When a chartist looks at a bar graph, accumulations of highs and lows are often seen as key market levels. Breaking. through these points signals important changes in the expected direction of prices. Candlestick real bodies, however, may turn out to be better for this task. Much like highs and lows are on bar charts, an accumulation of real-body highs or lows at a given level is significant.
An example of real-body resistance levels can be seen in Figure 2. The real-body high from the first day provides the initial resistance point. Note how the second day's action takes prices above that resistance, even to a new high, but the market ends lower on the day. The situation is similar after the fourth day. Twice the market rallies above real-body resistance, only to fall back. Real-body support levels would work in a similar, but opposite, manner.
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| FIGURE 2: CANDLESTICK REAL-BODY RESISTANCE. Here's an example of real-body resistance levels. The real-body high from the first day provides the initial resistance point. Note how the second day's action takes prices above that resistance, even to a new high, but the market ends lower on the day. The situation is similar after the fourth day. Twice the market rallies above real-body resistance, only to fall back. Real-body support levels would work in a similar, but opposite, manner. The last candlestick is what would be considered a breakout. In effect, there must be a real-body penetration of the support or resistance point before we can consider the action to be significant . |
The last candlestick on the chart is what would be considered a breakout. For the sake of our definition, a breakout of real-body support or resistance is official only if it is on a closing basis. In effect, there must be a real-body penetration of the support or resistance point before we can consider the action to be significant.
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