How to read the candlestick chart?

Let’s see this thing. On September 18, you see a black box which has little tails on the top and the bottom. Those tails show you the day’s range. The black box tells you that the stock went down during the day. The stock started trading at the top of the box, and by the end of the day it was trading down at the bottom of the box. Of course, during the day, the stock price went both up and down, and that’s why we have the tails. Those tails show the price swings that occurred during the day, but the important thing is the box. The box tells you how much the price changed during the day. If it’s a white box, the stock went up. Like on November 13, you see a small white body with a long tail up. This means that during the day the stock went up, then fell back a little bit, but it closed higher.

The candlestick chart allows you to immediately see which day is up and which day is down, because the days are colored. More importantly, you can also spot days which had violent price swings but very little change. For example in January 2007 (the last bar on the chart) is a small black box with long tail. This means the stock had a wild ride during the day, but it closed only slightly lower than the open. So, it was almost unchanged at the end of the day.

There was a Japanese guy named Homma Munehisa, who discovered that these boxes and tails often repeat in certain patterns. These patterns were recorded and tested, and they are fairly accurate way to predict price moves. For example, he said that if you get a small body with long tails after a nice uptrend, chances are that the uptrend is over. And you can see on your chart that this is the case most of the time. Look at October 16 – we had a small white body with long tail up. Also, on November 22, we had a small black body and long tail up. Same thing. The reverse is also true. There are lots and lots of patterns like this, and there are books written to record all the patterns or you can find them online as well:

http://stockcharts.com/help/doku.php?id=chart_school:chart_analysis:candlestick_pattern_

I expect it to dip below 10,000 soon, and hopefully that will be the bottom. If it goes below 9,000 then we are in for a world of hurt.

If you are look for sectors that have been slaughtered, take your pick. Solar got demolished today. A lot of hte solar stocks dropped 20%

Just remember, there are usually multiple legs to a crash. So just because something drops 20% doesn’t mean it can’t drop another 30%.