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Tips for Using a Candlestick Chart in Futures Trading

Since Steve Nison’s introduction of the candlestick chart in the early 1990s, western traders have made it a staple of technical analysis. Regardless of asset class or product, scores of aficionados view Japanese candlesticks as an ideal way of interpreting market behavior. If studying price action piques your interest, you have likely heard of candlestick charting.

In comparison to OHLC, line, or point-and-figure charts, candlesticks offer an abundance of pertinent information. Data is presented in a user-friendly manner, greatly boosting the speed of interpretation. Because of this robust functionality, the candlestick chart has become the industry standard for futures market technicians. Keep reading for a few tips on how to optimize your experience with this powerful analytical device.

Align Your Periodicity

No matter which type of pricing chart you use, it is critical that the chart’s periodicity is in alignment with the trading style. For instance, the decision-making of an intraday scalper relies on movements of price within ultra-short time frames. Accordingly, weekly, monthly, and yearly intervals are of little use; a one-minute or 250-tick candlestick chart is far more suitable.

One tried-and-true way of optimizing your technical studies is to integrate multiple time frame analysis via candlestick charts. Viewing price action simultaneously on different time frames is a great way to place volatility into a manageable context. The visual nature of candlesticks promotes an easy recognition of patterns and trends . By observing common or conflicting data on unique intervals, you may rapidly fine-tune market entry and exit points.

Want technical trading tips? Download our free guide 12+ Candlestick Formations Every Technical Trader Should Know today!

Candlestick Charts Are Indicator-Friendly

Perhaps the single greatest benefit of being a modern futures trader is the availability of technology. Software trading platforms automatically chart streaming price data, perform intricate calculations, and apply indicators. Long gone are the days of graph paper and pencil. All the technical trader needs to do is choose an indicator (or indicators) and interpret the data.

In the case of the candlestick chart, indicators are best applied as overlays. A chart overlay is simply the transposition of such indicators as moving averages, Bollinger Bands, and Fibonacci tools on existing candlesticks. When a trader does this, market direction and pricing momentum become quickly discernible. This is a key advantage of candlesticks because almost any technical indicator can be applied to the chart without muddling the presentation.

Avoid Analysis Paralysis

As we covered earlier, the Japanese candlestick chart is a fantastic tool for delivering a lot of information quickly. However, it is critical to avoid a hazard that many traders fall victim to: analysis paralysis.

Analysis paralysis occurs when a trader attempts to focus on too many pieces of information at one time. The result is an inability to be decisive and act in a timely fashion.

Although candlesticks are great for applying various indicators and multiple time frame analysis, it’s important to not get carried away by their utility. Stick with the indicators and time frames that complement your strategic objectives. In doing so, you will be able to streamline decision-making and avoid analysis paralysis.

Want to Learn More About Candlestick Chart Functionality?

The Japanese candlestick chart is a powerful technical device that has countless applications for active futures trading. No matter what type of trader you are, candlesticks are certainly worth a look.

If you’re interested in exploring the strategic value of this time-honored approach to the markets, take a look at Daniels Trading’s free e-book 12+ Candlestick Formations Every Technical Trader Should Know. Featuring tips on how to read candlestick charts, identify patterns, and apply the concepts to active trading, it’s a straightforward introduction designed for anyone interested in boosting their analytical game.

Ready to think like a technical trader? Download our free guide to learn how to identify chart formations and take action when the time is right.

Contact Daniels Trading

To open an account or request more information, contact us at (800) 800-3840 or and mention .

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the “risk disclosure” webpage accessed at at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

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