or “Is this the right time to sell?” have always been a talking point amongst traders and investors. The objective of this book is to provide an answer to these questions.

There are many techniques out there, mainly from the West, like the moving average, relative strength index, moving average convergence divergence (MACD), stochastic, momentum, Bollinger bands, Elliott waves, and so on, that can help you time your entry and exit. I strongly believe that these Western techniques should be part of a trader's arsenal.

But complementing Western techniques with that of Japanese candlesticks will give you that extra edge in getting a much better price – a lower price if you are buying and a higher price if you are selling. You will be convinced from the hundreds of charts illustrated in this book that Japanese candlestick signals lead the Western technical indicators in timing market entry and exit.

The candlestick technique is the most leading of all technical indicators that I have come across. The reason why the Japanese candlestick technique triggers buy or sell signals at least 2 periods and sometimes up to 10 periods earlier than Western indicators is that candlestick signals are based on an analysis of price itself.

When you are analysing the candle chart, you are in effect analysing the psychology of the market participants that is reflected in its price. No indicators can beat a technique that analyses price in itself.

This passage taken from the Sakata Goho sums up the candlesticks' raison d'être:

The psychology of the market participant, the supply and demand equation and the relative strength of the buyers and sellers are all reflected in the one candlestick or in a combination of candlesticks.

Western indicators, on the other hand, use formulas that take into account prices of several periods. The MACD, for example, uses a 12-day, 26-day, and 9-day exponential moving average as its parameter. Once parameters are used more than two periods, the resultant signal, when it is triggered, tends to lag behind price (see Figure P.3). This is the reason Western indicators tend to call a buy or sell between 3 and 10 periods (and sometimes more) from the market's bottom or top. The longer the parameters used, the more distant is the signal.

Figure P.3 Gold Daily (2013) – Western indicators (e.g., MACD) tend to lag behind candlesticks

This book is written for the beginner as well as for the advanced trader. Part I takes you through, from the technique's historical background, to the construction of the candle chart to defining and interpreting single to multiple candles. It not only explains the psychology behind each pattern, but also offers suggestions on the proper action to take as well as a stop-loss point to exit if the signal fails.

As the candlestick technique prides itself on spotting market U-turns, I have devoted many pages in this book to describe popular reversal patterns and how to apply them to enter and exit the markets. Continuation patterns are also covered to alert the trader when a trend is only pausing momentarily but will continue with its run after a rest.

Part II of this book covers the more advanced aspects of trading with candlesticks. It emphasizes the importance of using candlesticks together with Western technical indicators to improve the accuracy of candle signals. Several popular Western technical indicators are covered in this book with examples drawn from widely traded financial instruments like forex; U.S., European, Japanese, Singapore, and Malaysian stocks; and stock indices, as well as from the futures markets to illustrate that this technique works for all markets. This technique, however, will not work if the instrument traded is controlled by a small group of players in a thinly traded environment.

The Japanese candlestick technique is a very powerful short-term trading technique if it is used on 1-minute, 5-minute, 15-minute, or 1-hour charts, as markets exhibit rallies and declines between 5 and 15 cycles on every time frame. It is therefore very suitable for use by remisiers, stockists, scalpers, day traders, and short-term position traders.

This technique is equally useful for medium-term and long-term forecasting through the use of 4-hour, daily, weekly, and monthly candlestick charts in combination with longer-term Western technical indicators (see Figure P.4).

Figure P.4 Kuala Lumpur Composite Index Weekly (1999) – Weekly candle charts are best for long-term investors

Herein lies the adaptability of technical analysis in that it works irrespective of the time frame used. You can apply this technique for intra-day trading through the use of a 1-minute chart, a 5-minute chart, a 15-minute chart, a 30-minute chart, or an hourly chart.

For longer-term investors like fund managers who tend to hold stocks for a period of more than a month, I have found that the weekly candle charts provide the most consistent buy and sell signals.

Winning from the market requires two ingredients. The first is that you must have a proven trading technique. The second is that you must practice sound money management. This book will provide you with the first ingredient.

Knowing when to exit the market when you are wrong is part of money management. To that extent, this book will also cover the second ingredient.

Good luck and happy trading.