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| The
Major Japanese Candlestick Patterns. |
There
are really only 12 major Candlestick patterns
that need to be committed to memory. The Japanese
Candlestick trading signals consist of approximately
40 reversal and continuation patterns. All
have credible probabilities of indicating
correct future direction of a price move.
The following dozen signals illustrate the
major signals. The definition of "major"
has two functions. Major in the sense that
they occur in price movements often enough
to be beneficial in producing a ready supply
of profitable trades as well as clearly indicating
price reversals with strength enough to warrant
placing trades.
Utilizing just the major Japanese Candlesticks
trading signals will provide more than enough
trade situations for most investors. They
are the signals that investors should contribute
most of their time and effort. However, this
does not mean that the remaining patterns
should not be considered. Those signals are
extremely effective for producing profits.
Reality demonstrates that some of them occur
very rarely. Other formations, although they
reveal high potential reversals, may not be
considered as strong a signal as the major
signals.
Here are a few of the major candlestick formations:
A Doji is formed when the open and
the close are the same or very close. The
length of the shadows are not important. The
Japanese interpretation is that the bulls
and the bears are conflicting. The appearance
of a Doji should alert the investor of major
indecision.
The Gravestone Doji is formed when
the open and the close occur at the low of
the day. It is found occasionally at market
bottoms, but it's forte is calling market
tops. The name, Gravestone Doji, is derived
by the formation of the signal looking like
a gravestone.
The Long-legged Doji has one or two
very long shadows. Long-legged Doji's are
often signs of market tops. If the open and
the close are in the center of the session's
trading range, the signal is referred to as
a Rickshaw Man. . The Japanese believe these
signals to mean that the trend has "lost
it's sense of direction."
The Bullish Engulfing Pattern is formed
at the end of a downtrend. A white body is
formed that opens lower and closes higher
than the black candle open and close from
the previous day. This complete engulfing
of the previous day's body represents overwhelming
buying pressure dissipating the selling pressure.
The Bearish Engulfing Pattern is directly
opposite to the bullish pattern. It is created
at the end of an up-trending market. The black
real body completely engulfs the previous
day's white body. This shows that the bears
are now overwhelming the bulls.
The Dark Cloud Cover is a two-day bearish
pattern found at the end of an upturn or at
the top of a congested trading area. The first
day of the pattern is a strong white real
body. The second day's price opens higher
than any of the previous day's trading range.
The Piercing Pattern is a bottom reversal.
It is a two candle pattern at the end of a
declining market. The first day real body
is black. The second day is a long white body.
The white day opens sharply lower, under the
trading range of the previous day. The price
comes up to where it closes above the 50%
level of the black body.
Hammer and Hanging-man are candlesticks
with long lower shadows and small real bodies.
The bodies are at the top of the trading session.
This pattern at the bottom of the down-trend
is called a Hammer. It is hammering out a
base. The Japanese word is takuri, meaning
"trying to gauge the depth".
The Morning Star is a bottom reversal
signal. Like the morning star, the planet
Mercury, it foretells the sunrise, or the
rising prices. The pattern consists of a three
day signal.
The Evening Star is the exact opposite
of the morning star. The evening star, the
planet Venus, occurs just before the darkness
sets in. The evening star is found at the
end of the uptrend.
A Shooting Star sends a warning that
the top is near. It got its name by looking
like a shooting star.
The Shooting Star Formation, at the bottom
of a trend, is a bullish signal. It is known
as an inverted hammer. It is important to
wait for the bullish verification. Now that
we have seen some of the basic signals, let's
take a look at the added power of some of
the other formations.
Next
- The History of Candlesticks |
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