JAPANESE CANDLESTICK PATTERNS EXPLAINED

WWW.OLAPTRADER.COM

This document describes in detail many of the most popular Japanese Candlestick patterns. In our application 64 Candlestick patterns have been calculated for over 14,000 Stocks, ETF’s, and Indexes from 1988-2008. The data currently resides in a SQL Server database. Below is a screenshot of what it looks like in its raw form. These historical candlestick patterns are now being compared with one another in order to find those which have tended to be the most accurate with regard to future price movement. We will calculate the following: average percent change over time for Days 1 – 7 after the pattern completed. Some of this data will probably be provided for free although the final analysis will be available for purchase in the Scribd store.

The candlestick techniques we use today originated in the style of technical charting used by the Japanese for over 100 years before the West

developed the bar and point-and-figure analysis systems. In the 1700s a Japanese man named Homma, a trader in the futures market, discovered that, although there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of the traders. He understood that when emotions played into the equation a vast difference between the value and the price of rice occurred. This difference between the value and the price is as applicable to stocks today as it was to rice in Japan centuries ago. The principles established by Homma are the basis for the candlestick chart analysis, which is used to measure market emotions towards a stock.

Shooting Star (Single day) Dark Cloud Cover Pattern (Multiple days) A type of candlestick formation that results when a security's price, at some point during the day, advances well above the opening price but closes lower than the opening price.

In candlestick charting, a pattern where a black candlestick follows a long white candlestick. It can be an indication of a future bearish trend.

Total # of Candlestick Patterns = 64.

CANDLESTICKS

Abandoned Baby Bottom Hammer Bearish Separating Line Abandoned Baby Top Hanging Man Bullish Separating Line Advance Block Black Harami Shooting Star Bearish Belt Hold Line Black Harami Cross Side by Side White Gapping down Bullish Belt Hold Line White Harami Cross Side by Side White Gapping up Body Gap Down White Harami Stalled Pattern High Wave Tasuki Downside Gap Bearish Counter Attack Line In Neck Tasuki Upside Gap Bullish Counter Attack Line Inverted Hammer Three Gaps Down Dark Cloud Cover Long Legged Doji Three Gaps Up Bearish Engulfing Line Mat Hold Pattern Three White Soldiers Bullish Engulfing Line Morning Doji Star Thrusting Line Evening Doji Star Morning Star Upside Gap Two Crows Evening Star Piercing Line Western Gap Down Falling Three Method Rising Three Method Western Gap Up

Gravestone Doji Outside Bar Pattern Three Outside Down

Breakaway Bear Ladder Bottom Three Outside Up

Breakaway Bull Meeting Lines Bear Three Stars In The South

Deliberation Bull Meeting Lines Bull Tri Star Bull

Deliberation Bear On Neck Tri Star Bear

Dragonfly Doji Three Line Strike Bear Tweezers Bottom

Three Line Strike Bull Tweezers Top

TELECHART 2007

STRONG BULLISH REVERSAL MODERATE BULLISH REVERSAL WEAK BULLISH REVERSAL STRONG BEARISH REVERSAL Abandoned Baby Bottom Breakaway Bull Tweezers Bottom Abandoned Baby Top

Morning Doji Star Thrusting Line Bullish Counter Attack Line Dark Cloud Cover

Three Outside Up Ladder Bottom Three Gaps Down Evening Doji Star

Three White Soldiers Morning Star

Evening Star

Bullish Engulfing Line Three Stars In The South

*Shooting Star

*Dragonfly Doji Tri Star Bull

Three Outside Down

Deliberation Bull

Bearish Engulfing Line

Meeting Lines Bull

Upside Gap Two Crows

*Gravestone Doji

MODERATE BEARISH REVERSAL WEAK BEARISH REVERSAL BULLISH CONTINUATION BEARISH CONTINUATION Advance Block Tweezers Top Rising Three Method Falling Three Method

Deliberation Bear Bearish Counter Attack Line Three Line Strike Bull Three Line Strike Bear

Tri Star Bear Three Gaps Up Piercing Line Side By Side White Gapping Down

Meeting Lines Bear

Bullish Separating Line Tasuki Downside Gap

Breakaway Bear

Side By Side White Gapping Up Bearish Separating Line

Tasuki Upside Gap In Neck

Mat Hold On Neck

MISCELLANEOUS PATTERNS SINGLE DAY PATTERNS (require confirmation) Body Gap Down Long Legged Doji

Stalled Pattern Bearish Belt Hold line

Western Gap Down Bullish Belt Hold Line

Western Gap Up Hanging Man

White Harami Hammer

White Harami Cross High Wave

Black Harami Inverted Hammer

Black Harami Cross *Dragonfly Doji

Outside Bar Pattern (exhaustion) *Gravestone Doji

*Shooting Star

1. Abandoned Baby Bottom candlestick pattern

This pattern consists of three candlesticks. The middle candlestick is a doji which gaps down from both the first and third candlestick. It is a signal that a bottom has formed and a trend reversal may be at hand.

2. Abandoned Baby Top candlestick pattern

This pattern consists of three candlesticks. The middle candlestick is a doji which gaps up from both the first and third candlestick. It is a signal that a top has formed and a trend reversal may be at hand.

3. Advance Block candlestick pattern

This pattern consists of a series of three white candlesticks which show a weakening uptrend, and diminishing buying power. Each close is progressively higher while either the candlesticks' real body size decreases or the top shadows get longer.

4. Bearish Belt Hold Line candlestick pattern This is a long black candlestick that opens at its high. In an uptrend this would be considered a bearish indicator. This pattern is also called a black opening shaven head.

5. Bullish Belt Hold Line candlestick pattern

This is a long white candlestick that opens at its low. In a downtrend this would be considered a bullish indicator.

6. Bearish Counter Attack Line candlestick pattern

This pattern consists of two candlesticks. The first candlestick is white, the second black. The second candlestick opens sharply higher but closes unchanged from the prior session. When this occurs, it indicates that buyers and sellers are at a standoff.

7. Bullish Counter Attack Line candlestick pattern This pattern consists of two candlesticks. The first candlestick is black, the second white. The second candlestick opens sharply lower but closes unchanged from the prior session. When this occurs, it indicates that buyers and sellers are at a standoff.

8. Breakaway Bear Candlestick pattern

The first day is a long white day. The second, third and forth days all continue in the same direction with higher closes, but more weakly than the first bullish push. The fifth day is a long black day that closes into the body of the first or second days.

9. Breakaway Bull Candlestick pattern

The first day is a long black day continuing an established down trend. The second, third and forth days all continue in the same direction with lower closes, but more weakly than the first bearish push. The fifth day is a long white day that closes into the body of the first or second days.

10. Body Gap Down candlestick pattern In Japanese Candlestick terms, a body gap down occurs when the real body of the current candlestick gaps down from the previous real body. The highs and lows of the bar are not important, only the body itself. This differs from a western gap down.

11. Bearish Engulfing Line candlestick pattern

This pattern consists of two candlesticks. The first candlestick is white the second is black. The second candlestick's open is higher than the first but then closes below the first's open. The real body of the second candlestick engulfs that of the first. This indicates the bulls tried to force the market higher but failed.

12. Bullish Engulfing Line candlestick pattern This pattern consists of two candlesticks. The first candlestick is black the second is white. The second candlestick's open is lower than the first but then closes higher than the first's open. The real body of the second candlestick engulfs that of the first. This indicates the bears tried to force the market lower but failed.

13. Dark Cloud Cover candlestick pattern

This pattern consists of two candlesticks. The first candlestick is long and white the second is long and black. The black candlestick opens above the high of the white candlestick but then closes below the midpoint of the white candlestick’s real body. When this pattern occurs in an uptrend it is a bearish sign indicating a reversal may be ready to take place.

14. Deliberation Bear

A long white day is followed by a second long white day that closes higher than the first. The third white day gaps above the second and becomes a white spinning top or Doji. The first two white days say “full speed ahead” as the stock appears strong and in a solid uptrend. The gap up and failure to rally much suggests that the strength may be waning. This isn't necessarily bearish, but it's certainly less bullish, so stops are raised, or profits taken on long positions.

15. Deliberation Bull

The bullish deliberation pattern takes place when a clear downtrend is in place. It is comprised of three black candlesticks. The first two candles have long black bodies and close near their lows. The last candle gaps away from the previous close, but the body of the candle is small relative to the previous two candlesticks. This small body is a sign of indecision on the part of traders over the current downtrend, hence the name bullish deliberation pattern. While the bullish deliberation pattern is classified as a bullish reversal signal, it does not have a high probability of calling market bottoms. Traders should however use the bullish deliberation pattern as an early sign to lock in profits and or move up protective stops.

16. Dragonfly Doji

Dragonfly Doji is a potential trend reversal. Strong signal if it appears in a bear trend.

17. Evening Doji Star candlestick pattern This pattern consists of three candlesticks. The first is a long white candlestick, the second is a Doji and the third is a small black candlestick. The Doji gaps above both the white and black candlestick. The black candlestick opens higher than the close of the white one but closes below the midpoint of the white candlestick. When this pattern occurs it is a sign of a major top reversal.

18. Evening Star candlestick pattern This pattern is similar to the Evening Doji Star except that the middle candlestick is a small real body instead of a Doji. When this pattern occurs it is a sign of a major top reversal.

19. Falling Three Method candlestick pattern This pattern consists of five candlesticks. The first candlestick is long and black; it is followed by three small white bodies each of which closes higher than the prior one. All of the small white bodies hold within the range of the first black candlestick. The final candlestick is a long black body that closes at a new low. In a downtrend this a bearish continuation pattern showing that the bulls tried to stop the downtrend but were unsuccessful.

20. Gravestone Doji candlestick pattern This candlestick is a Doji in which the open and the close are at the low. This candlestick could signal a possible reversal at market tops. Strong signal if it appears in a bull trend.

21. Hammer candlestick pattern The hammer is a candlestick that is made of a small black body with a very long lower shadow. The open is at or near the high. In a downtrend market this is a bottoming signal.

22. HangingMan candlestick pattern The hanging man is a candlestick that is made of a small white body with a very long lower shadow. The close is at or near the high. In a uptrend market this indicates a potential market top.

23. Harami Black candlestick pattern This pattern consists of two candlesticks. The first is a long black body; the second is a short white body. The white candlestick's range is within the range of the black candlestick. This indicates the current trend is coming to an end. A period of standoff between bulls and bears is taking place.

24. Harami Black Cross candlestick pattern This pattern is similar to the Black Harami except that the second candlestick is a Doji.

25. Harami White candlestick pattern

This pattern consists of two candlesticks. The first is a long white body, the second is a short black body. The black candlestick's range is within the range of the white candlestick. This indicates the current trend is coming to an end a period of standoff between bulls and bears is taking place.

26. Harami White Cross candlestick pattern

This pattern is similar to the White Harami except that the second candlestick is a Doji.

27. High Wave candlestick pattern This candlestick consists of a small, white, or black real body and a long upper or lower shadow.

28. InNeck Candlestick pattern This candlestick pattern consists of two candles. The first is long and black the second is a short white real body. The close of the white candlestick is above the low of the black one. This pattern appears in downtrends. The white candlestick represents a brief pause where the bulls have stopped the downward trend but once the white candlestick low is broken the downtrend should resume.

29. Inverted Hammer candlestick pattern This candlestick has a very small real body with a very long top shadow. There is little or no bottom shadow. When appearing after a long downtrend this candlestick indicates a possible trend reversal.

30. Ladder Bottom Candlestick

After an established downtrend, three black days with consecutively lower closes occur. The fourth day is a black day with an upper wick. An Inverted Hammer. The fifth day is a white day. The first several days establish a consistent downtrend. As time progresses however shorts take the opportunity to par-off their positions and take profit. This is illustrated in the fourth days black Inverted Hammer candle. As prices are bid up, the high is pushed up. In this formation sellers are still able to drive price down to levels nearer the open creating a small body. Up to day-four in the formation this just suggests that sellers are losing firm control of the market. By the fifth day, a bullish rally creates the long white candle. Candlestick analysts would look for buy entry opportunities to come.

31. Long Legged Doji candlestick pattern This candlestick is a Doji with a long upper and lower shadow. It can be a sign of a market reversal.

32. MatHold Pattern candlestick pattern This pattern consists of five candlesticks. The first is a long white real body followed by three small black bodies, and then a small white body. The first black candlestick gaps up from the first white candlestick. The three black bodies each close progressively lower. The last white candlestick gaps up from the black series. The implication is that the trend has not been stalled. The Mat Hold pattern is a stronger continuation pattern than the Rising Three Method.

33. Meeting Lines Bear

Day one is long white day. Day two is long black day. Both days close at the same price. After an uptrend, the second days candle open above the previous close. Even though the second day had rallied during off-exchange hours and opened high, a sell-off brings the close near the previous day closed. Figuratively meeting the lines of close prices. This typically means the bull trend has been weakened and a reversal is possible.

34. Meeting Lines Bull

Meeting Lines Bull is a bullish market reversal pattern indicating the beginning of an uptrend after a downtrend. It is a two candlestick formation. The first day should be noticeable with strong bearish activity resulting in a long bearish candlestick. On second day there should be a bullish candlestick (often it is shorter than first day candlestick) which opens below a significant gap and closes at or around the closing price of first day candle.

35. Morning Star candlestick pattern

This pattern consists of three candlesticks. A long black body, a small white body that gaps down from the black body and finally a white candlestick which closes above the midpoint of the black candlestick.

36. Morning Doji Star candlestick pattern

This pattern consists of three candlesticks. This pattern is the same as the Morning Star except a Doji appears instead of a small white body.

37. On Neck Candlestick

First day we see a long black candle. The second day is white day, opening below the low of the first day and closing barely into the body of the first day. Because the On Neck does not trade up to the previous day's close or into day one's candle, it serves as a strong bearish continuation signal.

38. Outside Bar Pattern

An outside bar is a bar whose trading range totally encompasses that of its predecessor. These patterns develop after both down and up trends and represent exhaustion.

39. Piercing Line candlestick pattern

This pattern consists of two candlesticks. The first is black the second white. The white candlestick body opens lower than the black body close, but closes above the midpoint of the black body. This is a bullish continuation pattern.

40. Rising Three Method candlestick pattern This pattern consists of five candlesticks. The first candlestick is long and white; it is followed by three small black bodies each of which closes lower than the prior one. All of the small black bodies hold within the range of the first white candlestick. The final candlestick is a long white body that closes at a new high. In an uptrend this is a bullish continuation pattern showing that the bears tried to stop the uptrend but were unsuccessful.

41. Separating Line Bearish candlestick pattern This pattern consists of two candlesticks. A white candlestick is followed by a black candlestick. Both candlesticks have the same open. When this pattern appears in a downtrend it is a signal that the downtrend should continue.

42. Separating Line Bullish candlestick pattern

This pattern consists of two candlesticks. A black candlestick is followed by a white candlestick. Both candlesticks have the same open. When this pattern appears in an uptrend it is a signal that the uptrend should continue.

43. Shooting Star candlestick pattern

This candlestick is a small body with a long upper shadow and little or no lower shadow. When this appears in an uptrend it is bearish signal.

44. Side by Side White Gapping down candlestick pattern

This pattern consists of two white candlesticks which are about the same size. The candlesticks both have the same open. If these candlesticks gap lower from a previous candlestick and the market is in an downtrend, this signals that the downtrend will continue.

45. Side by Side White Gapping up candlestick pattern This pattern consists of two white candlesticks which are about the same size. The candlesticks both have the same open. If these candlesticks gap higher from a previous candlestick and the market is in an uptrend, this signals that the uptrend will continue.

46. Stalled Pattern candlestick pattern This pattern consists of two candlesticks. The first is long white candlestick and the second is a small body. The second body is near the top of the long white candlestick body or above it. When this pattern is spotted during an uptrend, it usually signals stalling out of the uptrend.

47. Tasuki Downside Gap candlestick pattern This pattern consists of three candlesticks. The first is a long black body, the second is a small black body, and the third is a small white body. The middle small black body gaps down from the long black one. The small white body opens in the body of the small black one but then closes above the small black body. In a declining market this is a bearish continuation pattern.

48. Tasuki Upside Gap candlestick pattern

This pattern consists of three candlesticks. The first is a long white body, the second is a small white body and the third is a small black body. The middle small white body gaps up from the long white one. The small black body opens in the body of the small white one but then closes below the small black body. In an advancing market this is a bullish continuation pattern.

49. Three Gaps Down candlestick pattern This pattern consists of three candlesticks, each gaps progressively lower. When pattern appears in a downtrend it is a sign that selling power may be diminishing.

50. Three Gaps Up candlestick pattern This pattern consists of three candlesticks, each gaps progressively higher. When pattern appears in an uptrend it is a sign that buying power may be diminishing.

51. Three Line Strike Bear

After an established downtrend three long black days in a row continue this move, each closing lower than the previous day. Day-four is white candle that closes near the open of the first day. So long as the previous downtrend is an established one, candlestick analysts view this formation as a sign that the downtrend may still continue. The first three days serve as a fairly clear bearish move. Up to day-three in fact we have a Three Black Crows formation which is a strong bearish signal.

52. Three Line Strike Bull

Three white days occur in a row continuing an established bull trend. Each day should close higher than the previous day. Day-four is black candle that closes near the open of the first day. So long as the previous uptrend is an established one, candlestick analysts view the Three Line Strike formation as a sign that the uptrend may still continue.

53. Three Outside Down

After an established uptrend a clear bearish Engulfing pattern occurs (one white candle and a second black candle that drives price below the prior day low and closes near the bottom of the range). The third day is a black day with an even lower close than the second day. In a market characterized by uptrend, day-twos black candle closes completely below day one, engulfing it. The first two days are a classic pattern that suggests a sell-off has taken over the market and is breaking the established trend. This bearish reversal is confirmed by a still lower day on day-three.

54. Three Outside Up

After an established downtrend, day one continues the trend with a black candle. Day-two is a long white day that engulfs the body of the first day, closing well above the previous days open. The third day is a white day with an even higher close than the second day. The Bullish Three Outside Up pattern is one of the more clear-cut three-day bullish reversal patterns. The formation reflects buyers overtaking selling strength, and often precedes a continued rally in price. In fact up to day-two we have a bullish Engulfing Pattern, itself a strong two-day reversal pattern.

55. Three Stars in the South

After an established downtrend, day one is a long red day with a long lower wick. Day-two is also a red day similar to the first, only with a smaller body and shorter bottom wick. Day-three trades within the second days range and has a small red body with no wick at all (Red Marubozu). The Bullish Three Stars in the South formation suggests weakening in the established downtrend. Although each new day is able to close lower, and despite the fact that sellers are able to drive price down illustrated by the lower wicks, those short positions are not able to get the close price to continue the strong bearish trend. While the pattern predicts a reversal, it may only reflect shorts paring off their position (just a delay or respite in the downtrend). Thus analysts do not usually take the Bullish Three Stars in the South as a strong enough buy signal in itself. Instead analysts use it as an indication to liquidate short positions and watch for buying opportunities. This formation is most significant after a protracted sell-off.

56. Three White Soldiers candlestick pattern This pattern consists of three white candlesticks. Each of the candlesticks closes progressively higher. In addition, the close of each is near the high. This is a bullish reversal pattern which is more reliable if found at the end of a prolonged downtrend.

57. Thrusting Line candlestick pattern This pattern consists of two candlesticks. The first one is black and the second is white. The white candlestick closes in the black candlestick's body. However, the white candlestick closes below the midpoint of the black candlestick.

58. Tri Star Bear

After an established bull trend, three dojis (open and close at identical price) occur on three consecutive trading days. After a long up-trending market the appearance of three dojis suggests a great deal of indecision about the future direction of the market. Such signs of indecision often precede reversals. The first doji day reveals that the market is indecisive after a long uptrend. The second doji day further emphasizes market uncertainty, by the third doji day longs have clearly lost momentum and complete control of the market. Candlestick analysts will look for bearish moves in the following days.

59. Tri Star Bull

After an established downtrend. There dojis (open and close at identical price) occur on consecutive trading days. In a long bearish market the strength of trend shows weakness as candle bodies grow progressively smaller, eventually forming three consecutive dojis. A doji candle reveals market indecision, since neither buyers nor sellers prove able to move the close price away from the open. This kind of price action is quite common during periods with limited market activity like holidays. However, after a protracted downtrend or during periods of high trading volume a number of dojis can suggest a reversal in market trend.

60. Tweezers Bottom

In an established downtrend, day-one is a black candle with a shaven bottom. The second day is a white hammer or doji with a long upper shadow. The essential element of this pattern is a series of candles that all share the same low. This could be the two days in the examples below, or a number of days that are not consecutive. After a protracted bearish move, this may provide a weak reversal signal but most traders will look for additional confirmation of a reversal.

61. Tweezers Top

In an established uptrend day one is a white candle with a shaven bottom. The second day is a black hammer or doji with a long lower shadow. The essential element of this pattern a series of candles that all share the same high. This could be the two days in the examples above, or a number of days that are non-consecutive. After a protracted bullish move this may provide a weak reversal signal, but most traders will look for additional confirmation of a reversal.

62. Upside Gap Two Crows candlestick pattern This pattern consists of three candlesticks. The first is long and white, the second and third are small and black. The second small black body gaps up from the long white candlestick. The third body opens above the second open but then closes below the second's close. This is a top reversal pattern in advancing markets.

63. Western Gap Down candlestick pattern A western gap down occurs when the current high is less than the previous low. This is the traditional definition of a gap down unlike the Japanese definition which only takes into account the body of the candlestick (relationship of open and close) and not the highs and lows.

64. Western Gap Up candlestick pattern A Western Gap Up occurs when the current low is greater than the previous high. This is the traditional definition of a gap up, unlike the Japanese definition which only takes into account the body of the candlestick (relationship of open and close) and not the highs and lows.