candlestick charting explained phần 7 pps

Chapter 4 with some profit taking. This last day is considered a liquidating day, which will give the upward trend needed strength. Bearish Three-Line Strike A downtrend is accentuated by three black days that each have consecu- tively lower lows (Figure 4-25). The fourth day opens at a new low, then rallies to close above the high of the first black day. This last long white day completely negated the previous three black days. This day should be looked upon as a day when shorts were being covered and the down move should continue. Rules of Recognition Bullish Three-Line Strike 1. Three days resembling Three White Soldiers are continuing an uptrend. 2. A higher open on the fourth day drops to close below the open of the first white day. Bearish Three-Line Strike 1. Three days resembling Three Black Crows are continuing a down- trend. 2. A lower open on the fourth day rallies to close above the open of the first black day. Scenarios and Psychology Behind the Pattern The market has continued in its trend, aided by the recent Three Black Crows or Three White Soldiers pattern, as the case may be. The fourth day opens in the direction of the trend, but profit taking or short covering Continuation Patterns causes the market to move strongly in the opposite direction. This action causes considerable soul searching, but remember that this move com- pletely eradicated the previous three days. This surely dried up the short- term reversal sentiment and the trend should continue in its previous direction. Pattern Flexibility The amount of the initial gap in the direction of trend and the amount the fourth day moved would be strong indication's of the success of this pattern as a continuation pattern. The bullish Three-Line Strike pattern reduces to a Shooting Star line and is in direct conflict with the bullishness of this pattern (Figure 4-26). The bearish Three-Line Strike pattern reduces to a Hammer and is also in direct conflict with this pattern's bearishness (Figure 4-27). Related Patterns There is a hint of Three White Soldiers and Three Black Crows in these patterns, but their influence is quickly negated with the strong reaction day that follows. [...]... 175 5 and is known today as the basis of Japan's market philosophy Today, in Sakata, a house which once belonged to the Honma family, is the Honma Museum of Art All of the patterns and formations based upon Sakata's Method are taken from 160 rules that Honma wrote when he was 51 years old Sakata's Method, in turn, is what is now considered as the beginnings of candle pattern recognition Candlestick charting. .. beginnings of candle pattern recognition Candlestick charting was not actually developed by Honma, only the pattern philosophy that goes with it His approach has been credited as the origin of current candlestick analysis Since Honma came from Sakata, you may see reference to: Sakata's Law, the Sakata Method, Sakata's Five Methods, Honma Constitution, and similar names While the labels may differ, the... with the basic yin (inn) and yang (yon) candle lines along with two additional lines The concept is centered around the number 3 The number 3 appears often in traditional analysis as well as in Japanese charting techniques Sakata's Method is a technique of chart analysis using the number 3 at different points and times in the market Sakata's Method can be summarized as: San-zan (three mountains) San-sen... direction, most probably down San-sen (three rivers) Three Rivers is the opposite of Three Mountains It is often used like the traditional triple bottom or inverted head and shoulders bottom, but this is MV7OT Cll not necessarily correct The Three Rivers method is based on the theory of using three lines to forecast the turning point of the market This can be seen in a number of bullish candle patterns using... market that has risen will eventually fall, and a market that has fallen will eventually rise As an article in the September 1991 / issue of Forbes observed, in bear markets, it's smart to remind Figure 5 -7 San-poh (three methods) San-poh means "a rest or cease-fire in market action." A popular Japanese saying is "Buy, sell, and rest." Most traditional books on market psychology and trading suggest taking . recognition. Candlestick charting was not actually devel- oped by Honma, only the pattern philosophy that goes with it. His ap- proach has been credited as the origin of current candlestick analysis. Since. appears be- tween two candlesticks of the same color (Figures 4-29 and 4-30). This color should reflect the trend of the market. The third day opens within the body of the second candlestick and then. third day opens within the body of the second candlestick and then closes within the body of first candlestick (bridging the first and second candles), which would also make it the opposite color