Japanese Japanese CandlesticksCandlesticks

Ron William

Technical AnalystEmail: rwilliam@investorsintelligence.com

investorsintelligence.com

• Market timing, charting, behavioural finance & quantitative analysis.

• Methodology dates back to 1600s, originally used by Japanese rice farmers to monitor and forecast crop prices.

• Famous trader named Homma (aware of supply/demand links), realised the markets were strongly influenced by emotions.

• Introduced to the west in 1990 by Steve Nison, a leading expert in candlestick analysis.

Brief History Brief History

Bullish Candle White Real

BodyHigh

Close

Open

Low

Bearish Candle

Black Real Body

Low

Close

Open

High

Real Body

Upper Shadow

Lower Shadow

Constructing the Candle Constructing the Candle LineLine

The The Real BodyReal Body is the essence is the essenceof market psychologyof market psychology

Basic CandlesBasic Candles

Long Day Doji Spinning Top High Wave

1. Small real body 2. Colour not imp. 3. Long shadows

Strong buy/sell Midpoint used asMidpoint used as support/resistancesupport/resistance

Open and close are narrow/same Market is tiredMarket is tired

1. Small real body 2. Colour not imp. Prior trend weakPrior trend weak

Indicates confusionIndicates confusion

DojiDoji

Criteria: Open and close are narrow or the same

Psychology: Market is “tired”

DojiDoji Doji hints market is “tired”

Silver (Weekly Chart)

11 22

4433

55

Doji in box rangeDoji in box range

Series of doji within box range merely sets tone

USD/ZAR (Daily Chart)

Single LineSingle Line

1. Lower Shadow 2X length of Real Body2. RB at upper end, colour not important3. No/very small upper shadow4. Confirmed with a strong bullish day

Hammer Shooting Star

1. Upper Shadow 2X length of Real Body2. RB at lower end, colour not important3. No/very small lower shadow4. Confirmed with a strong bearish day

Hammering a baseHammering a base Trouble overheadTrouble overhead

HammerHammerGBP/USD (Daily Chart)

Support

Preferred Sell

Risk?

Shooting StarShooting StarWheat (Weekly Chart)

Sell?

Selling on closeimplies riskingthe pattern high

Dual LineDual Line

Engulfing Dark Cloud Cover Piercing Line

1. Uptrend evident2. Session opens > prior high3. Bearish RB closes > 50% into bullish RB

1. Downtrend evident2. Session opens < prior low3. Bullish RB closes >50% into bearish RB

1. Large RB wraps around small RB2. Opposite colours3. Up/Down trend

Arresting control Sentiment reversal Sentiment reversal

Kuwait Stk Mkt (Weekly Chart)

Bullish EngulfingBullish Engulfing

Sell

Dark Cloud CoverDark Cloud CoverPalladium (Weekly Chart)

Midpoint

Three LineThree Line

Morning Star Evening Star 3 White Soldiers 3 Black Crows

1. Three bullish RB’s, all of similar size2. Prior trend is down3. Each session opens with recent RB & closes near high

1. Downtrend evident2. Bearish session is followed by indecision.3. Bulls close > 50% into prior Bear RB

1. Uptrend evident2. Bullish session is followed by indecision.3. Bears close > 50% into prior Bull RB

1. Three bearish RB’s, all of similar size2. Prior trend is up3. Each session opens with recent RB & closes near lows

Upside reversal Downside reversal Uptrend Downtrend

Support and ResistanceSupport and Resistance Trend-linesTrend-lines Price PatternsPrice Patterns Moving AveragesMoving Averages OscillatorsOscillators Elliott WaveElliott Wave

Optimises and confirmsOptimises and confirms Price targetsPrice targets

Western chartingWestern charting

Moving Moving AveragesAverages

Gold (Weekly Chart)

Piercing LinePiercing Line

High-waveHigh-wave

Piercing LinePiercing Line HammerHammer

70-week average

Soybean (Daily Chart)

Price PatternsPrice Patterns

3 White 3 White SoldiersSoldiers

Morning StarMorning Star Bullish Bullish EngulfingEngulfing

3 White 3 White SoldiersSoldiers

Shooting StarShooting Star

Shooting StarShooting Star

3 White 3 White Soldiers Soldiers (variant)(variant)

38.2%38.2%

50%50%

EUR/USD (Daily Chart)

ConfluenceConfluence

61.8%61.8%

Measured Objective

Relative Strength Relative Strength IndexIndex

CRB (Weekly Chart)

Bollinger BandsBollinger Bands

Dark Cloud Dark Cloud CoverCover

HammerHammer

Dark Cloud Dark Cloud CoverCover

High-WaveHigh-WaveBullish Bullish

EngulfingEngulfing

Bearish Bearish EngulfingEngulfing

HammerHammer HammerHammer

Oil (Daily Chart)

Elliott Wave Elliott Wave Gold (Daily Chart)

(1)(1)

(2)(2)

(3)(3)

(4)?(4)?

Corrective Wave Corrective Wave (4)?(4)?

Gold (Weekly Chart) (3)(3)Hanging Hanging

ManMan

Piercing Piercing LineLine

Dark Cloud Dark Cloud CoverCover

(4)?(4)?HammerHammer

Trading RulesTrading Rules

Wait for the Wait for the session’s closesession’s close to confirm to confirm

DO NOT use candles in DO NOT use candles in isolationisolation

Always consider Always consider RiskRisk//RewardReward ratios ratios before placing a trade with a candle before placing a trade with a candle signalsignal

Candles DO NOT offer Candles DO NOT offer price targetsprice targets

Remember the importance of Remember the importance of stopsstops

Human Human EmotionEmotion Drives the MarketDrives the Market

Candle AnalysisCandle Analysis Unrivaled in Gauging Unrivaled in Gauging

Market PsychologyMarket Psychology

Presentation slidesPresentation slidesdesigned by Ron Williamdesigned by Ron William