Candlesticks II (22May19)
Transcript of Candlesticks II (22May19)
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Basic Candlesticks II
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1. Technical Analysis
2. History of Candlesticks
3. How to Read Candlesticks
4. Candlestick patterns
Contents
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What is Technical Analysis?
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5Principles of Technical Analysis
Market Action Discounts Everything
- Anything that can possibly affect the market price, such as
fundamentals, political events, psychological effect
Prices move in Trends
- Essential to technical approach
- Purpose of charting is to identify trends as market creates trends
History tends to repeat itself
- The study of Human psychology
- Future is just a repetition of the past
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3 Basic Trends of the Market
Uptrend Downtrend Sideways
▪ Uptrend has a pattern of rising peaks and troughs
▪ Downtrend has a pattern of falling peaks and troughs
▪ Sideways has a pattern of horizontal peaks and troughs
What is Technical Analysis?
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Uptrend has a pattern of rising
peaks and troughs
What is Technical Analysis?
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Downtrend has a pattern of
falling peaks and troughs
What is Technical Analysis?
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Sideways has a pattern of
horizontal peaks and troughs
What is Technical Analysis?
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Candlesticks
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• Candlesticks are a type of charting technique
• Other techniques include Bar Charts and Line Charts
• Candlestick charts are used in Technical Analysis to
deduce trends and predict price movements
Introduction
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12Advantage of Candlestick Chart
• Easy to understand – offer a much more appealing chart
• Information displayed is more easily interpreted and
analysed
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13History of Candlesticks
• Japanese candlestick patterns originated from a
Japanese rice trader called Munehisa Homma during the
1700s
• Popularised by Steve Nison after his publication of
Japanese Candlestick Charting Techniques in 1991
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14How to Read Candlesticks
Every candlestick will have 4 data points:
Open – The opening price
High – The highest price over a fixed time period
Low – The lowest price over a fixed time period
Close – The closing price
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15How to Read Candlesticks
High
Close
Low
Hollow Body
Lower Shadow
Upper Shadow
Open
Price: Close above Open
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16How to Read Candlesticks
Price: Close below Open
High
Open
Low
Filled Body
Close
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17Candlestick Chart
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Reversal Patterns
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19Reversal Patterns
• Bullish reversal patterns appear in a downtrend
• Bearish reversal patterns appear in an uptrend
• Most reversal patterns require further confirmation
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20Morning Star
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21Morning Star
• Three-candle bullish reversal pattern
• Long black candlestick on first day, small candlestick on second
day and long white candlestick on third day
• Color of real body of short candle can be either white or black
• No overlap between first black and second small candles
• Third day closes above mid-point of first day
• Selling pressure weakens after gap down on second day, implying
possible reversal
• If second day is doji, pattern is called morning doji star
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22Morning Star
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23Morning Star
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24Evening Star
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25Evening Star
• Three-candle bearish reversal pattern
• Long white candlestick on first day, small black/white
candlestick on second day and long black candlestick on
third day
• Third day closes below mid-point of first day
• Buying pressure weakens after gap up on second day,
implying possible reversal
• If second day is doji, pattern is called evening doji star
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26Evening Star
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27Evening Star
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28Bullish Engulfing
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29Bullish Engulfing
• Two-candle bullish reversal pattern
• Forms after a decline
• First black body totally engulfed by second white body
without taking into consideration the shadow
• After declining trend, buying pressure after opening
resulted in higher close and possible reversal
• Greater engulfing implies stronger bullish reversal
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30Bullish Engulfing
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31Bullish Engulfing
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32Bullish Engulfing
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33Bearish Engulfing
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• Two-candle bearish reversal pattern
• Forms after an advance
• First white body totally engulfed by second black body,
without taking into consideration the shadow
• After advancing trend, selling pressure after opening
resulted in lower close and possible reversal
• Greater engulfing implies stronger bearish reversal
Bearish Engulfing
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35Bearish Engulfing
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36Bearish Engulfing
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37Bullish Harami
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38Bullish Harami
• Two-candle bullish reversal pattern
• Further confirmation required
• Declining preceding trend
• Black candlestick has large body that totally encompasses
the next candlestick
• Harami means ‘pregnant’ in Japanese
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39Bullish Harami
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40Bullish Harami
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41Bearish Harami
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42Bearish Harami
• Two-candle bearish reversal pattern
• Further confirmation required
• White candlestick has large body that totally encompasses
the next black candlestick
• Harami means ‘pregnant’ in Japanese
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43Bearish Harami
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44Piercing Line
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45Piercing Line
• Two-candle bullish reversal pattern
• Presence of an existing downtrend
• First candle must be a dark candle with a large real body
• Second candle opens lower and closes above the middle of
the real body of the first candle
• Further confirmation required
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46Piercing Line
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47Dark Cloud Cover
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48Dark Cloud Cover
• Two-candle bearish reversal pattern
• Occurs in existing uptrend
• A down candle (typically black or red) opens above the
close of the prior up candle (typically white or green), and
then closes below the midpoint of the up candle
• Shows a shift in momentum from upside to downside
• Further confirmation required
• Both candles should be relatively large
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49Dark Cloud Cover
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50Three White Soldiers
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• Bullish reversal pattern
• Consists of three consecutive long white bodies
• Open within the real body of the preceding candle
• Close near the high of the day
• Should not have very long shadows
• Suggests a strong change in market sentiment
Three White Soldiers
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52Three White Soldiers
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53Three Black Crows
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• Bearish reversal pattern
• Three consecutive long black bodies
• Open within previous body
• Close near the low of the day
• Short or no shadows
• Suggests that bears overtake bulls during three consecutive
trading sessions
Three Black Crows
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55Three Black Crows
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56Three Black Crows
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57Quiz
What is the candlestick shown on the right?
A.Bearish Engulfing
B.Bullish Engulfing
C.Harami
D.Morning Star
� (bearish reversal pattern)
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58Quiz
What is the candlestick shown on the right?
A.Harami
B.Bullish Engulfing
C.Bearish Engulfing
D.Morning Star
� (reversal pattern that depends on
preceding trend)
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59Quiz
What is the candlestick shown on the right?
A.Morning Doji Star
B.Morning Star
C.Evening Doji Star
D.Evening Star
� (bullish reversal pattern)
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60Quiz
What is the candlestick shown on the right?
A.Bullish Engulfing
B.Three White Soldiers
C.Bearish Engulfing
D.Three Black Crows � (bearish reversal pattern)
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61Quiz
What is the candlestick shown on the right?
A.Piercing Line
B.Dark Cloud Cover
C.Three White Soldiers
D.Three Black Crows
� (bullish reversal pattern)
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62Quiz: What are the candlestick patterns?
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Thank you
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