Candlesticks for Support and Resistance


Observation is the best friend of the technical analyst. By watching the markets, we noticed something interesting about candlestick charts. We realized the real bodies used in candlestick charting can be used to determine significant support and resistance points, a strategy I had never seen before. Take a look at how it can be done.

Although they have only recently become popular in the Western Hemisphere, Japanese traders have been using the candlestick charting technique for hundreds of years. Candlestick charts, much like the bar chart equivalent, utilize the open, high, low and close activity to plot a period (usually a day). In candlestick charting, unlike bar charting where the highs and lows tend to be the focus, the opens and closes are the most significant.

By using candlestick as a tool for identifying support and resistance level, we can try to improve our trading and analysis on several levels. In the short term, we can derive important counteraction trading points and improved longer-term entry levels. In the longer term, we can use real-body support and resistance to get a jump on market breakouts in a trend-trading strategy.  8 pages