| Candlestick charts is a visual representation of the | | | | stock ABC never trades down to $59 during the day. |
| battle between the bulls and the bears that takes | | | | So, the low on the candlestick chart may not be an |
| place in the market. It takes time for this battle to | | | | accurate depiction of the day's price action. |
| take shape. Candlestick patterns on the very short | | | | So, electronic trading makes these charts somewhat |
| timeframes used for scalping and some other day | | | | inaccurate. Couple this with the fact that on short |
| trading strategies may not give signals that can be | | | | timeframes, candlestick charts are not very accurate. |
| properly interpreted and traded. | | | | These charts are good for timeframes of 1 hour and |
| In the last decade electronic trading has become | | | | above. Just keep these two limitations of candlestick |
| highly popular. What this means is that significant | | | | charts. |
| volume of the trading takes place outside of the | | | | Apart from that candlestick charting is a powerful |
| regular market hours. This trading can cause patterns | | | | tool in the hands of an experienced trader. When an |
| that don't reflect the full picture to appear on a | | | | experienced trader combines these charts with |
| candlestick chart. | | | | technical indicators, this combination can produce |
| For example, stock ABC trades on NYSE. NYSE | | | | highly accurate trading signals. |
| officially opens at 9:30 AM EST for trading. Stock | | | | Candlestick patterns can be a good buy and sell signal |
| ABC open price is $60 per share. However, this stock | | | | when combined with a technical indicator like the RSI |
| had been trading on the electronic network in the | | | | or the stochastic. There are simple as well as |
| pre-market hours as low as $59. Now the open on | | | | complex candlestick patterns. Single stick candlestick |
| the NYSE may not be a true reflection of where the | | | | patterns are easy to spot however, two stick and |
| stock had been trading initially on that day. | | | | three stick candlestick patterns do not appear quite |
| What this means is that the open recorded on the | | | | frequently but when they do, they are very accurate |
| candlestick chart is not accurate. Now, suppose the | | | | and can be highly profitable to trade! |