Candlestick Charts for a Swing Trading Edge

candlestick chartsHow to Interpret Candlestick Charts in Multiple Time Frames

Successful swing trading is about having an edge and the discipline to execute it flawlessly.

Among the thousands of potential strategies for swing trading, candlestick chart patterns provide clarity and the most relevant edge you could ask for.

Nothing combines institutional order flow and risk management in one easy to read package.

Often we make things more difficult than necessary. For many traders, the problem with candlestick charts, is the same element that makes them great, they are almost too simple.

When money is on the line, we tend to make things complex because so-called experts make it sound that way. They have to, if it sounded easy we wouldn’t need to watch them tell stories and make predictions about the next direction of your favorite stock.

How exactly do candlestick charts demonstrate an edge that translates into a trading decision?

What Candlestick Analysis Tells You about Price Action

To craft a Game Plan for a high probability trade you need:

  1. Long term probability and;
  2. Short term risk management.

Proper use of candlesticks gives you both in a nice, neat package.

There are some excellent books on candlestick charts but for now let’s focus on two things; are buyers or sellers in charge, or is there indecision?

Candlesticks charts are unique, because they give you this information at a glance.

Large green or red candles tell you to pay attention. Candles with a small body tell you there isn’t a dominant force.

When you combine these two patterns, you get powerful swing trading scenarios that are easy to spot.

When charts tells us institutions are buying or selling with obvious intent, our job is to take acceptable risk.

How to Use Multiple Candles to Trade with the Big Money

It’s common for swing traders to use moving averages for ideas. There is nothing wrong with this, but today’s market simply moves too fast. Today’s trader must focus on the “hard right edge.” This means the most recent price action.

Moving averages by their very name are lagging. They eliminate the “noise” by smoothing out direction, but they are like an ocean liner that takes too long to turn.

Our updated plan for spotting the big money in action, is to monitor candlesticks on the daily, weekly and monthly time frames.

When the current two most recent candles in both the weekly time frames have higher highs and higher lows, Institutions are showing you they are buyers the last two months and the last two weeks. This is the perfect storm to be “long” as a swing trader. A time to be buyer.

How can you make this better?

When the last price is trading above the high of the previous candle on the both the monthly and weekly charts you have good current momentum. They are buying now.

How do you know when to enter with low risk?

Remember our small body indecision candle? When you see this on the daily chart, at the same time you see the two monthly and weekly setups just described, you can consider an entry in the direction of the institutional buying pressure.

The small body candle is telling you the stock is resting and giving you a chance to climb on board.

Take a look at as many stocks as you can and you will notice this pattern play out over-and-over again.

Japanese Candlestick Chart Book

Well-respected author Steve Nison wrote the definitive book on candlestick charts. It’s packed with rich history and excellent examples.


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