Candlesticks fit into the overall technical picture, but it should be known that candlestick chart patterns are just one part of a wide array of studies that fit into technical analysis. Technical analysis spans all chart analysis, and it is even applied to some fundamental analysis statistics.
Candlesticks are usually traded actively or passively, but few traders deny their influence, especially those that use technical analysis in favor of traditional investing. Some traders like to use candlesticks as the sole buying and selling signals, while others blend them in with a few other technical indicators to refine their trading. Day traders and swing traders are much more likely to use candlestick patterns than investors, but that is due largely because of the difference in investing ideologies.
The passive view
Passive candlestick traders are more familiar with and typically favor other methods of technical analysis than chart patterns. This group of investors is made up of those who prefer computer generated technical analysis to the 18th century style of candlestick trading. The passive candlestick trader is usually an active, professional trader with a more complex trading style than most. This group is made up of people who trade candlesticks casually while putting more influence on other indicators.
The active view
The active candlestick trader keeps a close tab on each developing chart. Bottoms and tops are marked by candlestick patterns rather than their price. Active candlestick traders are willing to take even the short term charts and trades that may not go entirely with the “candlestick creed.” Little confirmation is needed for these traders who like the simplicity to the more complex forms of technical analysis.
The overall picture
Whether you are a candlestick purist or technical analyst, there is something in candlestick charts for everyone. Full-time day trading requires a full arsenal of trading tools and information, thus adding candlesticks can bring some benefits. Some use candlesticks to trade opening gaps or the late day breakouts, but all investors can agree that they do play some role in predicting future prices.
Keeping a balance
Balancing candlesticks and other forms of technical analysis is a solid way to produce consistent profits. A professional trader is likely to favor either candlesticks to the bulk of technical analysis or vice versa, but usually picks up the second place preference as a critical confirmation. A comprehensive trading plan should outline the roles of both forms of analysis and give preference to one. Your plan should act as your own screener, finding the good trades and leaving the bad. No matter the type of trader, there is plenty to benefit in learning a new indicator.
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