Futures traders have a vast variety of chart types to choose from. The most used are Western bar charts; and the least used, point and figure charts. Newspapers seem to favor line charts for their easy readability. But many futures traders have found Japanese candlestick charts extremely useful, particularly because they make it possible to determine at a glance whether the bulls or the bears are in control of the market.
There are other charting techniques that provide futures traders with more information than candlesticks. Their allure lies in their ability to visually show traders which way the market is trending — bull or bear — and which way it is about to trend. Knowing which group controls the market — and, more importantly, which group is about to control the market — gives futures traders a significant trading advantage. Successful futures traders consistently trade with the market trend. Basically, in a bull market, you want to buy. You sell in a bear market. Knowing which way the market is going to trend allows you to enter and exit the market at the front of the pack where the profits are greatest.
The strictly vertical Japanese candlestick is simply easier to interpret at a glance than the armed column of the Western bar chart. Candlesticks emphasize the relationship between the opening and closing prices with a cylindrical body, called the real body. The top and bottom of the cylinder represent the open and close with the two wicks –one extending from the top, one from the bottom of the cylinder — indicating the extreme high and low prices of the period. It is the range between the opening and closing prices more than the prices themselves that tells a trader whether the bears or bulls are in control of the market. Candlestick charts make this instantly obvious.
The color of the cylinder also provides futures traders with immediate information about market movement. When the bulls are leading the market, the real body (cylinder) will be white. White is a light color, so think of it as also being light in weight, of rising upward. Therefore, any white or light-colored candlestick represents an uptrending, or bull, market that favors buyers. Conversely, when the bears lead the market, the real body will be black. Think of black as a dark, heavy, sinking color. Black or dark colored candlesticks represent a downtrending, or bear, market that favors sellers. A candlestick that looks like a Western bar with no real body, indicates a market that opened and closed at the same price. In other words, the bulls and bears fought to a tie.
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