In technical trading,a very simple candlestick pattern is an up or down trend displayed graphically within a candle chart which some think can predict an approaching market motion. The recognition of the pattern itself is usually subjective and automated programs that are widely used in charting has to rely upon predetermined rules to follow the trend. These patterns are typically displayed as a set of horizontal lines that represent either a rising or falling trend. The simple idea behind the routines is straightforward; the longer the time period of the line,the higher the probability of the trend continuing.
Many investors will buy a stock based on the idea thatit is going to go up or down according to the candlesticks pattern used by their anti virus applications. But while this idea could be tempting,it is really not a great one. The reason is that all trends can differ from day to day and even hour to hour. There are times once the market can go up but drop as soon as you leave the stock exchange.
Another problem with using candlesticks patterns on your graphs is thatthey don’t provide you with a way of identifying a trend. What the graphs does is enable you to easily see when the market has taken a certain pattern and moved on. Therefore,it is important that you know when to look at the chart and when to remove from it.
While most stock market patterns can be difficult to interpret,it is likely to get a better sense for the trend by paying close attention to the volume. To put it differently,if the stock is creating a sudden rise in volume,there is an excellent chance thatit will likely be going up and if it’s been declining for a while,it might demonstrate that the trend is starting to turn down down.
Candlestick patterns are an excellent way to evaluate the market’s direction and help you gain an understanding of the market. But,remember thatthey cannot tell you the direction where the industry is led and can only provide you with a guidepost.
There are many other indicators that can provide you a better feeling for the direction the stock market is heading. The most essential point to bear in mind is that all of them are different and the best ones are the ones that you locate that give you a sense of consistency.