Candlesticks make it so easy to spot Support and Resistance lines. On the accompanying chart of the Dow Transports, note how the Opens and the Closes of the price bars from mid-December 2010 through mid-March 2011 and again in June 2011 congregate around the 5076 line, and virtually shout to you!
We know that when prices fall below a Support line, polarity steps in and Support becomes Resistance. The chart also displays that phenomenon: the tall black candle at right-center on the chart shows a deep drop below that Support line in August; and then in October, November, and December prices attacked that line from below. Alas, what had been a Support line had switched to a Resistance line. During those three months, prices attacked it four times, but have never been able to breach it. Support has become Resistance.
Please also note the Candlestick “Doji” Reversal Warning Pattern, outlined in blue. The “Doji” is characterized by the Open and the Close being the same, or very nearly so. It is a potent Reversal Warning when it appears at the top of a long uptrend. In this example, prices fell drastically after it appeared.
The Candlesticks illuminate Support and Resistance lines in a way that is head and shoulders above the old open-high-low-close bar chart. It is a feast for the eyes. Indeed, this is Pattern Recognition 101. In this example, we received a double treat in the form of the “Doji” Reversal Warning Pattern, which obviously proved itself very well.
William Kurtz
http://www.CandlesticksOnSteroids.com
