Candlesticks

1
Candlesticks

• Brian Cox
• 5/21/06

2
The Essentials

• The greatest advantage to using candle on your
  charts, instead of bars is that single candle
  lines and multiple candle patterns offer more
  reliable, earlier and more effective reversal
  singles

3
The Essentials

• Invented by the Japanese. Used first in the 1870s
  with the opening of the Japanese stock market.
• Can be used with the weekly, daily and 5 minute
  charts.
• Candlesticks do not give price targets and need a
  close to confirm candle signal

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The Essentials

• Before placing a trade based on a candle signal
• other technical signals should be considered
• Consider the risk / reward of the trade.
• Candle charts are best used as a tool not a
  system.

5
Construction
White Open low and close higher
Black / red Open high and close lower
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Construction
High 37
High 37
Close 35
Open 35
White Open low and close higher
Black / red Open high and close lower
Open 30
Close 30
low 29
low 29
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Construction Review

• The rectangular portion of the candlestick is
  called the real body.
• The thin line extending above the real body is
  called the upper shadow.
• The upper shadow of a black candle represents the
  range between the high and the sessions price.

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Construction Review

• The lower shadow of a white real body candlestick
  represents the range between the sessions open
  and low.
• The black real body means that the close 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 early reversal
  signals.
• Candle lines and patters confirm support and
  resistance.

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Basic Market Strategies
Candles come in many different shapes
Tends to indicate confusion
Tends to indicate indecision
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Basic Market Strategies
Spotting reversals
Hammerfollowing a down trend
Hanging man following an up trend
Shooting Star following an up trend
Possible Bearish signal
Bullish signal
Bearish signal
Real Bodies can be black or white
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Basic Market Strategies Review

• A long lower shadow on a daily charts shows the
  market bouncing off from the lows of the day.
• The spinning top is another name for a 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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Basic Market Strategies Review

• 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 man is a close
  under the hanging mans close

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Basic Market Strategies Review

• A shooting star occurs during an up trend.
• A shooting star is considered bearish

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The Dangerous Doji

• The doji can signal a significant trend shift or
  reversal.
• A doji forms when the opening and closing price
  are the same.
• There are bearish and bullish doji.
• Are valuable for calling the market tops
  (especially after a long white candle).

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The Dangerous Doji
Market in Balance Rally could be losing steam
Possible Bullish signal
Bearish signal
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 close are 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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The Dangerous Doji Review

• A doji in an uptrend is called a northern doji.
• The northern doji is most effective when the
  market is overbought and the doji appears at a
  resistance area.

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Long Real Bodies (Belt-Hold)

• Candles with extended real bodies can also
  display strong signals

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Belt-hold signs
Bullish belt hold is white near support and
bearish is black near resistance
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The Dangerous Doji Review

• The bullish belt-hold following a downtrend will
  starts low near resistance and raises up and
  closes out higher
• The bearish belt-hold following a uptrend will
  start high near resistance and closes out lower.

23
The Belt hold Review

• The bearish belt hold becomes more signification
  as it nears resistance.
• The longer the height of the belt-hold candle,
  the more important the signal it gives.
• On the chart, we draw the support line from the
  bottom of the lower shadow.

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The Belt hold Review

• The smaller the real body, the less force the
  move behind the move.
• A series of long lower shadows as the market is
  descending shows that the market is descending
  reluctantly.
• On the chart, we draw the support line from the
  bottom of the lower shadow.

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The Belt hold Review
If the trend is mostly higher, caution is
warranted due to long upper shadows
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The Power of Candle Patterns

• Candle charts are most powerful when two or more
  candle lines combine in a candle pattern.
• A dark cloud cover pattern is a bearish signal
  consisting of a two-candle patter that indicates
  a top reversal.

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The Power of Candle Patterns
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The Power of Candle Patterns
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The Power of Candle Patterns Review

• As the second session of a piercing pattern
  pushes more and more deeply into the first
  candle, it may become a bullish engulfing
  pattern.
• The opposite pattern to the dark cloud cover is
  the piercing pattern.
• A piercing pattern is to a bullish engulfing
  pattern as a dark cloud cover is to a bullish
  engulfing pattern.

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The Power of Candle Patterns Review

• A bullish engulfing pattern occurs when at second
  sessions white real body raps around the prior
  sessions black body
• If an extremely large white candle completes a
  bullish engulfing pattern you should buy or sell
  based on the risk reward profile.

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Candle Patterns Review

• Lets see an actual set of candle stick patterns

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Candlesticks

• End of Part I

What would you Do now?
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Candlesticks

• End of Part I

What would you Do now?
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Candlesticks

• End of Part I

What does this indicate?
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Candlesticks

• End of Part I

What is this called? (bearish or 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 you do now?
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Candlesticks
What is the name of this?

• End of Part I

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Candlesticks

• End of Part I

Buy? Sell?
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Candlesticks

• End of Part I

What is this called?
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Candlesticks

• End of Part I

What is the direction?
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Candlesticks
Strong Resistance

• End of Part I

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Candle Sticks

• End of Part I