Japanese Candlesticks

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Japanese Candlesticks

• Ron William
• Technical Analyst
• Email rwilliam_at_investorsintelligence.com
• investorsintelligence.com

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Brief History

• 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.

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Constructing the Candle Line
Bullish Candle White Real Body
Bearish Candle Black Real Body
High
High
Upper Shadow
Close
Open
Real Body
Close
Open
Lower Shadow
Low
Low
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The Real Body is the essence of market psychology
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Basic Candles
Long Day
Doji
Spinning Top
High Wave
1. Small real body 2. Colour not imp.
Prior trend weak
1. Small real body 2. Colour not imp.
3. Long shadows
Open and close are narrow/same
Market is tired
Strong buy/sell Midpoint used as
support/resistance
Indicates confusion
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Powerful Candles
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Doji
Criteria Open and close are
narrow or the same Psychology Market is
tired
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Doji
Silver (Weekly Chart)
Doji hints market is tired
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3
4
2
1
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Doji in box range
USD/ZAR (Daily Chart)
Series of doji within box range merely sets tone
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Single Line
Hammer
Shooting Star
1. Lower Shadow 2X length of Real Body 2. RB
at upper end, colour not important 3. No/very
small upper shadow 4. Confirmed with a
strong bullish day
1. Upper Shadow 2X length of Real Body 2. RB
at lower end, colour not important 3. No/very
small lower shadow 4. Confirmed with a
strong bearish day
Hammering a base
Trouble overhead
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Hammer
GBP/USD (Daily Chart)
Support
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Shooting Star
Wheat (Weekly Chart)
Risk?
Selling on close implies risking the pattern high
Sell?
Preferred Sell
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Dual Line
Engulfing
Piercing Line
Dark Cloud Cover
1. Downtrend evident 2. Session opens lt prior
low 3. Bullish RB closes gt50 into bearish
RB
1. Uptrend evident 2. Session opens gt prior
high 3. Bearish RB closes gt 50 into bullish
RB
1. Large RB wraps around small RB 2. Opposite
colours 3. Up/Down trend
Sentiment reversal
Arresting control
Sentiment reversal
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Bullish Engulfing
Kuwait Stk Mkt (Weekly Chart)
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Dark Cloud Cover
Palladium (Weekly Chart)
Midpoint
Sell
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Three Line
Evening Star
Morning Star
3 White Soldiers
3 Black Crows
1. Downtrend evident 2. Bearish session is
followed by indecision. 3. Bulls close gt
50 into prior Bear RB
1. Three bullish RBs, all of similar size 2.
Prior trend is down 3. Each session opens
with recent RB closes near high
1. Three bearish RBs, all of similar size 2.
Prior trend is up 3. Each session opens with
recent RB closes near lows
1. Uptrend evident 2. Bullish session is
followed by indecision. 3. Bears close gt
50 into prior Bull RB
Downtrend
Upside reversal
Downside reversal
Uptrend
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Western charting
Optimises and confirms Price targets

• Support and Resistance
• Trend-lines
• Price Patterns
• Moving Averages
• Oscillators
• Elliott Wave

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Moving Averages
Gold (Weekly Chart)
Hammer
Piercing Line
High-wave
70-week average
Piercing Line
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Price Patterns
Soybean (Daily Chart)
3 White Soldiers
Shooting Star
Shooting Star
3 White Soldiers
Morning Star
Bullish Engulfing
3 White Soldiers (variant)
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Confluence
EUR/USD (Daily Chart)
61.8
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Measured Objective
38.2
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Relative Strength Index
CRB (Weekly Chart)
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Bollinger Bands
Oil (Daily Chart)
Bearish Engulfing
Hammer
Hammer
Dark Cloud Cover
Dark Cloud Cover
Bullish Engulfing
High-Wave
Hammer
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Elliott Wave
(3)
Gold (Daily Chart)
(4)?
(1)
(2)
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Corrective Wave (4)?
Gold (Weekly Chart)
(3)
Dark Cloud Cover
Hanging Man
(4)?
Hammer
Piercing Line
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Trading Rules

• Wait for the sessions close to confirm
• DO NOT use candles in isolation
• Always consider Risk/Reward ratios before placing
  a trade with a candle signal
• Candles DO NOT offer price targets
• Remember the importance of stops

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Human Emotion Drives the Market
Candle Analysis Unrivaled in Gauging Market
Psychology
Presentation slidesdesigned by Ron William