Candlesticks – once a mysterious Eastern technique – have become mainstream technical tools, indispensable in today’s rapid and complex market. But these are not just different expressions of price movement; specific candlestick formations serve as valuable confirmation tools for more traditional Western technical indicators.
For example, one well-known pattern used by technicians is the trendline. This is a straight line tracing rising support in an uptrend, or falling resistance in a downtrend. Technicians have observed that the trend begins to end once the trendline stops, meaning price moves below the rising support line or above the falling resistance line. This signals impending reversal.
Once prices fall below the rising support, or rise above the falling resistance level, the current trendline ends. This is a sign that the current short-trend is ending or at least pausing. As easy as this is to spot, though, it is always desirable to have a secondary confirmation of the apparent reversal. This is where some basic candlestick formation come in handy.
Using just the trendlines as a basic technical tool, you can identify many easily spotted trends. However, to confirm these trends, candlestick formations provide very valuable additional tools. Candlesticks come in many shapes and sizes. By themselves, they do not offer an alternative system for technical analysis; but they do work as excellent confirmation tools for what you discover in traditional Western price patterns. Used together, the Western and Eastern patterns and signs vastly improve technical analysis, helping you to spot reversal early. Nothing gives you a 100% system, but using candlesticks for confirmation improves your timing and helps you get a jump on price changes.
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