CHARTING
Colorized Candles
In this sixth part of a seven-part series, we look at an expert trading system that color-codes candlesticks to simplify entry & exit decisions.
When in doubt, follow the expert — except that this expert is a trading system that will make your buy & sell decisions easier. Keep in mind there is no perfect expert that will make profitable trades all the time. Your best chance for a profit at the end of the day is to stay in a profitable trade for as long as possible and avoid entering losing trades. Together with good risk & money management, the odds will be in your favor.
An expert system that color-codes your candlestick chart will give you the best possible indication of when to buy and when to sell. In the standard candle chart in Figure 1, a green candle body indicates that the day closed with a price higher than the opening price; a red candle body means the closing price was below the opening price. On this chart, it’s not so easy to see where to take action.
FIGURE 1: STANDARD CANDLE CHART. A green candle body indicates the day closed with a price higher than the opening price and a red candle body means the closing price was below the opening price. It’s not so easy to see where to take action.
Now look at Figure 2. It’s the same chart but color-coded by an expert color-coding system. With this chart, if you buy when the candle color changes to green and sell or go short when it changes to black, it’s fairly clear where you will buy and sell.
Besides having clearer indications for long or short positions, you also have the advantage of the candlestick chart format itself. In Figure 2, a white or unfilled candle body means the day closed with a closing price above the opening price. A filled body, either green or black, means the day closed below the opening price of the day. Figure 2 shows a nice, profitable example, but it will not always be that way!