Many traders often ask if they should use candlesticks or price bars for trading price action strategies. Our thoughts are that you should use whichever one you feel more comfortable using, because there really is no right or wrong answer. Having said that, we trade candlesticks, and we suggest you do too, because trading price action is mostly visual, and when it comes to determining the price direction of each bar, we think candlesticks give you a much better visual look at where prices are currently headed on a price action trading chart.
Try taking two separate charts placing them side by side. Make one a normal OHLC price bar chart, while printing another of the very same data but using candlesticks this time. Do not study either chart yet, but simply print them off. Then place those two charts side by side and glance at each one only temporarily. If you are like most people, you should be able to tell which way prices are headed with only a quick glance at the candle stick chart, while it may take you a few minutes to determine things on the regular price bar chart.
Another important piece to the chart puzzle is that when trading price action, the latest or most current bar is one of the most important bars, so by using candlesticks, you can quickly tell whether or not that bar is a bull trend bar, bear trend bar or maybe just a neutral bar, which we call a doji. When using candlestick charts, a quick glance at the current candlestick will give you a lot more information that a quick glance at a regular OHLC price bar.
This is not to say that you can’t trade OHLC price bar charts, because if you have traded them for any length of time and you are having success, then do not try and fix what is not broken. If you are new to trading or struggling with your current day trading, then it would probably behoove you to start watching charts that are made up of candlesticks. We have traded both over the years, and we would never trade anything other than candlestick charts now for all of the reasons just discussed.
Here is some recent and interesting information we found on candlesticks at www.tradermike.net.
Learning how to use candlestick charts was probably the second most important thing I’ve learned (money management is a clear #1) since I started trading for a living. The funny thing is that when I started trading all of the charts in my trading software were defaulted to displaying candlestick charts. At that time I had no idea of the usefulness of candles and they just seemed strange to me. So I switched all of my charts to line charts. It wasn’t until I happened to catch a segment on CNBC with a very successful day trader that I finally got a clue about candlesticks. That trader had turned $60,000 into more than $500,000 in less than a year. Of course when I heard that I turned around from my usual position of having my back to the TV and paid close attention to what he had to say. At some point during the segment he revealed his ‘secrets’ — he’d gone to a 2 week training course and he held up a book that was critical to his success. That book was Japanese Candlestick Charting Techniques by Steve Nison. I immediately went to Amazon and ordered the book.
Steve Nison is widely recognized as the foremost expert on candlestick charting in the Western world. He spent years researching candlesticks, mostly via old Japanese documents. In the process he learned a great deal about the history of candlestick charts (and Japanese culture) and he often shares stories of the origination of certain chart patterns. Nison does an excellent job of demystifying candlestick charts. The book begins by comparing bar charts to candlestick charts. The reader quickly learns that candlesticks essentially add a third dimension to 2-dimensional bar charts You can read the entire original article here.
We are not necessarily saying that it is important that you understand the Japanese meanings and teaching in the use of candlesticks, although many of those teachings are very sound and fundamental. In fact, some of those teachings are actually nothing more than price action trading rules that we use ourselves in our every day price action strategies. Our main goal in this article is simply to get you interested in candlesticks for the purpose of gaining a visual edge when trading with price action strategies.
Our trading experience is that candlesticks are much easier to see and quickly understand due the visual edge they give you when it comes to seeing the overall and current direction of prices. When you understand how important having a simple visual skill for seeing price movement is when it comes to trading price action, you will then learn to appreciate candlesticks even more. If you are adept at reading OHLC price bars, then you might want to stay with them. While we like candlesticks, the use of candlesticks or price bars for trading price action is really nothing more than a personal preference, so use what works best for you. In the end, learn to trade price action first and foremost and the rest will come to you with time.
Below is a very interesting YouTube video that discusses candlesticks. If you want to learn more about Japanese candlesticks, take the time to watch this video.