Candlestick charting explained

McGraw-Hill New York San Francisco Washington, D.C. Auckland BogoU Caracas Lisbon London Madrid Mexico City Milan Montreal New Delhi San Juan Singapore Sydney Tokyo Toronto [...]...Chapter 1 Candlestick Charts Japanese candlestick charts do not require anything new or different as far as data are concerned Open, high, low, and close are all that is needed to do candlestick charting Many data vendors do not have open prices on stocks This problem can be addressed by using the previous... see that the Japanese candlestick chart really does not display anything different from the standard bar chart However, once you become accustomed to seeing Japanese candlestick charts, you will prefer them because their clarity is superior and allows a quick and accurate interpretation of the data This matter of interpretation is also what this book is about Japanese candlestick charting and analysis... a single line or price bar; Japanese candlestick charting is no different, except that the information is so much more easily interpreted There is much information provided in a single candle line This will help in understanding the psychology behind the many candle patterns described in later chapters There are a few candle patterns that consist of only a single candlestick and also qualify as reversal... encdrnpass the shadows, but this is not always necessary A Star indicates some uncer- A candle pattern can be a single candlestick line or multiple candlestick lines, seldom more than five or six In Japanese literature, there is occasional reference to patterns that use even more candlesticks, but they will be included in the chapter on candle formations The order in which the candle patterns are discussed... closes much higher In fact the close is above the midpoint of the body of the long black day This action causes concern to the bears and a potential bottom has been made Candlestick charting shows this action quite well, where standard bar charting would hardly discern it The Piercing Line pattern reduces to a Paper Umbrella or Hammer line, which is indicative of a market reversal or turning point (Figure... the previous trend is immediate cause for concern The clear message of the Doji Star is an excellent example of the value of the candlestick method of charting If you were using close only or standard bar charts, the deterioration of the trend would not quite yet be apparent Candlesticks, however, show that the trend is abating because of the gap in real bodies by the Doji Star If the gap can also contain... between the open and close is called the real body of the candlestick The height of the body is the range between the day's open price and the day's close price When this body is black, it means that the closing price was lower than the opening price When the closing price is higher than the opening, the body is white The Shadows (/cage) The candlestick line may have small thin lines above and/or below... basic yin and yang lines in candlestick analysis These can be expanded to fifteen different candle lines for a clearer explanation of the various possibilities It will be shown in later chapters how Chapter 2 most candle patterns can be reduced to single candle lines and maintain the same bullish or bearish connotations Reading the single daily lines is the beginning of Japanese candlestick analysis A few... the Piercing Line Pattern Flexibility The white real body should close more than halfway into the prior black candlestick' s body If it didn't, you probably should wait for more bullish confirmation There is no flexibility to this rule with the Piercing pattern The Piercing pattern's white candlestick must rise more than halfway into Related Patterns Three patterns begin in the same way as the Piercing... the fact that there is no shadow extending from the body at either the open or the close, or at both Reference to long days is prevalent in most literature dealing with Japanese candlesticks Long describes the length of the candlestick body, the difference between the open price and the close price, as shown in Figure 2-1 A long day represents a large price movement for the day In other words, the open . present. A down- trend can continue unabated. It is interesting to note that Doji also means "goof or "bungle." Long-Legged Doji (jujn Figure 2-8 The Long-Legged Doji has long upper. the opening Candlestick Lines price. If the opening and closing are in the center of the day's range, the line is referred to as a Long-Legged Doji. Juji means "cross." Gravestone. Hanging Man are each made of single candlestick lines (Figures 3-1 and 3-2 ). They have long lower shadows and small real bodies that are at or very near the top of their daily trading range.