| Japanese candlesticks offer a "mathematical | | | | open and the close of that day. Dynamically, there is |
| expression of psychological market sentiment" to | | | | a battle going on each day-the candle reveals its |
| trader Gary Wagner, who utilizes these Eastern | | | | outcome," he explained. |
| technical indicators in conjunction with Western tools | | | | The most important lesson Wagner he says he has |
| to actively trade for himself. | | | | learned as a trader is that the "market runs |
| It took Wagner several years into the commodity | | | | independently of whether you want it to go up or |
| business before he began utilizing Japanese | | | | down ... you can't marry yourself to a position." |
| candlesticks in his interpretation of the markets. After | | | | "One has to have a systematic methodology that |
| college, he entered the industry as a broker and | | | | removes as much emotional content from the trade |
| around "1989-1990, FutureSource began displaying | | | | as possible," Wagner continued. Additionally, traders |
| price movements over time with candlesticks. It | | | | "must predefine risk and reward," he stressed. |
| looked interesting, but I didn't know much about | | | | Wagner has done this for himself via computer |
| what they meant. I started doing a lot of research," | | | | software he has developed called the Candlestick |
| Wagner said. | | | | Forecaster. "I took all the trading techniques that I |
| Wagner stumbled upon a book entitled The Japanese | | | | use and mimicked them with a computer," he said. |
| Chart of Charts, by Seiki Shimizu, which he calls the | | | | "The best traders I've witnessed ... are successful |
| "Rosetta Stone of every candlestick technician in the | | | | because they maximize upside potential when they |
| U.S ... I read it and it was like these light bulbs started | | | | are right and they get out quickly if they are wrong," |
| going off in my head," Wagner explained. | | | | Wagner revealed. |
| "After it clicked in, my trading vastly improved. I | | | | Wagner admits that "fundamentals rule the market, |
| started making money and my clients started making | | | | but you can distill that in a mathematical way," he |
| money," Wagner said. Japanese candlesticks are | | | | says referring to candlesticks. "By removing myself |
| constructed differently from a traditional Western bar | | | | from information overload of the fundamentals, I |
| chart. A traditional daily bar chart reveals a vertical | | | | was able to glean a much more pristine view," he |
| bar, representing each day's action. The bar chart | | | | explained. |
| reveals the session's high, low and closing price; the | | | | Currently, Wagner looks to trade markets with "good |
| latter is seen by a tic to the right of the bar. | | | | liquidity and good open interest." These will be "viable |
| However, Japanese candlestick charts are comprised | | | | markets to trade using the (candlestick) technique," |
| of a rectangular section and two thin lines above or | | | | he said. "I shy away from coffee and cotton ... |
| below the section. | | | | logistically you can get a huge amount of slippage ... |
| According to Trading Applications of Japanese | | | | you have to have more caution with illiquid markets," |
| Candlesticks, by Gary Wagner and Brad Matheny, | | | | he explained. While Wagner started out as a |
| "The candle or pole line is defined as one complete | | | | day-trader, that changed about three to four years |
| cycle with an open, low, high and close. The thick | | | | ago and now he has become a position trader. |
| part of the candle is known as the real body. The | | | | Wagner credits the change in his trading style to an |
| thin lines above and below the real body are the | | | | actual change in the nature of the markets |
| shadows and represent the high and low for that | | | | themselves, which coincided with the emergence of |
| cycle ... A white candle (empty) is created when the | | | | large fund players and large institutional players in the |
| closing price is just above the opening price for the | | | | futures arena. |
| cycle. Black candles (full) are just the opposite-die | | | | "When the large institutional traders came in, they |
| opening price must be above the dosing price for the | | | | had such a voracious way of moving the markets |
| cycle." However, Wagner utilizes Japanese candlestick | | | | because of the mass of orders," Wagner explained. "I |
| charts in conjunction with traditional Western | | | | found it difficult from a computer to win because the |
| technical analysis. | | | | risk reward changed. My stops didn't hold." |
| "Utilizing candlesticks is a win-win situation for the | | | | Now, Wagner believes the "most profitable way to |
| Western technician. We use moving averages, | | | | trade is with the trend." |
| stochastics, trendlines. But, one can usually obtain | | | | Advice for the beginning futures trader: "Invest in |
| more information looking at a candlestick chart. The | | | | education," Wagner suggests. He says the new |
| reason for that is that the Western technician puts | | | | trader is "jumping into a shark-infested pool. In order |
| his emphasis on the close to the close," Wagner | | | | to survive ... you need good protection ... and very |
| noted. | | | | large teeth. Staying power or stamina," is important in |
| But candlesticks reveal "the relationship between the | | | | order to succeed. |