Teoria dos candlesticks

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Teoria dos candlesticks

  1. 1. 1Teoria dos candlesticksAnálise gráfica das cotações, originária do Japão, que se baseia no valor máximo, mínimo, de aberturae fecho de uma cotação. O intervalo de preços entre a abertura e o fecho é representado por umrectângulo. Se o preço de fecho for superior ao preço de abertura, o corpo da vela será branco. Se opreço de fecho for inferior ao preço de abertura, o corpo da vela é negro. O máximo e o mínimo são assombras e representadas apenas por um linha.Padrões de inversãoHarami e Harami CrossPadrão de inversão segundo a teoria dos Candlesticks que assinala o nascimento de uma novatendência de curto-prazo.Harami(harami)- Padrão de inversão bullish ou bearish- Necessita confirmaçãoHarami, palavra japonesa para "grávida" ou "corpo por dentro".O Harami é bastante parecido com o ocidental Inside Day, com a diferença que no Inside Dayconsideramos máximos e mínimos do dia, enquanto no Harami consideramos o «body» do dia, isto é,a abertura e o fecho.Um Harami representa uma disparidade de sentimentos face ao movimento do mercado, a velapequena do padrão assinala incerteza e o nascimento de uma nova tendência de curto-prazo.Composição/como reconhecer?:Este padrão tal como o Engulfing é composto por dois dias opostos.1. Um dia longo é precedido por uma tendência de curto prazo com alguma extensão;2. A cor do primeiro dia não é importante, mas é melhor se reflectir a tendência do mercado;3. A seguir ao dia longo, surge um dia curto, com o seu corpo completamente dentro do corpo do dialongo anterior;4. O dia curto deve ter uma cor oposta à do dia longo.
  2. 2. 2Interpretação do padrão:Harami Bullish: existe uma tendência descendente de curto prazo há algum tempo. Um grande dialongo (negro) ocorre, com volume médio, o que ajuda a perpetuar o sentimento bearish no mercado.No dia seguinte, os preços abrem em alta, questionando as expectativas dos Bears menos convictos,que correm a fechar as suas posições short. Este movimento de «short covering» faz com que ospreços subam. A subida da cotação é travada por aqueles que tinham uma perspectiva Bear, mas quetinham perdido o início da tendência. Assim, estavam a aguardar uma oportunidade para entraremcurtos no mercado. O volume neste segundo dia é superior ao do dia anterior, o que sugere aexistência de um grande «short covering». Uma abertura em alta no terceiro dia seria a confirmaçãode que a tendência de curto prazo se teria invertido, de baixa para alta.Harami Bearish: existe uma tendência ascendente de curto prazo há algum tempo. Um grande dialongo (branco) ocorre com forte volume. No dia seguinte, os preços abrem em baixa e evoluemdurante a sessão dentro um intervalo apertado, para fechar abaixo da abertura mas dentro do corpodo dia anterior. As convicções Bull ficam abaladas com esta segunda sessão que travou a tendência dealta em vigor. A confirmação da inversão bearish vem com um fecho no terceiro dia abaixo dosegundo.Harami Cross (Bearish)(harami yose sen)( Bullish) (- Padrão de inversão bullish ou bearish- Confirmação não é um requisito, mas é recomendada.O padrão Harami consiste num dia longo seguido de um dia mais curto (em termos de corpo, claro). Éa dimensão relativa dos dois corpos que determina a importância do Harami. O Harami Cross como asfiguras demonstram, é uma variação do padrão Harami em que a segundo vela é um Doji (vela emque a abertura é igual ao fecho e que representa dias de indecisão), o que torna este padrão e as suasindicações mais fiáveis que o normal acima descrito.Composição/ como reconhecer?:1. Um dia longo é precedido por uma tendência de curto prazo com alguma extensão;2. A cor do primeiro dia não é importante, mas é melhor se reflectir a tendência do mercado;3. O segundo dia do padrão é um Doji;4. O segundo dia fica dentro do corpo do dia anterior.Interpretação do padrão:A interpretação dada ao Harami Cross é praticamente a mesma que a do Harami normal, com umapequena e importante diferença. O facto de o segundo dia fechar igual à abertura, formando o Doji,
  3. 3. 3reflecte ainda mais a falta de convicção do mercado em continuar a tendência em vigor. Umasignificativa inversão de tendência de curto prazo terá ocorrido.Flexibilidade do padrão:A abertura e fecho do Doji não têm de ser exactamente iguais, mas é necessário que estejam bastantepróximos, para que num gráfico de médio prazo seja quase imperceptível a diferença.Hammer e Hanging Man(kanazuchi/tonkachi e kubitsuri) - Padrão de inversão bullish (Hammer) ou bearish (Hanging Man) - Necessita confirmaçãoComposição:O Hammer e o Hanging Man são constituídos por uma única linha de Candlesticks. Têm grandessombras inferiores e um pequeno corpo, que está colocado no topo ou muito perto do topo da linha.O Hammer acontece numa tendência de baixa, e é assim chamado por estar a «martelar» numpossível fundo de mercado. A palavra japonesa para Hammer (tonkachi), também significa chão ousolo.O Hanging Man acontece durante ou no topo de uma tendência de alta. O nome vem do facto destalinha de candlestick realmente se assemelhar à figura de um homem enforcado.Para que o Hammer e o Hanging Man se verifiquem realmente, é necessário que a sombra inferiortenha no mínimo o dobro do comprimento do corpo.Como reconhecer?1. O pequeno corpo está no topo do trading range.2. A cor do corpo tem pouca relevância. No entanto, um Hammer com corpo branco e um HangingMan com corpo preto, ou seja com cor contrária à da tendência, têm normalmente mais força.3. A sombra inferior deverá ser muito mais longa do que o corpo. Normalmente terá um comprimentode 2 a 3 vezes o do corpo.4. Não deverá existir uma sombra superior, ou se existir, deverá ser muito pequena.
  4. 4. 4Interpretação do padrão:HammerO mercado tem estado numa tendência de curto prazo descendente. Abre num ponto e caiabruptamente nas horas seguintes. No entanto, o sell-off começa a perder força e o mercado voltapara perto do máximo do dia. O falhanço do mercado em continuar a queda reduz o sentimento Bear,e a maioria dos traders sentir-se-á preocupado com as posições short que possa deter. Se ofechamento acabar por ser acima da abertura, causando um corpo branco, a situação é ainda maisfavorável aos bulls. A confirmação da inversão de tendência de curto prazo acontecerá se o mercadono dia seguinte abrir em alta e fechar ainda mais alto.Hanging ManO mercado está em tendência de curto-prazo ascendente. Abre e sofre um sell-off negociando grandeparte da sessão bem abaixo da abertura, depois verifica-se um rally para um fechamento perto domáximo do dia. Este comportamento intra diário leva à formação da longa sombra inferior que dáindicações de que o mercado poderá ter começado um sell-off mais alargado. Se o mercado abrir embaixa na sessão seguinte, a pressão vendedora tende a aumentar, com o fechamento perto dosmínimos a confirmar os sinais de inversão do padrão.Piercing Line Padrão de inversão Bullish segundo a Teoria dos Candlesticks.Piercing Line(kirikomi) - Padrão de inversão bullish- É aconselhável esperar pela confirmação, embora esta não seja uma exigênciaComposição – Duas velas de cor oposta num mercado em tendência descendente. A primeira velatem corpo real negro reflectindo a tendência do mercado, a segunda vela tem corpo real brancoabrindo num novo mínimo para fechar acima do ponto intermédio (“mid-point”) do corpo dia anterior.Pode-se dizer que é a versão bullish do Dark Cloud Cover.Nota: O “Mid-point” é calculado somando metade da a amplitude do corpo real duma vela ao seuvalor de fecho. Ou seja, (Abertura – Fecho)/2 + Fecho = Mid-point
  5. 5. 5Como reconhecer?1- O primeiro dia é uma longa vela negra que dá continuidade à tendência de baixa em vigor;2- O segundo dia é uma vela de corpo real branco que abre abaixo do mínimo do dia anterior;3- O segundo dia fecha dentro do corpo da vela anterior e acima do seu ponto intermédio.Factores que reforçam o sinal de inversão dado pelo padrão Piercing Line:1- Quanto maior for o grau de penetração no corpo da primeira vela do padrão, maior a probabilidadede sucesso da inversão assinalada; (Se o fecho do segundo dia for acima da abertura da primeira vela.Estamos na presença dum Bullish Engulfing )2- As velas que formam o Piercing Line devem ser longas.3- É imprescindível que o segundo dia feche acima do ponto intermédio do corpo da primeira vela.Caso contrário o padrão não existe e pode ser considerado um dos seguintes padrões de continuação:On-neck, In-Neck e Thrusting4- Numa tendência de baixa prolongada, em que uma forte vela negra abre nos seus máximos parafechar nos mínimos da sessão e é seguida de uma longa vela branca que abre nos mínimos e fechanos máximos, o sinal de inversão sai reforçado;5- Se o segundo dia do padrão abrir abaixo dum importante suporte para depois vir a fechar acima domesmo. Verificou-se uma falsa ruptura, os bears foram incapazes de manter o controlo do mercado eo suporte funcionou como tal.A interpretação dada a este padrão é a seguinte: o mercado está em tendência descendente, aformação duma vela negra reforça esse tendência. No dia que se segue o mercado abre em gap-down,reforçando as convicções bearish do mercado, segue-se uma subida intra diária que termina com umfecho acima do ponto intermédio do dia anterior. Os bears ficam com dúvidas em relação ás suasposições curtas e os bulls convencem-se que os mínimos estão fixados e é altura para entrar longo.Padrão Engulfing Explicação de mais um padrão de inversão segundo a Teoria dos Candlesticks - Engulfing.ENGULFING(tsutsumi)Bullish Engulfing Bearish Engulfing
  6. 6. 6- Padrão de inversão bullish ou bearish- Necessita confirmaçãoComposição – Duas velas com cor oposta, em que o corpo da segunda “engole/abraça” o corpo daprimeira.Como reconhecer?1- O mercado apresenta uma tendência de alta ou de baixa bem definida;2- Duas velas formam o padrão Engulfing acima descrito. O corpo da segunda vela tem de engolir(“engulf”) o da primeira. As sombras não são consideradas;3- A cor da primeira vela reflecte a tendência em vigor: encarnado se esta for de baixa e branco se forde alta;4- A cor da segunda vela é oposta à da primeira vela. (Pode-se fazer uma excepção no caso de ocorpo da primeira vela ser tão pequeno que possa ser ou seja mesmo um doji)A confirmação do sinal de inversão dado por este tipo de padrão é dado no “terceiro dia”, com omercado a manter-se abaixo da segunda vela no caso do Bearish Engulfing ou acima no caso daBullish Engulfing.Factores que reforçam o sinal de inversão dado pelo padrão Engulfing:1- O corpo da primeira vela do padrão é muito pequeno quando comparado com o corpo longo dasegunda vela. A interpretação dada é que, a primeira vela mostra por si só um abrandar/travar datendência em vigor que sai confirmado no dia seguinte, com uma longa vela a contrariar a tendência ea assinalar uma inversão da mesma;2- O Engulfing aparece depois de um rápido movimento. Um movimento rápido “estica o mercado”tornando-o mais vulnerável a tomadas de mais-valias que resultam numa inversão desse movimento;3- Se o padrão aparece no seguimento de um movimento sustentado é menor a probabilidade dehaver força no mercado para continuar esse movimento. Isto é, uma vez que o movimento tem jáalgum tempo a força compradora ou vendedora pode estar esgotada, faltando munições paracontrariar o sinal dado pelo padrão;4- O volume no dia da segunda vela é claramente superior ao da primeira. O interesse do mercadomudou de lado, essa mudança é dada por um aumento de volume do lado contrário ao da tendênciaque vinha a vigorar;5- O segundo dia “engole” mais do que um corpo.
  7. 7. 7Exemplo: Gráfico do BPISticky Sandwich Sticky Sandwich (gyakusashi niten zoko)- Padrão de inversão bullish
  8. 8. 8- Necessita confirmaçãoComposição - Duas velas negras que têm entre elas o corpo de uma vela branca. O fecho das duasvelas negras deve ser igual. Foi encontrada uma zona de suporte de curto-prazo (nos dois fechos dasvelas negras) existindo uma oportunidade de inversão junto a esse valor.Como reconhecer?1- Numa tendência descendente uma vela de corpo negro é seguida de uma vela de corpo branco quenegocia acima do fecho da vela negra.2 - O terceiro dia é negro com um fecho igual ao do primeiro dia do padrãoNeste padrão, por regra, apenas são considerados os corpos das velas, ou seja, as sombras sãoignoradas dando maior consistência ao suporte identificado pelo padrão. Existem no entanto, algunsautores que optam por ser mais flexiveis e usam os mínimos das velas negras como suporte quandoestes não coincidem com o fecho.A confirmação do padrão deverá vir com um fecho acima do ponto intermédio do corpo terceira vela,com a cotação a distanciar-se em alta da mesma nas sessões seguintes.-----------------------------------------------------------Bibliografia: "Candlestick Charting Explained" de Gregory L. Morris - Japanese Candlestick Charting Techniques, de Steve Nison Padrões de ContinuaçãoThrusting LinePadrão de continuação que resulta do Piercing Line.Thrusting(sashikomi)- Padrão de continuação bearish- Necessita confirmaçãoO Thrusting é a mais forte das três variações possíveis do padrão de inversão bullish Piercing Line.Como reconhecer?
  9. 9. 9- Uma vela negra é formada durante uma tendência de baixa;- O segundo dia do padrão é uma vela branca que abre abaixo do mínimo do dia anterior, acabandopor fechar bem dentro do corpo real da vela negra, mas abaixo do seu ponto intermédio (mid-point).O “Mid-point” é calculado somando metade da a amplitude do corpo real duma vela ao seu valor defecho. Ou seja, (Abertura – Fecho)/2 + Fecho = Mid-pointA interpretação dada ao Thrusting é muito simples, o padrão representa uma tentativa falhada deinversão durante uma tendência de baixa.(Nota: O padrão Thrusting pode ser considerado bullish quando aparece a meio de uma tendência dealta, ou quando num mercado em baixa ocorre mais do uma vez num curto espaço de dias).In NeckPadrão de continuação que resulta do Piercing Line.In Neck(iri kubi)- Padrão de continuação bearish- Necessita é sugeridaO On-neck é uma das três variações possíveis do padrão de inversão bullish Piercing Line.Como reconhecer?- Uma vela negra é formada durante uma tendência de baixa;- O segundo dia do padrão é uma vela branca que abre abaixo do mínimo do dia anterior;- O fecho do segundo dia é praticamente ou mesmo igual ao do dia anterior, fazendo com a segundavela entre por muito pouco no corpo real da primeira.A interpretação é precisamente a mesma que a dada ao On-neck, com a excepção de que aprobabilidade de continuação da tendência de baixa diminui em resultado do fecho mais alto.Nota: Se o volume do segundo dia for alto, a probabilidade de continuação da tendência é maior.
  10. 10. 10On NeckPadrão de continuação que resulta do Piercing LineOn Neck(ate kubi)- Padrão de continuação bearish- Necessita é sugeridaO On-neck é uma das três variações possíveis do padrão de inversão bullish Piercing Line.Como reconhecer?- Uma vela negra é formada durante uma tendência de baixa;- O segundo dia do padrão é uma vela branca que abre abaixo do mínimo do dia anterior e quenormalmente apresenta um corpo real pequeno. Formações com uma longa segunda vela parecem-secom o padrão bullish, Meeting Line.- O segundo dia fecha no mínimo da primeira vela.A interpretação dada ao On-neck é a seguinte: o sentimento bearish é reforçado com oaparecimento de uma primeira longa vela negra num mercado em queda. No dia seguinte o mercadoabre em gap down, abaixo do mínimo da vela negra, mas sem dar continuidade à descida. A cotaçãosobe durante a sessão para encontrar resistência no mínimo do dia anterior, acabando por fechar aesse valor e lançando dúvidas na mente dos que tentaram adivinhar um fundo de curto-prazo. Oregresso de pressão vendedora ao mercado nas sessões seguintes, leva o mercado a novos mínimos econfirma as indicações bearish do Padrão On-neck.Nota: Se o volume do segundo dia for alto, a probabilidade de continuação da tendência é maior.Rising e Falling Three MethodsSegue-se a explicação do Rising e Falling Three Methods, padrões de continuação que assinalamum abrandar da tendência em vigor sem que uma inversão esteja em causa. São dias de descansoque podem ser boas oportunidades de entrada ou reforço de posições a favor da tendência.Rising Three Methods(uwa banare sanpoo ohdatekomi)
  11. 11. 11- Padrão de continuação bullish- Não necessita confirmaçãoComposição/ Como reconhecer:1- Uma longa vela branca é formada a meio de uma tendência de alta;2- segue-se um grupo de velas com corpo pequeno que demonstram alguma resistência à tendênciade alta, mantendo-se dentro da amplitude ("range") da vela branca, máximos e mínimos.O número ideal de velas de corpo pequeno é como nome do padrão indica o 3, no entanto formaçõescom apenas duas ou mais de três velas podem ser aceitas desde que estas não fechem acima ouabaixo da vela branca. A cor destas velas de corpo pequeno é indiferente, sendo mais comum queestas sejam pretas;3- O último dia do padrão é novamente uma vela branca de corpo longo que abre acima do fecho dasessão anterior e fecha igualmente acima do fecho da primeira vela do padrão a favor da tendência.Falling Three Methods(shita banare sanpoo ohdatekomi)Padrão de continuação bearish- Não necessita confirmaçãoComposição/ Como reconhecer:
  12. 12. 121- Uma longa vela negra é formada a meio de uma tendência de baixa;2- segue-se um grupo de velas com corpo pequeno que demonstram alguma resistência à tendênciade baixa, mantendo-se dentro da amplitude ("range") da vela negra, máximos e mínimos.O número ideal de velas de corpo pequeno é como nome do padrão indica o 3, no entanto formaçõescom apenas duas ou mais de três velas podem ser aceites desde que estas não fechem acima ouabaixo da vela negra. A cor destas velas de corpo pequeno é indiferente, sendo mais comum que estassejam brancas;3- O último dia do padrão é novamente uma vela negra de corpo longo que abre abaixo do fecho dasessão anterior e fecha igualmente abaixo do fecho da primeira vela do padrão a favor da tendência.-----------------------------------------------------------A interpretação dada a estes dois padrões é muito simples, o mercado está a "descansar" datendência em vigor, as velas de corpo pequeno representam precisamente esse descanso e umrecuperar de forças para que se possa retomar o sentido da tendência.Os dias de "descanso" são de grande conflito entre bulls e bears, lançando dúvidas quanto àpossiblidade de continuação ou não da tendência.O facto de no caso do Rising, máximo da primeira vela não ser quebrado em fecho deixa os bullsreticentes e a questionar a tendência de alta, com as aproximações aos mínimos da mesma vela aalimentarem as esperanças dos bears. Esta indecisão termina quando a última vela distancia-se emforça dos máximos com o mercado a mostrar que a tendência de alta era para continuar. (Podemosfazer a interpretação oposta para o Falling Three Methods)Em ambos os casos, existe alguma flexibilidade na identificação do padrão sendo permitido que assombras das velas pequenas ultrapassem o máximo ou o mínimo, conforme o caso, da primeira vela .Caso haja esta flexiblidade, é aconselhável que as velas pequenas cheguem a cobrir o range doprimeiro dia.Depois de formado e confirmado o padrão Rising Three Methods pode ser resumido a uma só longavela branca que suporta a continuação bullish. O padrão Falling Three Methods resume-se logicamentea uma longa vela negra que suporta uma continuação bearish.Bibliografia utilizada:-Japanese Candlestick Charting Techniques, de Steve Nison (disponível na loja do Clube);- Candlestick Charting Explained, de Gregory L. Morris;- The Candlestick Course, de Steve Nison.
  13. 13. 13 CANDLESTICK TERMS REAL BODYThe real body is the 2-dimensional rectangle made by the difference between the open and close of the trading day. The real body will be white on days that the stock closes higher than it opens, and black on days that it closes lower than it opens. UPPER AND LOWER SHADOWSThe upper shadow is the vertical line drawn from the top of the candlesticks real body to the dayshigh. The lower shadow is the vertical line drawn from the bottom of the candlesticks real body to the days low. SPECIAL CANDLESTICKS LONG DAY A candlestick that has a long day is one in which there has been a big difference in opening and closing price compared with typical trading days in the previous five to ten days. SHORT DAY A candlestick that has a short day is one in which there has been a small difference in opening and closing price compared with typical trading days in the previous five to ten days. MARUBOZU A marubozu candlestick is one that exhibits no (or very little) upper or lower shadow. For a white candlestick this means that its open is equal to its low, and its close is equal to its high. For a black candlestick it means that its open is equal to its high, and its close is equal to its low. SPINNING TOP A spinning top is candlestick with a small real body and long upper and lower shadows. DOJI A doji is the most extreme case of a spinning top. It occurs when the real body exists as a line (when the days open and close are the same). A long legged doji has long upper and lower shadows. A gravestone doji has a long upper shadow and no lower shadow. A dragonfly doji has no upper shadow and a long lower shadow. And a four price doji has no upper or lower shadows (the open, high, low, and close are the same). STARA star is a small real body that gaps above or below a long candlestick occurring the previous day. UMBRELLA and INVERTED UMBRELLAAn umbrella is similar to a dragonfly doji: a small real body with no upper shadow and a long lower shadow. An inverted umbrella is similar to a gravestone doji: a small real body with a long upper shadow and no lower shadow. ANALYSIS TERMS INDICATOR An indicator is a group of candlesticks (as many as five or as few as one) that meet a set of predetermined criteria. These criteria may include prior trend, real body and/or shadow length, long and short days, opening and closing gaps, etc. Associated with each indicator are a trend (bullish or bearish) and a pattern (reversal or continuation) that should ensue for the short-term. TREND (Tendência)The term trend is used to sum up the general movement of a stocks value over a period of time. Ifa stocks price is generally increasing over a short period of time it is said to be in a bullish trend. If
  14. 14. 14 a stocks price is generally decreasing over a short period of time it is said to be in a bearishtrend. In candlestick charting the previous trend is used as a criteria for identifying most indicators. The method we employ is the Three Line Break graph; a technique that is well-suited to candlestick charting. PATTERN (Padrão)When an indicator is identified, a pattern is associated with it. This pattern could be a Continuationpattern, meaning that if a stock is in a bullish trend it should continue to stay bullish, or if a stock is in a bearish trend it should continue to stay bearish. If the pattern is a Reversal pattern, it means that if a stock is currently bullish it likely to turn bearish, or if it is bearish it is likely to turn bullish RELIABILITY (Confiabilidade) Reliability is a term we use to loosely classify how adequate indicators are at determining theshort-term future of an investment. Some indicators are, of course, more decisive than others (the indicators that take a three or more days develop or those that have strong candlesticks, such as stars or marubozus tend to have a higher rate of success). We have segregated indicators by High, Moderate, and Low reliabilitys based on their success rates on historical market data. Glossary of Candlestick Indicators Bullish Indicators Bearish Indicators • Abandoned Baby • Abandoned Baby • Belt Hold • Advance Block • Breakaway • Belt Hold • Concealing Baby Swallow • Breakaway • Doji Star • Dark Cloud Cover • Dragonfly Doji • Deliberation • Engulfing • Downside Gap Three Methods • Gravestone Doji • Downside Tasuki Gap • Hammer • Doji Star • Harami • Dragonfly Doji • Harami Cross • Engulfing • Homing Pigeon • Evening Doji Star • Inverted Hammer • Evening Star • Kicking • Falling Three Methods • Ladder Bottom • Gravestone Doji • Mat Hold • Hanging Man • Matching Low • Harami • Meeting Lines • Harami Cross • Morning Doji Star • Identical Three Crows • Morning Star • In Neck • Piercing Line • Kicking • Rising Three Methods • Meeting Lines • Separating Lines • On Neck • Side By Side White Lines • Separating Lines • Stick Sandwich • Shooting Star • Three Inside Up • Side By Side White Lines • Three Line Strike • Three Black Crows • Three Outside Up • Three Inside Down • Three Stars In The South • Three Line Strike • Three White Soldiers • Three Outside Down • Tri Star • Thrusting • Unique Three River Bottom • Tri Star
  15. 15. 15 • Upside Gap Three Methods • Two Crows • Upside Tasuki Gap • Upside Gap Two Crows Bullish Indicators Abandoned Baby Bullish Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • First day is usually a long black day • Second day is a doji that gaps in the direction of the previous trend • The third day is a white day, gapping in the opposite direction, with no overlapping shadowsWhat it MeansIn a downtrend, the market bolsters the bearish trend with a long black day and gaps open on thesecond day. However, the second day trades within a small range and closes at or near its open.This scenario definitely shows the potential for a rally, as many positions have been changed.Confirmation of the trend reversal is given by the white third day, and is well defined by theupward gap. Belt Hold Bullish Pattern: Reversal Trend: Bullish Reliability: LowHow to Identify it • A white body occurs in a downtrend with no lower shadowWhat it MeansIn a downtrend, a white body occurs with an open that is also the low for the day. This may signifya rally for the bulls.
  16. 16. 16 Breakaway Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • The first day is a long black day • The second day is a black day that gaps below the first day • The third and fourth days continue to in the direction of the second with lower consecutive closes • The fifth day is a long white day that closes into the gap between the first and second daysWhat it MeansA downtrend sees prices bottoming out and leveling off. The result is a long white day which doesnot close the gap into the body of the first day. This suggests a short term reversal. Concealing Baby Swallow Bullish Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • The first two days are Black Marubozu days • The third day is black day that gaps downward, but trades into the body of the second day • The fourth day is a Black Marubozu day that engulfs the third dayWhat it MeansIn a strong downtrend, highlighted by two consecutive Black Marubozu days, a gapping black daytrades into the body of the previous day. The last day, another Black Marubozu, shows investorsselling off, as it closes at a new low. This provides an opening for the shorts to cover theirpositions. A bullish reversal should ensue.
  17. 17. 17 Doji Star Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • First day is a long black day • Second day is a doji that gaps in the direction of the previous trend • The shadows of the doji should not be longWhat it MeansIn a downtrend, the market bolsters the bears with a long black day and gaps open on the secondday. However, the second day trades within a small range and closes at or near its open. Thisscenario generally shows the potential for a rally, as many positions have been changed.Confirmation of the trend reversal would be a higher open on the next trading day. Hammer / Dragonfly Doji Bullish Pattern: Reversal Trend: Bullish Reliability: Low/ModerateHow to Identify it • Small real body at the upper end of the trading range • Lower shadow at least twice as long as the real body • No (or almost no) upper shadowWhat it MeansThere is a sharp sell off after the market opens during a downtrend. However, by the end of thetrading day, the market closes at or near its high for the day. This signifies a weakening of theprevious bearish sentiment, especially if the real body is white (the close is higher than the openprice). Since the certainty for a Hammer indicator is low, the trend reversal can be confirmed by ahigher open and an even higher close on the next trading day. If the open and the close areidentical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliabilityassociated with it than a Hammer. Engulfing Bullish
  18. 18. 18 Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • A long black day occurs • The second day is a white that completely engulfs the real body of the first dayWhat it MeansOccurring in a downtrend, the Engulfing depicts an opening at a new low, followed by a high buy-in that closes at or above the previous day’s open. This signifies that the downtrend has lostmomentum and the bulls may be gaining strength. The Engulfing indicator is also the first twodays of the Three Outside patterns. Inverted Hammer / Gravestone Doji Bullish Pattern: Reversal Trend: Bullish Reliability: Low/ModerateHow to Identify it • Small real body at the lower end of the trading range • Upper shadow usually no more than twice as long as the real body • No (or almost no) lower shadowWhat it MeansAs the market opens below the close of the previous day, the bulls rally briefly, but not enough toclose above the previous day’s close. As this leaves shorts in a losing position, the InvertedHammer presents the potential for an upcoming rally. Confirmation of the trend reversal would byan opening above the body of the Inverted Hammer on the next trading day. If the open and theclose are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has ahigher reliability associated with it than an Inverted Hammer. Hammer / Dragonfly Doji Bullish
  19. 19. 19 Pattern: Reversal Trend: Bullish Reliability: Low/ModerateHow to Identify it • Small real body at the upper end of the trading range • Lower shadow at least twice as long as the real body • No (or almost no) upper shadowWhat it MeansThere is a sharp sell off after the market opens during a downtrend. However, by the end of thetrading day, the market closes at or near its high for the day. This signifies a weakening of theprevious bearish sentiment, especially if the real body is white (the close is higher than the openprice). Since the certainty for a Hammer indicator is low, the trend reversal can be confirmed by ahigher open and an even higher close on the next trading day. If the open and the close areidentical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliabilityassociated with it than a Hammer. Harami Bullish Pattern: Reversal Trend: Bullish Reliability: LowHow to Identify it • A long black day occurs • The second day is a white day where the real body is completely engulfed by the real body of the firstWhat it MeansAfter a long black day at the low end of a downtrend, a white candlestick opens higher than theprevious day’s close. The price is driven up, as many shorts are covered, which encouragesfurther buy-ins. The Harami indicator should be confirmed with the next trading day’s candlestickfollowing the reversal trend. The Harami pattern is also the first two days of the Three Insidepatterns. Harami Cross Bullish
  20. 20. 20 Pattern: Reversal Trend: Bullish Reliability: LowHow to Identify it • A long black day occurs • The second day is a doji within the real body of the previous dayWhat it MeansAfter a long black day at the low end of a downtrend, the market opens higher than the previousday’s close and closes at the open. The Harami Cross indicator is more definite than the basicHarami indicator, and signifies a reversal for the bulls. Homing Pigeon Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • The first day is a long black day • The second day is a smaller black day that is within the body of the first dayWhat it Means In a downtrend, the bears continue to have their way. However, the second dayopening and closing within the body of the first day suggests an erosion of the downtrend.Ensuing sell-offs, followed by buy-ins could result in a bullish reversal. Inverted Hammer / Gravestone Doji Bullish Pattern: Reversal Trend: Bullish Reliability: Low/ModerateHow to Identify it • Small real body at the lower end of the trading range • Upper shadow usually no more than twice as long as the real body • No (or almost no) lower shadowWhat it Means
  21. 21. 21As the market opens below the close of the previous day, the bulls rally briefly, but not enoughto close above the previous day’s close. As this leaves shorts in a losing position, the InvertedHammer presents the potential for an upcoming rally. Confirmation of the trend reversal would byan opening above the body of the Inverted Hammer on the next trading day. If the open and theclose are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has ahigher reliability associated with it than an Inverted Hammer. Kicking Bullish Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • The first day is a Black Marubuzo day • The second day is a White Marubuzo day that gaps upwardWhat it MeansThis pattern is a strong sign that the market is headed upward. With this indicator, the previousmarket direction is not as important as with other indicators. Ladder Bottom Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • Three black days occur with consecutively lower opens and closes • The fourth day is black with some upper shadow • The fifth day is a white day that opens above the body of the fourth dayWhat it MeansIn a considerable downtrend, the shorts may have a chance to sell and take in any profits by thefourth day. This results in a gap upward on the fifth day. If the body of the fifth day is long, or thevolume of trading is high, a bullish reversal has likely occurred. Mat Hold Bullish
  22. 22. 22 Pattern: Continuation Trend: Bullish Reliability: HighHow to Identify it • The first day is a long white day • The second day gaps up and is a black day • The second, third, and fourth days have small real bodies and follow a brief downtrend pattern, but stay within the range of the first day • The fifth day is a long white day that closes above the close of the first dayWhat it MeansThe Mat Hold pattern is similar to the Rising Three Methods pattern. In an uptrend, a long whiteday occurs, following by three days of small real bodies that fall into a short downtrend. On thefifth day, the bulls come in strong to close at a new high. It appears that attempts to reverse thetrend occurred, but failed. The upward trend should continue. Matching Low Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • The first day is a long black day • The second day is a black day with a close equivalent to the first day’s closeWhat it Means In a downtrend two black days occur with equal closes. This suggests short-term support, and can cause a reversal on the next day of trading. Meeting Lines Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • The first day is a long black day, and has a body that is lower than the previous trend
  23. 23. 23 • The second day is a long white day, and has a body that is also lower than the previous trend. • Both days have identical closesWhat it Means In a downtrend two days open below the previous trend. Even though thesecond day open low, it rallies to close at the close of the previous day. This typically means abenchmark has be defined by traders, and a reversal is likely. Morning Doji Star Bullish Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • First day is a long black day • Second day is a doji that gaps in the direction of the previous trend • The third day is a white dayWhat it Means In a downtrend, the market bolsters the bearish trend with a long black day andgaps open on the second day. However, the second day trades within a small range and closes ator near its open. This scenario generally shows the potential for a rally, as many positions havebeen changed. Confirmation of the trend reversal is given by the white third day. The Morning DojiStar is a fully realized bullish Doji Star pattern. Morning Star Bullish Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • First day is a long black day • Second day is a small day that gaps in the direction of the previous trend • The third day is a white dayWhat it Means In a downtrend, the market bolsters the bearish trend with a long black dayand gaps open on the second day. However, the second day trades within a small range andcloses at or near its open. This scenario generally shows the potential for a rally, as manypositions have been changed. Confirmation of the trend reversal is given by the white third day. Piercing Line Bullish
  24. 24. 24 Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • First day is a long black day • Second day is a white day with an open below previous days low • Second days close is within but above the midpoint of the first days bodyWhat it Means In a downtrend the market gaps open, but rallies strong to close above theprevious days midpoint. This pattern suggests an opportunity for the bulls to enter the market andsupport the trend reversal. The Piercing Line pattern is the opposite of the Dark Cloud Cover. Rising Three Methods Bullish Pattern: Continuation Trend: Bullish Reliability: HighHow to Identify it • The first day is a long white day • The second, third, and fourth days have small real bodies and follow a brief downtrend pattern, but stay within the range of the first day • The fifth day is a long white day that closes above the close of the first dayWhat it Means In an uptrend, a long white day occurs, following by three days of small realbodies that fall into a short downtrend. On the fifth day, the bulls come in strong to close at a newhigh. This small downtrend, in between two long white days, is consistent with investors taking abreak. The upward trend should continue. Separating Lines Bullish Pattern: Continuation Trend: Bullish Reliability: LowHow to Identify it • The first day is a black day • The second day is a white day that has the same opening price as the first day
  25. 25. 25What it Means In an uptrend a long black day occurs. The second day, however, picks upwhere the previous day’s trading left off and rallies to close higher. This suggests that the uptrendshould remain intact. Side-by-Side White Lines Bullish Pattern: Continuation Trend: Bullish Reliability: HighHow to Identify it • The first day is a white day • The second day is a white day that gaps up • The third day is a white day of about the same body length and close as the second dayWhat it Means In an uptrend three white days occur with an upward gap between the first twoand a similar body length and close for the last two. This suggests a definite building of theuptrend. Stick Sandwich Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • The first day is a black day • The second day is a white day that trades above the close of the first day • The third day is a black day with a close equivalent to the first dayWhat it Means This pattern shows three days consecutive higher opens, but results in aneventual close equal to the first day’s close. This pattern is indicative of the market finding asupport price. The overall trend has the potential to reverse, building on the new support price. Three Inside Up Bullish
  26. 26. 26 Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • A bullish Harami pattern occurs in the first two days • The third day is a white day with a higher close than the second dayWhat it Means This pattern is a more reliable addition to the standard Harami pattern. Thethird day is confirmation of the bullish trend reversal. Three-Line Strike Bullish Pattern: Continuation Trend: Bullish Reliability: LowHow to Identify it • Three long white days occur with consecutively higher closes • The fourth day opens higher and closes below the open of the first dayWhat it Means The black day drives prices back to where they were at the start of the pattern.If the bullish trend was strong before the pattern, then it should continue. Three Outside Up Bullish Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • A bullish Engulfing pattern occurs in the first two days • The third day is a white day with a higher close than the second dayWhat it Means This pattern is a more reliable addition to the standard Engulfing pattern. Thethird day is confirmation of the bullish trend reversal. Three Stars in the South Bullish
  27. 27. 27 Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • The first day is a long black day with a long lower shadow • The second day is a black day similar to the first, but smaller, with a low above the first days low • The third day is a small Black Marubozu that lies within the second days trading rangeWhat it Means In a downtrend three black days occur. However each day is consecutivelyweaker within the trend, suggesting that some buying is occurring. Small rallies on each day keepthe market’s lows from reaching that of the first day. All indications are that the tide is slowlyturning toward the bulls. Three White Soldiers Bullish Pattern: Reversal Trend: Bullish Reliability: HighHow to Identify it • Three long white days occur, each with a higher close than the previous day • Each day opens within the body of the previous day and closes near the high of the dayWhat it Means In a downtrend three long white days occur with consecutively higher closes.Generally this suggests future market fortitude, as a reversal is in progress that is building onmoderate upward steps. Tri Star Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it
  28. 28. 28 • A doji occurs on three consecutive trading days • The second doji gaps below the first and thirdWhat it Means In an long downtrend, the market shows signs of a rally as the real bodies havegrown progressively smaller. The trend culminates with the bullish Tri Star, identifying that manybearish positions may be reversing. Unique Three River Bottom Bullish Pattern: Reversal Trend: Bullish Reliability: ModerateHow to Identify it • The first day is a long black day • The second is a black Harami day, with a shadow that sets a new low • The third day is a short white day which closes below the close of the second dayWhat it Means Two black days occur consecutively, with the second day’s body within that ofthe first day. However, the long lower shadow shows the bearish tide may be reversing. The thirdday opens lower, reinforcing the indecision of the market and ends in a rally. The bulls should takeover. Upside Gap Three Methods Bullish Pattern: Continuation Trend: Bullish Reliability: ModerateHow to Identify it • Two long white days occur with a gap between them • The third day is a black day that fills the gap between the first two daysWhat it Means An uptrend is followed by two long white days with a gap upward betweenthem. The third day is a black day, but one that closes the gap between the first two. This shouldbe seen as support for the upward trend, and may be caused by temporary profit taking. Upside Tasuki Gap Bullish
  29. 29. 29 Pattern: Continuation Trend: Bullish Reliability: ModerateHow to Identify it • The first two days are white days with an opening gap • The third day is a black day that opens within the body of the second day and closes within the gap of the first two daysWhat it Means In an uptrend a white day occurs, followed by another white day that gaps up. Ablack day ensues, and is likely the result of temporary profit taking. The trend should continue tofollow the direction of the upward gap. Bearish Indicators Abandoned Baby Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • First day is usually a long white day • Second day is a doji that gaps in the direction of the previous trend • The third day is a black day, gapping in the opposite direction, with no overlapping shadowsWhat it Means In an uptrend, the market builds strength on a long white day and gaps open onthe second day. However, the second day trades within a small range and closes at or near itsopen. This scenario definitely shows an erosion of confidence in the current trend. Confirmation ofthe trend reversal is the black third day, which is given extra validation by the downward gap. Advance Block Bearish
  30. 30. 30 Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • Three long white days occur, each with a higher close than the previous day • Each day opens within the body of the previous day and closes near the high of the day • Each days body is significantly smaller than the previous days body • The second and third days should exhibit long upper shadowsWhat it Means In an uptrend three long days occur with consecutively higher closes. Thispattern is similar to the Three White Soldiers pattern, however, in this case, each successive dayis weaker than the one preceding it. This suggests that the previous rally is losing strength, andpreparing for a reversal. Belt Hold Bearish Pattern: Reversal Trend: Bearish Reliability: LowHow to Identify it • A black body occurs in an uptrend with no upper shadowWhat it Means In an uptrend, a black body occurs with an open that is also the high for the day.This may cause many positions to be sold, perpetuating a bearish reversal. Breakaway Bearish Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • The first day is a long white day • The second day is a white day that gaps above the first day
  31. 31. 31 • The third and fourth days continue to in the direction of the second with higher consecutive closes • The fifth day is a long black day that closes into the gap between the first and second daysWhat it Means An uptrend sees a bullish surge that eventually weakens. The result is a longblack day that does not close the gap into the body of the first day. This suggests a short-termreversal. Dark Cloud Cover Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • First day is a long white day • Second day is black with an open above the high of the previous day • Second day closes within but below the midpoint of the first day’s bodyWhat it Means In an uptrend the market gaps open, but loses ground to fall below the midpointof the previous day. The Dark Cloud Cover pattern suggests an opportunity for the shorts tocapitalize on the next day’s open: a warning sign to bullish investors. The Dark Cloud Coverpattern is the opposite of the Piercing line pattern. Deliberation Bearish Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • Two long white days occur, the second with a higher close than the first • A third white day is a spinning top or doji that gaps above the second dayWhat it Means In an uptrend three white days occur with consecutively higher closes. Thispattern is a derivative of the Three White Soldiers pattern and is very similar to the Advance Blockpattern. Even though an uptrend continues, the small third body suggests that the previous rally islosing strength and preparing for a reversal.
  32. 32. 32 Downside Gap Three Methods Bearish Pattern: Continuation Trend: Bearish Reliability: ModerateHow to Identify it • Two long black days occur with a gap between them • The third day is a white day that fills the gap between the first two daysWhat it Means A downtrend is followed by two long black days with a gap downward betweenthem. The third day is a white day, but one that closes the gap between the first two. This shouldbe seen as support for the downward trend. Downside Tasuki Gap Bearish Pattern: Continuation Trend: Bearish Reliability: ModerateHow to Identify it • The first two days are black days with an opening gap • The third day is a white day that opens within the body of the second day and closes within the gap of the first two daysWhat it Means In a downtrend a black day occurs, followed by another black day that gapsdown. A white day ensues, and is likely the result of investors temporarily taking advantage of thelow buying price. The trend should continue to follow the direction of the downward gap. Doji Star Bearish Pattern: Reversal Trend: Bearish Reliability: Moderate
  33. 33. 33How to Identify it • First day is a long white day • Second day is a doji that gaps in the direction of the previous trend • The shadows of the doji should not be longWhat it Means In an uptrend, the market builds strength on a long white day and gaps open onthe second day. However, the second day trades within a small range and closes at or near itsopen. This scenario generally shows erosion of confidence in the current trend. Confirmation of atrend reversal would be a lower open on the next trading day. Hanging Man / Dragonfly Doji Bearish Pattern: Reversal Trend: Bearish Reliability: Low/ModerateHow to Identify it • Small real body at the upper end of the trading range • Lower shadow at least twice as long as the real body • No (or almost no) upper shadowWhat it Means There is a sharp sell off after the market opens during an uptrend. However, bythe end of the trading day, the market closes at or near its high for the day. This signifies thepotential for further sell-offs. Since the certainty for a Hanging Man indicator is low, the trendreversal can be confirmed by a black candlestick or a large down gap on the next trading dayaccompanied by a lower close. If the open and the close are identical, the indicator is considereda Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hanging Man. Engulfing Bearish Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • A long white day occurs • The second day is a black day that completely engulfs the real body of the first dayWhat it Means Occurring in an uptrend, the Engulfing depicts an opening at a new high,followed by a high volume sell-off that closes at or below the previous day’s open. This signifiesthat the uptrend has been hurt and the bears may be gaining strength. The Engulfing indicator isalso the first two days of the Three Outside patterns. Evening Doji Star Bearish
  34. 34. 34 Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • First day is a long white day • Second day is a doji that gaps in the direction of the previous trend • The third day is a black dayWhat it Means In an uptrend, the market builds strength on a long white day and gaps open onthe second day. However, the second day trades within a small range and closes at or near itsopen. This scenario generally shows an erosion of confidence in the current trend. Confirmation ofthe trend reversal is the black third day. The Evening Doji Star indicator is the fully realizedbearish Doji Star pattern. Evening Star Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • First day is a long white day • Second day is a small day that gaps in the direction of the previous trend • The third day is a black dayWhat it Means In an uptrend, the market builds strength on a long white day and gaps open onthe second day. However, the second day trades within a small range and closes at or near itsopen. This scenario generally shows an erosion of confidence in the current trend. Confirmation ofthe trend reversal is the black third day. Falling Three Methods Bearish Pattern: Continuation Trend: Bearish Reliability: HighHow to Identify it • The first day is a long black day
  35. 35. 35 • The second, third, and fourth days have small real bodies and follow a brief uptrend pattern, but stay within the range of the first day • The fifth day is a long black day that closes below the close of the first dayWhat it Means In a downtrend, a long black day occurs, following by three days of small realbodies that fall into a short uptrend. On the fifth day, the bears come in strong to close at a newlow. This small uptrend, in between two long black days, is consistent with investors taking abreak. The downward should continue. Shooting Star / Gravestone Doji Bearish Pattern: Reversal Trend: Bearish Reliability: Low/ModerateHow to Identify it • Small real body at the lower end of the trading range • Prices gap open • Upper shadow usually at least three times as long as the real body • No (or almost no) lower shadowWhat it Means The market gaps open above the previous day’s close in an uptrend. It rallies toa new high then loses strength and closes near its low: a bearish change of momentum.Confirmation of the trend reversal would by an opening below the body of the Shooting Star onthe next trading day. If the open and the close are identical, the indicator is considered aGravestone Doji. The Gravestone Doji has a higher reliability associated with it than a ShootingStar. Hanging Man / Dragonfly Doji Bearish Pattern: Reversal Trend: Bearish Reliability: Low/ModerateHow to Identify it • Small real body at the upper end of the trading range • Lower shadow at least twice as long as the real body • No (or almost no) upper shadowWhat it Means There is a sharp sell off after the market opens during an uptrend. However, bythe end of the trading day, the market closes at or near its high for the day. This signifies thepotential for further sell-offs. Since the certainty for a Hanging Man indicator is low, the trendreversal can be confirmed by a black candlestick or a large down gap on the next trading dayaccompanied by a lower close. If the open and the close are identical, the indicator is considereda Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hanging Man.
  36. 36. 36 Harami Bearish Pattern: Reversal Trend: Bearish Reliability: LowHow to Identify it • A long white day occurs • The second day is a black day that is completely engulfed by the real body of the first dayWhat it Means After a long white day at the high end of an uptrend, a black candlestick openslower than the previous day’s close. Trading is typically light and the day ends with a close lowerthan the open and within body of the first day; a signal that the current uptrend is losing strength.The Harami indicator should be confirmed with the next trading day’s candlestick following thereversal trend. The Harami pattern is also the first two days of the Three Inside patterns. Harami Cross Bearish Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • A long white day occurs • The second day is a doji that is within the range of the previous day’s real bodyWhat it Means After a long white day at the high end of an uptrend, the market opens lowerthan the previous day’s close. Trading is typically light and the day ends with a close at the sameprice as the open and within body of the first day; an even stronger signal than the basic Haramipattern that the current uptrend is losing strength. Identical Three Crows Bearish
  37. 37. 37 Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • Three black days occur, each with a close below the previous day • Each day opens at the close of the previous dayWhat it Means In an uptrend three long black days occur that open at the previous day’s close.This pattern is similar to the Three Black Crows pattern but typifies a more severe loss of buyingpower. A bearish trend is almost certain. In Neck Bearish Pattern: Continuation Trend: Bearish Reliability: ModerateHow to Identify it • The first day is a long black day • The second is a white day that opens below the low of the previous day and closes barely above or equal to the close of the previous dayWhat it Means The In Neck pattern is a less severe relative of the On Neck pattern. A smallrally is built by the second day, but ends near the close of the previous black day. Although, as inthe case of the On Neck pattern, the downtrend should prevail, it may take longer to evolve. Kicking Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • The first day is a White Marubuzo day
  38. 38. 38 • The second day is a Black Marubuzo day that gaps downwardWhat it Means This pattern is a strong sign that the market is headed downward. With thisindicator, the previous market direction is not as important as with other indicators. Meeting Lines Bearish Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • The first day is a long white day, and has a body that is above the previous trend • The second day is a long black day, and has a body that is also above the previous trend. • Both days have identical closesWhat it Means In an uptrend two days open above the previous trend. Even though the secondday opens high, it rallies to close at the close of the previous day. This typically means abenchmark has be defined by traders, and a reversal is likely. The bearish Meeting Lines patternis similar to, but less reliable than the Dark Cloud Cover pattern. On Neck Bearish Pattern: Continuation Trend: Bearish Reliability: ModerateHow to Identify it • The first day is a long black day • The second is a white day (not long) that opens below the low of the previous day and closes at the low of the previous dayWhat it Means The On Neck pattern is typical in a downtrend. The fact that a small rally is builtby the second day, but ends at the low of the previous black day indicates that the bears shouldprevail. Separating Lines Bearish
  39. 39. 39 Pattern: Continuation Trend: Bearish Reliability: LowHow to Identify it • The first day is a white day • The second day is a black day that has the same opening price as the first dayWhat it Means In downtrend a long white day occurs. The second day, however, picks upwhere the previous day’s trading left off and rallies to close lower. This suggests that thedowntrend should remain intact. Shooting Star / Gravestone Doji Bearish Pattern: Reversal Trend: Bearish Reliability: Low/ModerateHow to Identify it • Small real body at the upper end of the trading range • Prices gap open • Upper shadow usually at least three times as long as the real body • No (or almost no) lower shadowWhat it Means The market gaps open above the previous day’s close in an uptrend. It rallies toa new high then loses strength and closes near its low: a bearish change of momentum.Confirmation of the trend reversal would by an opening below the body of the Shooting Star onthe next trading day. If the open and the close are identical, the indicator is considered aGravestone Doji. The Gravestone Doji has a higher reliability associated with it than a ShootingStar. Side-by-Side White Lines Bearish Pattern: Continuation Trend: Bearish Reliability: ModerateHow to Identify it
  40. 40. 40 • The first day is a black day • The second day is a white day that gaps down • The third day is a white day of about the same body length and close as the second dayWhat it Means In a downtrend a black day is followed by two white that are gapped below thefirst day. This typically means the shorts are covering their positions, and no reversal is about tooccur. The downtrend should remain intact for the near future. Three Black Crows Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • Three black days occur, each with a close below the previous day • Each day opens within the body of the previous day • Each day closes near or at its lowsWhat it Means In an uptrend three long black days occur with consecutively lower closes. Thispattern suggests that the market has been at a high price for too long, and investors are beginningto compensate for it. Three Inside Down Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • A bearish Harami pattern occurs in the first two days • The third day is a black day with a lower close than the second dayWhat it Means This pattern is a more reliable addition to the standard Harami pattern. The thirdday is confirmation of the bearish trend reversal. Three-Line Strike Bearish
  41. 41. 41 Pattern: Continuation Trend: Bearish Reliability: LowHow to Identify it • Three long black days occur with consecutively lower closes • The fourth day opens lower, but closes above the open of the first dayWhat it Means The white day drives prices back to where they were at the start of the pattern.If the bearish trend was strong before the pattern, then it should continue. Three Outside Down Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it • A bearish Engulfing pattern occurs in the first two days • The third day is a black day with a lower close than the second dayWhat it Means This pattern is a more reliable addition to the standard Engulfing pattern. Thethird day is confirmation of the bearish trend reversal. Thrusting Bearish Pattern: Continuation Trend: Bearish Reliability: LowHow to Identify it • The first day is a long black day • The second is a white day that opens below the low of the previous day and closes into the body of the previous day, but below the midpointWhat it Means The Thrusting pattern is a weaker relative of the On Neck and In Neckcontinuation patterns. A rally is built by the second day, and closes well into the body of theprevious black day. However, since the second day’s close doesn’t even reach the midpoint of thefirst day’s body, the bulls will likely be discouraged and the downtrend will continue.
  42. 42. 42 Tri Star Bearish Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • A doji occurs on three consecutive trading days • The second doji gaps above the first and thirdWhat it Means In an long uptrend, the market shows signs of weakness as the real bodies havegrown progressively smaller. The trend culminates with the Tri Star, identifying that there is littlestrength left, and signaling a return of the bears. Two Crows Bearish Pattern: Reversal Trend: Bearish Reliability: ModerateHow to Identify it • The first day is a long white day • The second day is a black day that gaps above the first day • The third day is a black day that opens within the body of the second day and closes within the body of the first dayWhat it Means In an uptrend the market closes lower after an opening gap upwards. This isfollowed by another black day which fills the gap. The Two Crows pattern suggests the erosion ofthe uptrend, and foreshadows a trend reversal. Upside Gap Two Crows Bearish Pattern: Reversal Trend: Bearish Reliability: HighHow to Identify it
  43. 43. 43 • The first day is a long white day continuing in an uptrend • The second day is black and gaps up • The third day is also black and engulfs the previous black day, but still closes above the first dayWhat it Means In an uptrend the market falters, but still closes above the previous day’s close.The next day, it falters more but remains above the first day’s close. This is a signal that themarket can no longer hold its position and is in for a bearish ride. Bullish Patterns Abandoned Baby Belt Hold Breakaway Hammer/ Engulfing Dragonfly Doji Concealing Baby Swallow Harami Harami Cross Homing Pigeon Inverted Hammer/ Gravestone Doji Kicking Ladder Bottom Matching Low Morning Doji Star Meeting Lines
  44. 44. 44 Piercing Line Stick Sandwich Morning Star Three Inside Up Three Outside Up Three Stars In The South Tri Star Unique Three River Doji Star Bottom Rising Three Methods Mat Hold Separating LinesSide By Side White Three White Soldiers Upside Gap Three Lines MethodsThree Line Strike Upside Tasuki Gap
  45. 45. 45 Bearish Patterns Abandoned Baby Advance Block Belt Hold Dark Cloud Cover Breakaway Deliberation Engulfing Evening Doji Star Evening Star Hanging Man/ Dragonfly Doji Harami Harami Cross Kicking Meeting LinesIdentical Three Crows Shooting Star/ Three Inside Down Three Outside Down Gravestone Doji
  46. 46. 46 Tri Star Two Crows Upside Gap Two Crows Doji Star Downside Gap Three Methods Downside Tasuki GapFalling Three Methods In Neck On Neck Separating Lines Three Black Crows Side By Side White Lines Three Line Strike Thrusting
  47. 47. 47Introduction to Candlesticks PrintHistoryThe Japanese began using technical analysis to trade rice in the 17th century. While this early version oftechnical analysis was different from the US version initiated by Charles Dow around 1900, many of theguiding principles were very similar: • The "what" (price action) is more important than the "why" (news, earnings, and so on). • All known information is reflected in the price. • Buyers and sellers move markets based on expectations and emotions (fear and greed). • Markets fluctuate. • The actual price may not reflect the underlying value.According to Steve Nison, candlestick charting first appeared sometime after 1850. Much of the credit forcandlestick development and charting goes to a legendary rice trader named Homma from the town ofSakata. It is likely that his original ideas were modified and refined over many years of trading eventuallyresulting in the system of candlestick charting that we use today.FormationIn order to create a candlestick chart, you must have a data set that contains open, high, low and closevalues for each time period you want to display. The hollow or filled portion of the candlestick is called"the body" (also referred to as "the real body"). The long thin lines above and below the body represent thehigh/low range and are called "shadows" (also referred to as "wicks" and "tails"). The high is marked by thetop of the upper shadow and the low by the bottom of the lower shadow. If the stock closes higher thanits opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price
  48. 48. 48and the top of the body representing the closing price. If the stock closes lower than its opening price, afilled candlestick is drawn with the top of the body representing the opening price and the bottom of thebody representing the closing price.Compared to traditional bar charts, many traders consider candlestick charts more visually appealing andeasier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately atrader can see compare the relationship between the open and close as well as the high and low. Therelationship between the open and close is considered vital information and forms the essence ofcandlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filledcandlesticks, where the close is less than the open, indicate selling pressure.Long versus Short BodiesGenerally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely,short candlesticks indicate little price movement and represent consolidation.
  49. 49. 49Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further theclose is above the open. This indicates that prices advanced significantly from open to close and buyerswere aggressive. While long white candlesticks are generally bullish, much depends on their position withinthe broader technical picture. After extended declines, long white candlesticks can mark a potential turningpoint or support level. If buying gets too aggressive after a long advance, it can lead to excessivebullishness.Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further theclose is below the open. This indicates that prices declined significantly from the open and sellers wereaggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a futureresistance level. After a long decline a long black candlestick can indicate panic or capitulation.Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do not haveupper or lower shadows and the high and low are represented by the open or close. A White Marubozuforms when the open equals the low and the close equals the high. This indicates that buyers controlled theprice action from the first trade to the last trade. Black Marubozu form when the open equals the high andthe close equals the low. This indicates that sellers controlled the price action from the first trade to the lasttrade.
  50. 50. 50Long versus Short ShadowsThe upper and lower shadows on candlesticks can provide valuable information about the trading session.Upper shadows represent the session high and lower shadows the session low. Candlesticks with shortshadows indicate that most of the trading action was confined near the open and close. Candlestick withlong shadows show that traded extended well past the open and close.Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during thesession, and bid prices higher. However, sellers later forced prices down from their highs, and the weakclose created a long upper shadow. Conversely, candlesticks with long lower shadows and short uppershadows indicate that sellers dominated during the session and drove prices lower. However, buyers laterresurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops.One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body(whether hollow or filled) shows little movement from open to close, and the shadows indicate that bothbulls and bears were active during the session. Even though the session opened and closed with little
  51. 51. 51change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers couldgain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinningtop indicates weakness among the bulls and a potential change or interruption in trend. After a long declineor long black candlestick, a spinning top indicates weakness among the bears and a potential change orinterruption in trend.DojiDoji are important candlesticks that provide information on their own and as components of in a number ofimportant patterns. Doji form when a securitys open and close are virtually equal. The length of the upperand lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign.Alone, doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and futureconfirmation. The word "Doji" refers to both the singular and plural form.Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open and closewould be considered more robust, it is more important to capture the essence of the candlestick. Dojiconvey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below theopening level during the session, but close at or near the opening level. The result is a standoff. Neitherbulls nor bears were able to gain control and a turning point could be developing.
  52. 52. 52Different securities have different criteria for determining the robustness of a doji. A $20 stock could form adoji with a 1/8 point difference between open and close, while a $200 stock might form one with a 1 1/4point difference. Determining the robustness of the doji will depend on the price, recent volatility, andprevious candlesticks. Relative to previous candlesticks, the doji should have a very small body that appearsas a thin line. Steven Nison notes that a doji that forms among other candlesticks with small real bodieswould not be considered important. However, a doji that forms among candlesticks with long real bodieswould be deemed significant.Doji and TrendThe relevance of a doji depends on the preceding trend or preceding candlesticks. After an advance, or longwhite candlestick, a doji signals that the buying pressure is starting to weaken. After a decline, or long blackcandlestick, a doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supplyand demand are becoming more evenly matched and a change in trend may be near. Doji alone are notenough to mark a reversal and further confirmation may be warranted.
  53. 53. 53After an advance or long white candlestick, a doji signals that buying pressure may be diminishing andthe uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continuedbuying pressure is required to sustain an uptrend. Therefore, a doji may be more significant after an uptrendor long white candlestick. Even after the doji forms, further downside is required for bearish confirmation.This may come as a gap down, long black candlestick, or decline below the long white candlesticks open.After a long white candlestick and doji, traders should be on the alert for a potential evening doji star.After a decline or long black candlestick, a doji indicates that selling pressure may be diminishing and thedowntrend could be nearing an end. Even though the bears are starting to lose control of the decline, furtherstrength is required to confirm any reversal. Bullish confirmation could come from a gap up, long whitecandlestick or advance above the long black candlesticks open. After a long black candlestick and doji,traders should be on the alert for a potential morning doji star.Long-legged DojiLong-legged doji have long upper and lower shadows that are almost equal in length. These doji reflect agreat amount of indecision in the market. Long-legged doji indicate that prices traded well above and below
  54. 54. 54the sessions opening level, but closed virtually even with the open. After a whole lot of yelling andscreaming, the end result showed little change from the initial open.Dragon Fly DojiDragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. Theresulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly dojiindicate that sellers dominated trading and drove prices lower during the session. By the end of the session,buyers resurfaced and pushed prices back to the opening level and the session high.The reversal implications of a dragon fly doji depend on previous price action and future confirmation. Thelong lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers stillloom. After a long downtrend, long black candlestick, or at support, a dragon fly doji could signal apotential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the longlower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation isrequired for both situations.Gravestone DojiGravestone doji form when the open, low and close are equal and the high creates a long upper shadow. Theresulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow.Gravestone doji indicate that buyers dominated trading and drove prices higher during the session.However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and thesession low.As with the dragon fly doji and other candlesticks, the reversal implications of gravestone doji depend onprevious price action and future confirmation. Even though the long upper shadow indicates a failed rally,the intraday high provides evidence of some buying pressure. After a long downtrend, long blackcandlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal.After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potentialbearish reversal. Bearish or bullish confirmation is required for both situations.Before turning to the single and multiple candlestick patterns, there are a few general guidelines to cover.

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