Candlesticks Part1

8/2/2019 Candlesticks Part1

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Candlesticks

Brian Cox

5/21/06

Investools Discussion Group

Helping People Invest Smartly

L a Gr o u p


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The Essentials

The greatest advantage to using candleon your charts, instead of bars is thatsingle candle lines and multiplecandle patterns offer more reliable,earlier and more effective reversalsingles


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The Essentials

Invented by the Japanese. Used firstin the 1870s with the opening of theJapanese stock market.

Can be used with the weekly, dailyand 5 minute charts.

Candlesticks do not give price targets

and need a close to confirm candlesignal


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The Essentials

Before placing a trade based on acandle signal:

other technical signals should beconsidered

Consider the risk / reward of the trade.

Candle charts are best used as a tool

not a system.


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Construction

Real body

Lower Shadow

Upper Shadow

White:Open lowand closehigher

Black / red:Open highand closelower


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Construction

White:Open lowand closehigher

Black / red:Open highand closelower

Open = 30

low = 29

High = 37

Close = 35

Close = 30

low = 29

High = 37

Open = 35

Lower Shadow

Real body

Upper Shadow


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Construction Review

The rectangular portion of thecandlestick is called the real body.

The thin line extending above the realbody is called the upper shadow.

The upper shadow of a black candlerepresents the range between the

high and the sessions price.


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Construction Review

The lower shadow of a white realbody candlestick represents the rangebetween the sessions open and low.

The black real body means that theclose was lower than the opening.

The white real body means that the

close was higher than the opening.


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Basic Market Strategies

Candles play a powerful role in earlyreversal signals.

Candle lines and patters confirmsupport and resistance.


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Spinning Tops High Wave Candles

Candles come in many different shapes

Tends to indicate indecision Tends to indicate confusion


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Spotting reversals

Bullish signal

Hammerfollowing adown trend

Possible Bearishsignal

Hanging manfollowing an

up trend

Bearish signal

Shooting Starfollowing an

up trend

Real Bodies can be black or white


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Basic Market Strategies Review

A long lower shadow on a daily chartsshows the market bouncing off fromthe lows of the day.

The spinning top is another name fora small real body.

The real body of a spinning top can

be black or white. A wave candle must have long upper

and lower shadows


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A spinning top indicates indecision.

A wave candle indicates confusion.

A hammer occurs in a downtrend. A hammer can be white or black.

A hanging man occurs in an up trend.

The confirmation for the hanging manis a close under the hanging mansclose


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A shooting star occurs during an uptrend.

A shooting star is considered bearish


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The Dangerous Doji

The doji can signal a significant trendshift or reversal.

A doji forms when the opening andclosing price are the same.

There are bearish and bullish doji.

Are valuable for calling the markettops (especially after a long whitecandle).


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The Dangerous Doji

Market in Balance

Rally could belosing steam

Possible Bullish

signal

Bearish signal

Long-legged Doji Dragonfly Doji Gravestone Doji

The doji is more influential when it is a rare occurrence.


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The Dangerous Doji

Northern doji Southern doji


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The Dangerous Doji Review

A doji forms when the open and closeare the same.

A doji signals that the bears and bulls

are in stalemate. The dragonfly doji, the high of the

session represents the open, high and

close. The doji in a rally is sometimes a sell

signal.


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A doji in an uptrend is called anorthern doji.

The northern doji is most effectivewhen the market is overbought andthe doji appears at a resistance area.


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Long Real Bodies (Belt-Hold)

Candles with extended real bodiescan also display strong signals


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Belt-hold signs

Bullish belt hold is white near support and bearish is blacknearresistance

Support

Resistance

Bearish belt-holdBullish belt-hold


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The bullish belt-hold; following adowntrend will starts low nearresistance and raises up and closesout higher

The bearish belt-hold; following auptrend will start high near resistance

and closes out lower.


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The Belt hold Review

The bearish belt hold becomes moresignification as it nears resistance.

The longer the height of the belt-holdcandle, the more important the signalit gives.

On the chart, we draw the support

line from the bottom of the lowershadow.


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The smaller the real body, the lessforce the move behind the move.

A series of long lower shadows as themarket is descending shows that themarket is descending reluctantly.

On the chart, we draw the support

line from the bottom of the lowershadow.


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If the trend is mostly higher, caution is warranted due to longupper shadows


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The Power of Candle Patterns

Candle charts are most powerfulwhen two or more candle linescombine in a candle pattern.

A dark cloud cover pattern is abearish signal consisting of a two-candle patter that indicates a top

reversal.


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The Power of Candle Patterns

White real body that closeswithin the back body,

perferably more than 1/2 ofblack body lenght

Dark Cloud coverPiercing Pattern

Follows a strong white body

session. The second session

opens above and closed below

the center of the white body.


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The Power of Candle PatternsBearish EngulfingBullish Engulfing

White real body openslower and closes higherthan the black body (the

bulls have taken over!)

Black body opens higherand closes lower than the

white body (the bearshave taken over)


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The Power of Candle PatternsReview

As the second session of a piercingpattern pushes more and moredeeply into the first candle, it may

become a bullish engulfing pattern.

The opposite pattern to the darkcloud cover is the piercing pattern.

A piercing pattern is to a bullishengulfing pattern as a dark cloudcover is to a bullish engulfing pattern.


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The Power of Candle PatternsReview

A bullish engulfing pattern occurswhen at second sessions white realbody raps around the prior sessions

black body

If an extremely large white candlecompletes a bullish engulfing pattern

you should buy or sell based on therisk reward profile.


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Candle Patterns Review

Lets see an actual set of candle stickpatterns


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Candlesticks

End of Part I

What would youDo now?


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Candlesticks

End of Part I

What would youDo now?


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Candlesticks

End of Part I

Whatdoes thisindicate?


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Candlesticks

End of Part I

What is thiscalled? (bearishor bullish)


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Candlesticks

End of Part I


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Candlesticks

End of Part I

Is it time to buy?


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Candlesticks

End of Part I

What will youdo now?

What is the


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Candlesticks

End of Part I

What is thename of this?


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Candlesticks

End of Part I

Buy? Sell?


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Candlesticks

End of Part I

What isthis called?


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Candlesticks

End of Part I

What isthedirection?

Strong Resistance


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Candlesticks

End of Part I

Strong Resistance


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Candle Sticks

End of Part I

Candlesticks Part1

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