Trading Boot Camp: You Better Use a Candle for Bigger Gains

Want to jack your trading gains?

Then you need a candle.

No, I’m not saying you need to light a candle and pray – although let’s face it, you could probably use it. I’m saying you need to learn how to read candle charts if you want bigger gains.

That one simple change in how you view your stock charts will instantly improve your trading profits.

How can you pull off such a miraculous feat? You’re about to find out. Strap in – day two of your holiday trading boot camp begins now…

I know many investors who aren’t familiar with candlestick charts are intimated by the bedlam of lines on the page. But I promise—once you understand the basics of candlesticks, you’ll be able to instantly absorb all the relevant information on any candlestick chart. More importantly, you’ll be able to use that information to perfect your buys and sells. And that means siphoning more money out of the markets.

Why use candles instead of a simple line chart? It all comes down to information. On a daily line chart, the closing price is plotted. That’s it. It’s not a problem if you’re only interested in the overall trend. But if you’re planning a trade, you want as much information as possible. That’s where candlesticks come in…

Candlestick charts not only show you the closing price of a given stock—but also its opening price, its high of the day, and its low of the day.

Take a look at this example:

CandleStick

Depending on your charting program, bullish and bearish candles might be different colors—so keep that in mind before venturing off on your own. Typically, candles with green or white real bodies are for bullish days, while red candles signify bearish days.

Now, as you can see, these candles convey a lot of information—even with just a quick glance. There are two parts of the candle you need to be able to identify in order to properly understand how valuable these charts are. They are the shadows and the real body.

Shadow

Why are these important?

For starters, the shadows show you the daily range, which gives you a lot more context than just the open and the close. For instance, a candle with a long upper shadow indicates that the stock rose to higher levels during the trading day—but gave back much of its advance before the close.

In contrast, a bullish candle showing no upper shadow and a long real body tells you that the move higher is extremely strong, with the stock closing at its highs without a significant retreat.

Then there are candles with no real body at all. These occur when a stock opens and closes at the exact same price. They’re called dojis – and they signify indecision from buyers and sellers. Dojis can even have very long upper and lower shadows, denoting even more indecision as the stock bounces around intraday, only to settle right back at square one…

Doji

As you’ve probably already guessed, candles can tell you a lot about a stock’s short-term prospects. And groups of one to several candles can form bullish and bearish patterns that, when used alone or along with trendlines, can offer great entries for profitable trades.

Don’t worry about the details right now. It’ll all make sense after tomorrow. That’s when we’re going to put all of your newfound basic candle knowledge together. You’ll even learn a handful of unique candlesticks that can help pave the way to fast, double-digit gains.

Stay tuned…

Sincerely,

Greg Guenthner

for The Daily Reckoning

P.S.  If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, for FREE, right here. Stop missing out. Click here now to sign up for FREE.