Candlestick charts are useful in assessing whether existing trends are sustainable or whether they are becoming overextended and vulnerable to a reversal. Their signals can also be used to help determine whether a direction change is more likely to be a complete reversal of a trend or a correction that implies the previous trend is more likely to reassert itself.
“It’s not that candlesticks offer new or different data than the traditional bar charts technicians have used for years they show the same open, high, low, and close prices — but they present the information in a more enlightening way, giving traders a better idea at a glance of market strength or weakness,” says Robert Colby, CMT, a consulting analyst at www.TradingEducation.com and author of The Encyclopedia of Technical Market Indicators (2002, McGraw Hill, Second Edition).
The U.S. dollar/Japanese yen (USD/JPY) pair illustrates how several candlestick patterns highlighted the market’s dynamics over the past year.
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