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| The
Added Power of Japanese Candlestick Trading
Formations. |
Japanese
Candlestick charting dramatically increases
the information conveyed to the visual analysis.
Each candlestick trading formation or series
of formations can clearly illustrate the change
of investor sentiment. This process is not
apparent in standard bar chart interpretation.
Each candle formation has a unique name. Some
have Japanese names, others have English names.
When possible in this book, the English name
and Japanese name will be given. The Japanese
names will be done in Romanji writing so that
English speaking people can say the names.
Single candles are often referred to as YIN
and YANG lines. These terms are actually Chinese,
but are used by Western analysts to account
for opposites; in/out, up/down, and over/under.
INN and YOH are the Japanese equivalents.
YIN is bearish. YANG is bullish. There are
nine basic YIN and YANG lines in Candlestick
analysis. These are expanded to fifteen to
cover all possibilities clearly. The combination
of most patterns can be reduced to one of
these patterns.
Long days
A long day represents a large price move from
open to close. Long represents the length
of the candle body. What qualifies a candle
body to be considered long? That is a question
that has to be answered relative to the chart
being analyzed. The recent price action of
a stock will determine whether a "long"
candle has been formed. Analysis of the previous
two or three weeks of trading should be a
current representative sample of the price
action.
Short Days
Short days can be interpreted by the same
analytical process of the long candles. There
are a large percentage of the trading days
that do not fall into either of these two
catagories.
Maruboza
 
In Japanese, Marubozu means close cropped
or close-cut. Bald or Shaven Head are more
commonly used in candlestick analysis. It's
meaning reflects the fact that there are no
shadows extending from either end of the body.
Black Marubozu
A long black body with no shadows at either
end is known as a Black Marubozu. It is considered
a weak indicator. It is often identified in
a bearish continuation or bullish reversal
pattern, especially if it occurs during a
downtrend. A long black candle could represent
the final sell off, making it an "alert"
to a bullish reversal setting up. The Japanese
often call it the Major Yin or Marubozu of
Yin.
White Marubozu
The White Marubozu is a long white body with
no shadows on either end. This is an extremely
strong pattern. Consider how it is formed.
It opens on the low and immediately heads
up. It continues upward until it closes, on
its high. Counter to the Black Marubozu, it
is often the first part of a bullish continuation
pattern or bearish reversal pattern. It is
called a Major Yang or Marubozu of Yang.
Closing Marubozu
A Closing Marubozu has no shadow at it's closing
end. A white body will not have a shadow at
the top. A black body will not have a shadow
at the bottom. In both cases, these are strong
signals corresponding to the direction that
they each represent.
Opening Marubozu
The Opening Marubozu has no shadows extending
from the open price end of the body. A white
body would not have a shadow at the bottom
end , the black candle would not have a shadow
at it's top end. Though these are strong signals,
there are not as strong as the Closing Marubozu.
Spinning Top
Spinning Tops are depicted with small bodies
relative to the shadows. This demonstrates
some indecision on the part of the bulls and
the bears. They are considered neutral when
trading in a sideways market. However, in
a trending or oscillating market, a relatively
good rule of thumb is that the next days trading
will probably move in the direction of the
opening price. The size of the shadow is not
as important as the size of the body for forming
a Spinning Top.
Doji
The Doji is one of the most important signals
in candlestick analysis. It is formed when
the open and the close are the same or very
near the same. The lengths of the shadows
can vary. The longer the shadows are, the
more significance the Doji becomes. More will
be explained about the Doji in the next few
pages. ALWAYS pay attention to the Doji.
The dimension of knowing what the formations
signify magnifies the potential for profits.
The bodies, unlike the bars of bar charts,
reveal an immense amount of information.
Next
- The Major Candlestick Formations |
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