Today's Quote: “No evil propensity of the human heart is so powerful that it may not be subdued by discipline." Lucius Annaeus Seneca.

Whenever price changes over time, the change can be plotted and form a price chart. Charts of stocks, futures, and indices are some common price charts. Price charts can be shown in a variety of ways; line charts and bar charts are a couple of the more common ways. At VCM Trading, we use only Japanese Candlestick charts. We use them on all of our charts. In fact, we do not consider a chart complete unless it has Japanese Candlesticks.

The main difference between Japanese Candlestick analysis and Western Bar chart analysis is that the Japanese place the highest importance on the relationship between the open and close of the same day, while the Westerners place the importance on the close, as it relates to the prior period’s close. While all of this data may be available on a Western Bar chart, it is difficult to see quickly.

The Candlesticks color each bar based on whether it closed above its open (green), or below its open (red) so it is easy to tell who won the ‘battle’ on that bar. Note that a candle may be closing under the prior candle and still be green, if it closed above its open. This could happen if the stock gapped down at open. Note: As long as the underlying stock closes higher than the prior day’s close, Western thought says it is positive; however, according to the Japanese view, this is not necessarily the case. If on an up day, the stock closes below its open, the Japanese would regard it as negative. Tails will stick out above or below this colored body to represent the high and low for the candle.

The different shapes and colors of these Candlesticks can help give an indication of what is happening with that stock. Several of these Candlesticks in a row can give rise to possible patterns that often repeat, giving us tradable strategies. At VCM, our trading strategies incorporate some of the best concepts of Japanese candlesticks.