You own it. You paid too much for it. Too bad! Now life goes on. Each month, week, day, or minute has the potential for making another decision. The decision-making process required for producing good returns on your portfolio is a constant and scutinizable activity, one that can have many embarrassing throwbacks, such as buying at the peak, selling out at the bottom, picking the wrong company in an industry, selling too early, or selling too late.
Without a definable investment strategy, most investors go through life hoping that their investment decisions are going to work out. They had no game plan going in; they usually have no game plan for exiting.
The Candlestick signals work equally well on both sides of a trade. They are as accurate for showing when selling comes into a stock price as they are for showing when buying comes into a position, thereby enabling investors to control their entry and exit strategies.
Human Emotion Why do most investors repeatedly make the same trade mistakes? That great bugaboo, emotion. Investment logic and investment emotions create a vast decision-making divergence. Have you ever analyzed a stock situa- tion, whether fundamentally or technically, and planned your entrance and exit strategies thoroughly before putting on the trade? Once the trade is on, the circumstances that you analyzed occur, but all the preplanning for the establishment of the trade now disappears.
This phenomenon is a common occurrence among investors—easily explained, but hard to overcome: human ego! We all think we are intelligent. We analyze an investment situation and put our stamp of intellectual prowess on the line. Buying a stock position immediately declares that, with the same investment criteria available to everybody else, we have made a statement, subconsciously, that our analytical abilities are better than the average investor.
Of course, when a stock price moves against us, that is just a temporary misreading of the market factors. Man who toot in church sit in his own phew. Ego: Our Investing Hurdle A part of our minds—our ego—assures us that our assessments were cor- rect and everybody else will eventually see this stock price moving in the direction that we first anticipated.
The decision process continues each tick after the initial purchase. You buy a stock, and the price immediately goes down. Do you sell it here, or is it at the bottom? It keeps going down; the same question occurs every day, every tick. Conversely, the stock price is going up. Is it time to take profits? How embarrassing it would be if it went back down to where you bought it. Or worse, if after it was up at this price, you eventually sold the position for a loss.
Each position becomes an emotional conquest—your intellect versus the rest of the market players. Man is the only kind of varmint that sets his own trap, baits it, and then steps in it. John Steinbeck Candlestick formations take the emotional factors out of investing.
In Chapter 7, you will learn how to take the emotion out of owning each individual position. The signals provide a discipline that can be adhered to. If you follow the signals, the percentage of correct trades becomes more evident as you invest. If you trade against what the signals are indicating, common sense or investment pain will readily illustrate that you need to follow the signals.
The percentage of correct trade results, produced from properly analyzed signals, will reinforce a trading platform that you will learn to follow faithfully. What is the optimal trading system? What trading program will eliminate the flaws that we each have in our investment psyche? How can we find the investments that will produce profits now? When do we get in? When do we get out?
Using any trading discipline will produce greater returns than the normal nonstructured investment approach. Using the Candlestick signals, how- ever, will produce a greater profit-potential investment strategy than you can imagine. Hundreds of years of honing the visual identification process—the initial form of statistical analysis—provide a well-founded investment strat- egy.
You can reasonably assume that the percentage of positive results from Candlestick signals is significantly worthwhile.
Otherwise, those signals would not be in existence today. Additionally, it is extremely useful to implement a trading strategy that can be documented and analyzed. Each new trade provides an analytical tool. What went wrong with this trade? The post-trade results can be compared to existing results produced by similar signal formations. An investor should be able to evaluate each trade in order to better the results of the next trade. Being able to identify the potential of a high probability trade, days ahead of the other market participants, has obvious advantages.
The downside risk is reduced. The signals alert you to the first change in investor sentiment. You get into and out of positions before the masses. Upside potential is enhanced, exploiting the next round of buying by the investment analysts. You will be asking that same question when you finish this book.
Once you finish this book, your mental investment procedures will be radically altered. Mastery of the Candlestick technique will provide the mindset of a successful professional investor.
You will also gain valuable insights into human nature. You will be able to cash in on low-risk, high- potential opportunities overlooked by the common investor. The inherent nature of the signals instills common-sense disciplines. You are about to be exposed to the most refined signal-generating system in all of financial his- tory.
Hundreds of years of observation have produced results with a system that has thrived through the centuries. Are you tired of settling for mediocre returns? Does the rationale of losing less than what the indexes lost not impress you anymore? Do recommen- dations from major Wall Street brokerage firms appear to have lukewarm potential by the time they are presented to you? Why settle for watered-down investment programs when you can pinpoint exact bottoms and tops?
Why forgo profit potential that can be extracted from the markets directly into your pocket? The effort required to master the Candlestick technique is minimal if you go about it in a structured manner.
Practical insights derived from the visual aspects of the signals will point out the real profit potential of investing. You do not have to reinvent the wheel. A mere decade ago, Candlestick analysis was still in its infancy, at least in the United States. Today an investor has an advantage of participating in highly informative web sites strictly concentrating on showing investors how to use Candlestick analysis correctly.
The Candlestick Trading Forum provides a daily chat room where investors can continually improve their trading capabilities. Established in , the Candlestick Trading Forum web site has become the leading edu- cational site for mastering Candlestick analysis. Introduction 19 The following chapters explain the formations and the psychology behind the formations, and give illustrations of the signals. Read these sections at your own pace. It is not necessary to remember each signal and the psychol- ogy behind it to a high degree.
Learning how the signal is created aids in remembering the signal, but it is not required for making profits. Of the 40 or so signals, there are approximately 10 major signals.
Become familiar with what the signals look like. Later chapters outline the process for learning the signals easily and rapidly. And those who look only to the past or the present are certain to miss the future. John F. Kennedy The most valuable aspect of technical analysis is the recognition of reversal points.
Japanese Candlestick analysis puts the probabilities on your side. To drive the point home, the signals are the results of hundreds of years of visual recognition of successful reversals. The ability to identify technical clues that put the prob- abilities in your favor is the ultimate function of technical analysis. Western charting has patterns that indicate reversals of major trends. Head and shoulders, double tops or double bottoms, and island reversals are formations that have exhibited high degrees of accuracy for identifying change in the current trends.
Being familiar with the psychology behind specific candle forma- tions provides immense advantages. Candle signals can identify a trend reversal in one day. More often, the Candlestick signals can forewarn when a trend is preparing to change. Using the analogy of a steam locomotive as a trend, most trends do not reverse on a dime.
If a train has to reverse direction, there are logical indica- tions. First may be a whistle, then the rhythm of the wheels can be heard to slow down. Steam may shoot out the sides as the brakes are applied. The wheels start squealing on the rails.
All these signs give you the belief that the train is coming to a stop. The Candlestick signals give investors similar indications. A major trend will probably not have a one-day reversal.
It may take a few days or weeks for the force psychology of investors to expend itself and reverse direction. The appearance of a reversal signal alerts the inves- tor that a change of investor sentiment is occurring or is about to occur. Viewing a sell signal at the top of a long uptrend should inform you that the trend might now be losing stream. Will the trend continue up from here? But not with the same potential as putting your investment funds elsewhere.
The signal should have told you that sellers were stepping in at these levels. The force of the trend may still take prices higher.
However, with the indications that the sellers may be stepping in, the strength of the uptrend should be greatly diminished. The investor can now be preparing for the appearance of the next sell signal. Will the trend reverse and go back the other direction? That will take more signals to confirm. See Figure 2. The trend may go flat for a while. Or waffle in a range. You will want to monitor the situation, looking for a strong sell signal. In the meantime, you have dozens of other excellent Candlestick potentials to shift money into on any given day.
With these principles in mind, review the rest of this chapter. The signals themselves are to be learned by simple visual recognition. Do not be greatly concerned with trying to learn each and every one. Chapter 5 demonstrates techniques that will help you learn and remember the signals.
The first 8 or 10 signals produce the majority of trade potentials. Just those signals alone provide most investors with more trade opportunities than what they can use each day. Keep in mind that these signals are the results of hundreds of years of cultivation for the most important aspect—profits!
Candlestick Formations Japanese Candlestick charting dramatically increases the depth of informa- tion conveyed for visual analysis. Each formation or series of formations can clearly illustrate the change of investor sentiment. This process is not apparent in standard bar chart interpretation.
Some have Japanese names; others have English names. When possible in this book, the English name and Japanese name are given. The Japanese names are shown in Romanji writing so that English-speaking people can say the names. Single candles are often referred to as Yin and Yang lines. Inn and yoh are the Japanese equivalents. Yin is bearish. Yang is bullish. There are nine basic Yin and Yang lines in Candlestick analysis. These are expanded to 15 to cover all possibilities clearly.
The combination of most patterns can be reduced to one of these patterns. Long Days The long day shown in Figure 2. Long represents the length of the candle body. What qualifies a candle body to be considered long? That is a question that has to be answered relative to the chart being analyzed.
The recent price action of a stock deter- mines whether a long candle has been formed. Analysis of the previous two or three weeks of trading should be a current representative sample of the price action. Figure 2. Short Days Short days shown in Figure 2. There is a large percentage of trading days that do not fall into either of these two categories. Its meaning reflects the fact that there are no shadows extending from either end of the body. Black Marubozu The long black body with no shadows at either end shown in Figure 2.
It is considered a weak indicator. It is often identified in a bearish continuation or bullish reversal pattern, especially if it occurs during a downtrend. A long black candle could represent the final sell-off, making it an alert to a bullish reversal setting up.
This is an extremely strong pattern. Consider how it is formed. It opens on the low and immediately heads up. It continues upward until it closes, on its high. Counter to the Black Marubozu, it is often the first part of a bullish continuation pattern or bearish reversal pattern.
It is called a Major Yang or Marubozu of Yang. The Reversal Patterns 25 Figure 2. A white body does not have a shadow at the top. A black body does not have a shadow at the bottom.
In both cases, these are strong signals cor- responding to the direction that they each represent. A white body would not have a shadow at the bottom end; the black candle would not have a shadow at its top end. Though these are strong signals, they are not as strong as the Closing Marubozu.
This demonstrates some indecision on the part of the bulls and the bears. Spinning Tops are considered neutral when trading in a sideways market.
The size of the shadow is not as important as the size of the body for forming a Spinning Top. Doji The Doji shown in Figure 2. It is formed when the open and the close are the same or nearly the same. The lengths of the shadows can vary.
The longer the shadows are, the more significant the Doji becomes. More will be explained about the Doji in the next few pages.
The Reversal Patterns 27 Stochastics Before going into the description of the signals, an explanation of stochastics is in order. The effectiveness of Candlestick signals is greatly enhanced when buy signals occur in oversold situations and sell signals appear in overbought situations. The best indicators for establishing overbought and oversold criteria are the stochastics.
Stochastics were developed many years ago by George Lane. They are oscillators that measure the relative position of the closing price compared to the daily trading range. Stochastics are a function of some simple observations. Closing prices have a tendency to close near the higher end of a daily trading range as an uptrend gains strength. Conversely, closing prices close near the lower end of a daily trading range as a decline picks up strength. This makes stochastics unique from most oscillators.
Most oscillators are normalized representations of relative strength, the difference between the close and the current trend.
However, when used in combination with the Candlestick signals, the signal will be viable when the stochastics are in the extreme ranges. The function of the chart patterns is to provide a clear visual signal. As you read through this section, try to remember the physical attributes of the signals. This is what you will use when analyzing charts. The following section will be broken down into two segments: the major signals and minor signals. The difference between the two is a combination of the frequency that they appear and the reversal-probabilities produced by their appearance.
The Japanese say when a Doji occurs, one should always take notice. It is one of the most important Candlestick signals. The formation is created when the opening price and closing price are the same. This forms a horizontal line. The implication is that the bulls and the bears are in a state of indecision. It is an important alert at both the top and bottom of trends.
At the top of a trend, the Doji signals a reversal without needing confirmation. The rule of thumb is that you should close a long or go short immediately.
However, the Doji occurring during the downtrend requires a bullish day to confirm the Doji day. The Japanese explanation is that the weight of the market can still force the trend downward. The Doji is an excellent example of the Candlestick method having superior attributes compared to the Western bar charting method. The dete- rioration of a trend is not going to be as apparent when viewing standard bar charts. Criteria 1. The open and the close are the same or nearly the same.
The length of the shadow should not be excessively long, especially when viewed at the end of a bullish trend. Signal Enhancements 1. Large volume on the signal day increases the chances that a blowoff day has occurred, although it is not a necessity. The Reversal Patterns 31 3. It is more effective after a long candle body, usually an exaggerated daily move compared to the normal daily trading range seen in the majority of the trend. After the trend move and the price opens at a level, the bulls and the bears move the price up and down during the day.
By the end of the day, the price closes at or close to the level that it opened. This state of equilibrium now has the controlling group in some doubt. The opposite group builds up confidence that the trend has lost steam. The selling the next day confirmed the change of sentiment. Doji Figure 2. The price opened and closed in the middle of the trading range. Throughout the day, the price moved up and down dramatically before it closed at or near the opening price. This reflects the great indecision that exists between the bulls and the bears.
The price opens at the low of the day and rallies from there, but by the close the price is beaten back down to the opening price. The Japanese analogy is that it represents those who have died in battle. The victories of the day are all lost by the end of the day. A Gravestone Doji, at the top of the trend, is a specific version of the Shooting Star. At the bottom, it is a variation of the Inverted Hammer.
The Reversal Patterns 33 The Japanese sources claim that the Gravestone Doji can occur only on the ground, not in the air. This implication is that it works much better to show a bottom reversal than a top reversal.
However, a Doji shows indecision no matter where it is found. At the top of the market, it becomes a variation of the Hanging Man. At the bottom of a trend, it becomes a specific Hammer. An extensively long shadow on a Dragonfly Doji at the bottom of a trend is very bullish. Dojis that occur in multiday patterns make those signals more convinc- ing reversal signals.
See Figures 2. Ford Motor Co. April Figure 2. SWK showed indecisive Dojis before a dramatic turn in the trend. The Bullish Engulfing Pattern Figure 2. Engulfing can include either the open or the close being equal to the open or close of the previous day but not both. The body of the second day completely engulfs the body of the first day. Shadows are not a consideration. Prices have been in a definable uptrend, even if it has been short term.
The body of the second candle is the opposite color of the first candle, the first candle being the color of the previous trend. The exception to this rule is when the engulfed body is a Doji or an extremely small body. A large body engulfing a small body. The previous day was showing that the trend was running out of steam.
The large body shows that the new direction has started with good force. When the Engulfing Pattern occurs after a fast move down, there will be less supply of stock to slow down the reversal move. A fast move makes a stock price over-extended and increases the potential for profit taking.
Large volume on the engulfing day increases the chances that a blowoff day has occurred. The Reversal Patterns 37 4. The engulfing body engulfing more than one previous body demonstrates power in the reversal. If the engulfing body engulfs the body and the shadows of the previous day, the reversal has a greater probability of working. The greater the open gaps down from the previous close, the greater the probability of a strong reversal.
Pattern Psychology After a downtrend has been in effect, the price opens lower than where it closed the previous day. Before the end of the day, the buyers have taken over and moved the price above where it opened the day before. The emotional psychology of the trend has now been altered. The Bullish Engulfing signal is a clear visual signal that investor sentiment has changed.
Bullish Engulfing signal. The Bearish Engulfing Pattern is formed after an uptrend. When the Engulfing Pattern occurs after a fast spike up, there will be less supply of stock to slow down the reversal move. A fast move makes a stock price over-extended and increases the potential for profit taking and a meaningful pullback.
The Reversal Patterns 39 4. The greater the open gaps up from the previous close, the greater the probability of a strong reversal. Pattern Psychology After an uptrend has been in effect, the price opens higher than where it closed the previous day. Before the end of the day, the sellers have taken over and moved the price below where it opened the day before.
The emotional psychology of the trend has now been reversed. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls have started to step in. The color of the small body is not important, but a white candle has slightly more bullish implications than the black body. A positive day is required the following day to confirm this signal.
The lower shadow should be at least two times the length of the body. The real body is at the upper end of the trading range. The color of the body is not important although a white body should have slightly more bullish implications. There should be no upper shadow or a very small upper shadow.
The following day needs to confirm the Hammer signal with a strong bullish day. The longer the lower shadow, the higher the potential of a reversal occurring. The Reversal Patterns 41 3.
Large volume on the Hammer day increases the chances that a blowoff day has occurred. Pattern Psychology After a downtrend has been in effect, the atmosphere is extremely bearish. The price opens and starts to trade lower.
The bears are still in control. The bulls then step in. They start bringing the price back up toward the top of the trading range. This creates a small body with a large lower shadow.
This represents that the bears could not maintain control. The long lower shadow now has the bears questioning whether the decline is still intact. A higher open the next day would confirm that the bulls have taken control.
It is found at the top of an uptrend. The Japanese named this pattern because it looks like a head with the feet dangling down. The upper shadow should be at least two times the length of the body. The color of the body is not important although a black body should have slightly more bearish implications. The following day needs to confirm the Hanging Man signal with a black candle or, better yet, a gap down with a lower close.
The Reversal Patterns 43 Pattern Psychology After a strong uptrend has been in effect, the atmosphere is bullish. The price opens higher but starts to move lower. The bears take control. But before the end of the day, the bulls step in and take the price back up to the higher end of the trading range, creating a small body for the day.
This could indicate that the bulls still have control if analyzing a Western bar chart. However, the long lower shadow represents that sellers had started stepping in at these levels. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.
The uptrend is stopped by a Hanging Man signal at a major resistance level, the 50 MA. Hanging Man signal stops uptrend. The first candle is black, a continuation of the existing trend. The second candle is formed by opening below the low of the previous day.
It closes more than midway up the black candle, near or at the high for the day. The body of the first candle is black; the body of the second candle is white. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend. The second day opens lower than the trading of the prior day. The white candle closes more than halfway up the black candle. The longer the black candle and the white candle, the more forceful the reversal.
The higher the white candle closes into the black candle, the stronger the reversal. Large volume during these two trading days is a significant confirmation. The Reversal Patterns 45 Pattern Psychology After a strong downtrend has been in effect, the atmosphere is bearish. Fear becomes more predominant. The prices gap down. The bears may even push the prices down further. But before the end of the day, the bulls step in and dramatically turn prices around.
They finish near the high of the day. The move has almost negated the price decline of the previous day. This now has the bears concerned. More buying the next day will confirm the move. The gap-down open produces the setup for a Candlestick buy signal to occur. The first day of the pattern is a long white candle at the top end of a trend.
It closes at least halfway down the previous day candle; the further down the white candle, the more convincing the reversal. Kabuse means to get covered or to hang over. The body of the first candle is white; the body of the second candle is black. The uptrend has been evident for a good period. A long white candle occurs at the top of the trend. The second day opens higher than the trading of the prior day.
The black candle closes more than halfway down the white candle. The longer the white candle and the black candle, the more forceful the reversal.
The Reversal Patterns 47 2. The lower the black candle closes into the white candle, the stronger the reversal. Pattern Psychology After a strong uptrend has been in effect, the atmosphere is bullish. Exuberance sets in. They gap the price up. The bears start to show up and push the price back down. It finally closes at or near the lows for the day. The bulls are now concerned. They obviously see that the uptrend may have stopped. This signal makes for a good short, with a stop being the high of the black candle day.
Notice that if the Dark Cloud Cover were to close lower, below the open of the previous day, it becomes a Bearish Engulfing Pattern. The Bearish Engulfing Pattern has slightly stronger bearish implications. The pattern is composed of a two- candle formation in a downtrending market. The body of the first candle is the same color as the current trend. The first body of the pattern is a long body; the second body is smaller. The open and the close occur inside the open and the close of the previous day.
Its presence indicates that the trend is over. The Japanese definition of Harami is pregnant woman or body within. The second candle, the little belly sticking out, is usually white, but that is not always the case see Homing Pigeon. The location and size of the second candle will influence the magnitude of the reversal.
The second day opens higher than the close of the previous day and closes lower than the open of the prior day. For a reversal signal, further confirmation is required to indicate that the trend is now moving up. The Reversal Patterns 49 Signal Enhancements 1.
The higher the white candle closes up on the black candle, the more convincing the signal that a reversal has occurred despite the size of the white candle. Pattern Psychology After a strong downtrend has been in effect and after a selling day, the bulls open the price higher than the previous close.
The shorts get concerned and start covering. The price finishes higher for the day. This is enough support to have the short sellers take notice that the trend has been violated. A strong day after that would convince everybody that the trend was reversing. Usually the volume is above the recent norm due to the unwinding of short positions. Dell Inc. Bullish Hammer right on the MA. Again, the pattern is composed of a two-candle formation.
The uptrend has been apparent. A long white candle occurs at the end of the trend. The second day opens lower than the close of the previous day and closes higher than the open of the prior day.
For a reversal signal, confirmation is needed. The next day should show weakness. The Reversal Patterns 51 2. The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the size of the black candle.
Pattern Psychology After a strong uptrend has been in effect and after a long white candle day, the bears open the price lower than the previous close. The longs get con- cerned and start profit taking. The price finishes lower for the day. The bulls are now concerned as the price closes lower. It is becoming evident that the trend has been violated.
A weak day after that would convince everybody that the trend was reversing. Volume increases due to the profit taking and the addition of short sales. Bearish Harami, more compelling when a Doji is part of the signal. The following gap down reveals strong downward force. ABFS pullback Dec. Bearish Harami followed by gap down. Like the planet Mercury, the morning star, it foretells that brighter things—sunrise—are about to occur, or that prices are going to go higher.
It is formed after an obvious downtrend. It is made by a long black body, usually one of the fear- induced days at the bottom of a long decline. The following day gaps down. However, the magnitude of the trading range remains small for the day.
This is the star of the formation. The third day is a white candle day. It represents the fact that the bulls have now stepped in and seized control. The optimal Morning Star signal would have a gap before and after the star day. The makeup of the star, an indecision formation, can consist of a number of candle formations.
The important factor is to witness the confirmation of the bulls taking over the next day. That candle should consist of a closing that is at least halfway up the black candle of two days prior. Identifying the Morning Star signal is relatively easy. It is visually appar- ent to the eye.
The downtrend has been apparent. The body of the first candle is black, continuing the current trend. The second candle is an indecision formation. The third day shows evidence that the bulls have stepped in. That candle should close at least halfway up the black candle. The Reversal Patterns 53 Signal Enhancements 1.
The more indecision that the star day illustrates, the better probabilities that a reversal will occur. A gap between the first day and the second day adds to the probability that a reversal is occurring.
A gap before and after the star day is even more desirable. The magnitude, that the third day comes up into the black candle of the first day, indicates the strength of the reversal. Pattern Psychology A strong downtrend has been in effect. The sellers start getting panicky. There is a large sell-off day.
The next day, as the selling continues, bulls are stepping in at the low prices. If there is big volume during these days, it shows that the ownership has dramatically changed hands. The second day does not have a large trading range. The third day the bears start to lose conviction as the bulls increase their buying. When the price starts moving back into the trading range of the first day, the sellers diminish, and the buyers seize control.
The Morning Star is very symmetrical. It clearly shows a change of investor sentiment. The black candle is usually an exaggerated long body after a series of black-candled dominated trend. That should be the telltale sign that fear and panic are overweighing rational analysis. This alerts the Candlestick Analyst to watch for an indecision day. The third day up move confirms that the trend has reversed. It is exactly opposite the Morning Star signal.
Like the planet Venus, the evening star, it foretells that darkness is about to set or that prices are going to go lower. It is formed after an obvious uptrend. It is made by a long white body occurring at the end of an uptrend, usually when the confidence has finally built up.
The fol- lowing day gaps up, yet the trading range remains small for the day. Again, this is the star of the formation. The third day is a black candle day. It rep- resents the fact that the bears have now seized control. That candle should consist of a closing that is at least halfway down the white candle of two days prior.
The optimal Evening Star signal would have a gap before and after the star day. The body of the first candle is white, continuing the current trend. The third day shows evidence that the bears have stepped in. That candle should close at least halfway down the white candle. The Reversal Patterns 57 2. The magni- tude, that the third day comes down into the white candle of the first day, indicates the strength of the reversal.
Pattern Psychology A strong uptrend has been in effect. However, it has now reached the prices where sellers start taking profits or think the price is fairly valued. The next day all the buying is being met with the selling, causing for a small trading range.
The bulls get concerned, and the bears start taking over. The third day is a large sell-off day. The change of direction is immediately seen in the color of the bodies. The Evening Star signal in the Dow April started a very strong downtrend. The bigger the third candle, the more compelling a downtrend will result. It works equally well in both directions. Its relevance is magnified when occurring in the overbought or oversold area.
It is formed by two candles. The first candle opens and moves in the direction of the current trend. The bodies of the candles are opposite colors. This formation is indicative of a dramatic change in inves- tor sentiment. The Candlesticks visually depict the magnitude of the change. The price movement is in opposite directions from the opening price. The trend has no relevance in a kicker situation. The signal is usually formed by surprise news before or after market hours.
The longer the candles, the more dramatic the price reversal. Something has occurred to violently change the direction of the price. Usually a surprise news item is the cause of this type of move. The signal illustrates such a change in the current direction that the new direction will persist with strength for a good while. There is one caveat to this signal. If the next day prices gap back the other way, liquidate the trade immediately.
This does not happen often, but when it does, get out immediately. IAG strong move after a Kicker signal in April The Kicker signal reveals a dramatic change in investor sentiment, usually resulting in powerful and lengthy trends.
The Japanese named this pattern because it looks like a shooting star falling from the sky with the tail trailing it. The real body is at the lower end of the trading range. There should be no lower shadow or a small lower shadow. The following day needs to confirm the Shooting Star signal with a black candle or, better yet, a gap down with a lower close.
The longer the upper shadow, the higher the potential of a reversal occurring. The Reversal Patterns 61 3. The day after the Shooting Star signal opens lower. Large volume on the Shooting Star day increases the chances that a blowoff day has occurred, although it is not a necessity.
The price opens and trades higher. The bulls are in control. But before the end of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day. However, the long upper shadow represents that sellers had started stepping in at these levels. The bigger the Shooting Star shadow, the more evidence the bears have taken control.
Found at the bottom of a downtrend, this shows evi- dence that the bulls started to step in, but that the selling was still going on. The color of the body is not important, although a white body should have slightly more bullish implications.
There should be no lower shadow or a very small lower shadow. The following day needs to confirm the Inverted Hammer signal with a strong bullish day. The day after the hammer signal opens higher. The Reversal Patterns 63 4. Large volume on the Reverse Hammer day increases the chances that a blowoff day has occurred. Pattern Psychology After a downtrend has been in effect, the atmosphere is quite bearish. The price opens and starts to trade higher. The existing sellers knock the price back down to the lower end of the trading range.
This is an unusual signal. It has the aspects of being a bearish signal. But the next day, the bulls step in and take the price move back up without major resistance from the bears. If the price maintains strong after the Inverted Hammer day, that confirms the signal. The appearance of an Inverted Hammer starts to worry the bears. A positive open the next day makes them get out of the way.
That does not negate the effectiveness or their importance in identifying reversal points. Despite the infrequency of the occurrence of some of these formations, their appearance produces highly profitable trades. The speed of computer search programs produces more highly profit- able trade potentials than most investors need. This supply comes just from the major signals. However, being aware of what the secondary signals look like will provide the investor with additional opportunities during the course of investing.
It is composed of three Dojis. The three-day period illustrates indecision of a period of days. Confirmation is needed. All three days are Dojis. The middle day gaps above or below the first and third day. Encyclopedia of Candlestick Charts. Profit Motive. Getting Started in Candlestick Charting. Fibonacci profit objectives. Salaire, prix et profit. Profit With Options. Profit with Options. Publishing for Maximum Profit.
An Opportunity for Profit. Profit and Loss. Profit From The Panic. Recommend Documents. Bigalow Profit Publishing Houst The Candlestick Course
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