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Do candle formations have a important role in chart reading to you?

Original Question: I often see you mention island gaps, inside and outside days… Do candle formations have a important role in chart reading to you?

First of all candlesticks and HLC or OHLC bars contain the same information. So what we are talking about are price and volume formations as measured on a daily basis.

To make this story short, the interpretation of such price and volume formations are actually the A to Z of chart reading right where the action takes place or where the rubber meets the road as Gil used to say. Learning to read this signature should be your top priority over the years. I am currently working on a large series called Chart School and it comes in six chapters. Inside, outside days, reversals, price volume anomalies, volatility contractions and change in character are all part of this. What I don’t like about candlesticks is that people are way to strict with how they should appear on the chart. And putting labels on daily formations such as shooting star or hanging man is just another added layer of unnecessary complexity. Even when you use candlesticks you should ignore the candlestick labels and learn to just READ the price and volume signature. It is hardly ever the same but it oftentimes ryhmes. You’ll get a hang of it once you put in the practice hours needed.

Explaining all this is obviously way too much to be covered in a simple Q&A post.


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