Just to set the stage, I’d like to repeat a little story that I recently read. It doesn’t have anything directly to do with Japanese Candlesticks. I cite it just to set the stage.
A heart surgeon came into a Harley-Davidson shop to retrieve his motorcycle, upon which the mechanic had performed a major repair to the engine. The mechanic proudly displayed the result of his work by starting the engine and putting it through its paces. Indeed, it sounded fine. The doctor took the bike for a spin around the block, returned to the shop, and pronounced that the engine worked “as good as new.”
The doctor paid the bill and was about to leave, when the mechanic asked this question: “Doc, the repair work that I do is very much like the repair work that you do. How is it that you get paid so much more for your work than I do for mine?” The heart surgeon replied, “Because I do it while the engine is running.”
Let’s use another analogy: Japanese Candlesticks are like the watchmaker’s jeweler’s loupe. They enable us to peer at the object very closely. When we do that, they enable us to see what is going on in the minds of the traders, as a group, and to plan our next move accordingly. The heart of trading (trading, not investing) lies in understanding and taking advantage of Reversals of Trend; and our success or failure in trading varies directly with our success in determining – at the time of the event – when a Trend Reversal has occurred or is about to occur. We need to have that information for two main purposes: entering a trade early in the inception of a trend, and exiting it when it is about to end.
Japanese Candlesticks are the single best tool-set that we have for peering closely at market action in order to judge when a trend is about to begin or when it is about to end.
March 8, 2012