Monday, January 9, 2012

Morris, Candlestick Charting Explained Workbook

My hunch is that most people who use candlestick charts simply find them more user-friendly than bar charts. No squinting required to figure out a bar’s open and close. For Gregory L. Morris, however, candlestick charts are more than clean graphics. “Candlestick charting gives a deeper look into the mind-set of investors, helping to establish a clearer picture of supply/demand dynamics.” (p. 9)

Morris, the author of Candlestick Charting Explained, the third edition of which was published in 2006, has now written a companion workbook, Candlestick Charting Explained Workbook: Step-by-Step Exercises and Tests to Help You Master Candlestick Charting (paperback, McGraw-Hill, 2012). Although I assume both author and publisher hope that the publication of the workbook will revitalize sales of the original text, the workbook can stand on its own.

In general, I’m not a fan of workbooks. But perhaps because I don’t have the Urtext on hand I found Morris’s workbook exceedingly well crafted. It describes and gives chart examples of reversal and continuation patterns—from such well-known ones as the bullish and bearish engulfing patterns to the more obscure (and rare), such as the concealing baby swallow.

There are frequent tests. I will confess that I started with the tests, figuring that I knew a fair amount about the intricacies of candlestick charting. “Knew,” past tense, is probably the operative word. If I had charted my performance, I wouldn’t have been the star of the class. Well, that was a bummer, so I had to go back and actually read the book. But it was a good read, so I didn’t feel that I was doing penance for a failed memory.

Does a chartist have to know all the candlestick patterns to be successful? Of course not. Can a trading method based on candlestick patterns alone be profitable? Perhaps, though with major caveats. Morris himself claims that trading solely on candle patterns is not wise. He advocates combining candle patterns with momentum indicators, at the very least. In fact, his MetaStock add-on scores patterns using a range of inputs.

In whatever way traders decide to use candlestick patterns, Morris’s workbook is both a good introduction and a quick refresher course.

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