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Candlestickstars Candlestickstars Presentation Transcript

  • CANDLESTICK STARS
  • What Are Candlestick Stars? Stars have small real bodies which gap away from a large real body thatprecedes them. The key rule to a star is that its real body does not overlapthe previous candles real body. There are several variations of the starpattern like the morning star, evening star, doji star, and shooting star.These basic patterns are the beginning of candlestick technical analysiseducation.
  • Psychology of the Candlestick Star Pattern As a star has a small real body, it represents indecision by both the bulls and the bears.While the larger trend may be strongly up or strongly down, the presence of the starindicates that the prevailing direction may have come under profit taking or that theother side has actually taken control. Remember, the previous bar should be a strong barin the direction of the trend which indicates that the bulls (in an up trending market) orthe bears (in a down trending market) are in control. This strength in direction is whatmakes the appearance of the star much more important as the conviction has dissipated.
  • Morning StarThe morning star candle is a bottom reversal signal that comes after an extendeddowntrend. This pattern is a three candle reversal setup. The first two bars are thetypical star setup discussed above. The major difference with this pattern is thethird candle in the formation. It is a very strong green candle, which does not haveto be a gap, which closes at least half way into the first candle. The further it eatsin the first bar, the more bullish the formation.
  • Outside of morning star showing itself, look for other indications that thispattern is for real. For example, you want to see high volume in the thirdcandle, indicating strength. It is noticed that the morning star works verywell when it occurs at previous support levels. This adds that extra layer ofconfidence to the analysis (continued)
  • This is a beautiful morning star setup. Lets consider why. First of all, themorning star came at previous support near the 60.37 level. The starcandle came in the form of a hammer. There was high volume that camealong with the hammer and this was an even bigger sign that this levelwould hold as support. The following day, the stock accelerated with a gaphigher and closed well into the top half of the first bar. As I said earlier, thepresence of this pattern does not indicate an immediate rally. As you cansee, the gap created from the second to third bar was back filled. Smallergaps, such as this one, tend to get filled in the short term more times thannot. Even if one would have waited for the high of the third candle inmorning star to be broken above, five points could have been made in ashort amount of time.
  • Evening StarThe evening star candlestick is the bearish version of the morning star. It is atop reversal pattern that occurs after a sustained up trend. The eveningstar also a three candle pattern with the first candle being a strongly bullishcandle with good price spread. The second candle is the star while thethird is red real body that closes well into the first candle. Again, as withthe bullish morning star, the third candle in the evening star does not haveto be in the form of a gap. Here are a couple of factors that increase thechances of this pattern succeeding :1. The real bodies of all 3 candles do not overlap on each other2. The third candle closes well into the first one; preferably regaining 75%of the candle3. Volume should lighten up on the first candle and increase on the third.
  • Doji Stars When a doji represents the star within the morning star and evening star,the formations are known as the morning doji star and evening doji star. Adoji is a candle that lacks a real body, meaning the open and close of the barare the same or have a very small difference. It has a strong significanceafter substantial advances or declines. The lack of direction that the dojiillustrates can offer a potent reversal signal, especially if it is followed by acandle in the anticipated direction. Therefore, when a doji represents thestar of the morning and evening star pattern, you need to take notice.
  • Morning Doji Star and Evening Doji Star If you think about the psychology of this setup, the first gap came in an almost exhaustive fashion. The stock was already in a strong uptrend or downtrend and then it made a gap which closed right near its open. This was the first sign that the directional pressure was fading. Now, with the third candle gapping in the opposite direction of the trend, we now have confirmation that a more significant trend reversal has taken place.
  • Shooting Star And Gravestone DojiThe final star variation is the shooting star which occurs after a strong uptrend(or the inverted hammer that occurs after a strong move down). The shootingstar has a long upper shadow with a small real body at the lower end of thecandle. This pattern usually presents itself as a sign of a short term correctionrather than a more potent reversal signal. The shooting star is basically tellsthat the market rally could not be sustained. The market opened at or near itslows, shot up much higher and then reversed to close near the open.
  • Ideally, the real body of the shooting star should gap away from the previouscandles real body. While it is not necessary, it adds confirmation to thevalidity of the impending reversal. When a shooting star forms near aresistance level, which also was created with a shooting star, a very powerfulresistance level is created. As mentioned before, the shooting star is a shortterm topping formation and any break above the high of this candle negatesthe ramifications of the formation.There is one variation to the shooting star, it is known as the gravestone doji.The gravestone doji is a shooting star with virtually no real body, the openand close are exactly the same. This formation is more powerful than thetypical shooting star as portends a more serious reversal.
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  • • Registered office: Kotak Securities Limited, 1st Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400021. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230/INE 011207251, OTC INB 200808136, MCXSX INE 260808130.• Disclaimer: Investments in securities are subject to market risks, please read the SEBI prescribed Combined RDD prior to investing.• * Awarded Best Brokerage Firm in India by AsiaMoney in 2006, 2007, 2008 and 2009