This is Mike. He’s lost thousands of dollars using the wrong charts. Sound familiar?
Meet John. He’s made thousands of dollars in the market. What does John do differently?
John uses Candlestickcharts to track stock prices.
Candlestick charts were created in the 1700’s for tracking rice prices.
Manuhisa Homma made a huge fortune with over 100 consecutive winning trades by using candlesticks!
Candlestick charts are easier to read than bar charts.
They also make it easier to tell whether the open or close price was higher.
Candlesticks have 3 major parts Upper wick/shadow (buying pressure) Real body Lower wick/shadow (selling pressure)
Bullish candlesticks have hollow bodies, showing that the closing price is higher than the opening price. High Close Open Low
Bearish candlesticks have solid bodies, showing that the closing price is lower than the opening price. High Open Close Low
There are many different types of candlesticks.
Doji The open and close are very close together, creating a very small body. Represent indecision between Bulls and Bears
DragonflyDoji Open and close are the same with long selling pressure.
GravestoneDoji Open and close are the same with long buying pressure.
Spinning Top Doji Small real bodies with equal buying and selling pressure.
Hammer (Hanging Man) Shadow should be at least twice the height of the body.Signals a reversal after a downtrend.Control has shifted from sellers to buyers.
Inverted Hammer (Shooting Star) Converse of the Hammer (Hanging Man).Signals a reversal after an up trend.Control has shifted from buyers to sellers.
tells us what the market did, but doesn’t help us predict the future. A single candlestick
Candlestick patterns can give us information about how prices are going to move.
Some patterns tell us there will be a reversal.
Dark Cloud CoverReversal signal after an up-trend Implies lower prices Strong white body on 1st Candle Strong filled body on the 2nd candle The close of the 2nd candle must be more than half-way downthe body of the first candle.
Piercing Line Reversal Signal after a down-trend. Strong filled body on 1st candle. The 2nd candle must have a strong white body. The close of the 2ndcandle must be more than half-way up the body of the first candle.
Engulfing PatternsOne bullish and one bearish candle. The 2nd candle must fully cover the 1st candle. Bullish or Bearish, according to the second candle.
Morning StarBullish indicator after a downtrend Close of the 3rd candle should be in the top half of the 1st candle.
Evening StarOpposite of a Morning Star Pattern Reversal of an uptrend The close of the 3rd candle should be in the lower half of the 1st candle.
Doji Star Bearish reversal of an uptrend Weaker than the Evening Star Requires confirmation with next candle closing in the bottom half of the 1st candle.
Shooting Star Pattern Bearish reversal of an uptrend. Similar to Doji Star Pattern. 2nd candle is a Shooting Star. Requires confirmation with next candle closing in the bottom half of the 1st candle.
Upside Gap and 2 Crows Signals reversal of an uptrend. Gap between 1st (white) candlestick and 2nd (filled) candlestick. 3rd candlestick is also filled and engulfs the 2nd candlestick without filling the gap.
Harami Large candlestick followed by a small candlestick of the opposite color/direction Signals reversal of current trend
Other candlestick patterns tell us the current trend will continue.
Gaps and Windowsare a type of candlestick pattern where there is a gap between two adjacent candlesticks.
Upside Gap Occurs in an uptrend. Gap between the two white candlesticks is not filled by the shaded candlestick. Uptrend will continue.
Downside Gap Occurs in a downtrend. Gap between the two filled candlesticks is not filled by the white candlestick. Downtrend will continue.
Rising Three Methods Indicated continuation of uptrend. Powerful white candle followed by 3-4 small descending filled candles. Low volume. Final part is another strong white candle with a new high price.
Indicates continuation of a downtrend. Opposite of Rising Three Methods. Powerful filled candle followed by 3-4 small ascending white candles. Low volume. Final part is another strong filled candle with a new low price. Falling Three Methods
As always, don’t forget the 3 C’s ContentWhat does the candlestick or pattern tell you?ClarityIs the candlestick pattern clear?ConfirmationDo other indicators confirm what the candlestick chart is telling you?