Origin: Japan several centuries ago used to measure price of rice. USE: Identify price patterns, lend to trend line construction Bar charts treat all data more or less equal. Candle make it easier to tell which was higher Open or close Must be confirmed by other indicators like Bowties or price patterns, MACD & Stochastic or RSI Some Markets do not have all data (Open price, Close Price, High of the day, Low of the day)
Two parts: 1) real body 2) Shadow/wick Upper Shadow indicates Buying pressure Lower Shadow indicates Selling Pressure Bullish Real body happens when the Opening price is higher than the Close Bearish Real Body when the Close is higher than the Open
Happens when the open and close are at the same price with a long shadow or wick. Interpretation depends on context. Indicates Balance between Buyers and Sellers Dragon Fly Doji: Open and close same with long selling pressure Gravestone Doji: Open and Close the same with long Buying Pressure Represents indecision or a Tie between the Bulls and Bears.
The following patterns signal a Reversal of or break in the current trend.
The hammer signals a reversal after a down-trend control has shifted from sellers to buyers. The shadow should be at least twice the height of the body. If it occurs after an up trend it is called a 'hanging man' and is a bearish signal. A gravestone is identified by open and close near the bottom of the trading range. This is really the converse of a hammer and signals a reversal when it occurs after an up-trend.
(Kabuse) As in Real Life Dark clouds signal possible rain. – Implies lower prices. Consists of 2 days 1 st Strong White Real body 2 nd black body, in which the close occurs in the lower half of the previous white body.
(Kirikorni) If the second bar does not reach half way up the 1 st it’s a sign of continued weekness. If it does then it’s a sign of a down-trend reversal
(Tsutsumi) Only significant after a prolonged price move.
Common phenomena in candle charts Come in 4 different reversal types. They are a combination of Wide bodies and Spinning tops.
Morning Star Heralds a new day (upmove) Bullish reversal indicator after a downtrend. Consists of two long real bodies separated by a gaped up (bodies should not overlap but shadows can) spinning top The third candle should be White and should result in a closing price more than halfway up the body of the first Candle.
Precursor of night, Opposite characteristics and implications of a morning star… Reversal of an uptrend.
A Doji Star formation Although Bearish, is weaker than Evening Star - the doji represents indecision. Occurs after a lengthy rally and Consists of a Gap and a doji line. With a Shooting Star the body on the second bar must be near the low - at the bottom end of the trading range. The upper shadow must be longer. This is also a weaker reversal signal after a trend. Both of these patterns require confirmation - by the next bar closing below half-way on the first bar.
Signal that the current trend will continue… provided that the other indicators support the same beielf
A) Upside Gap (Tasuki) “Windows” A tasuki Gap Occurs after an advance. Uptrend white line gap followed by a black line that does not close the gap. This pattern is usually followed by higher prices * If gap is filled the formation deteriorates into an upside gap with one crow and therefore loses its bullish portent. B) Upside Gap and 2 crows C) Downside Gap
Rising and Falling Three Methods (Uwa and Shita banare Sanpoo Ohdatekomi) Powerful White candle followed by 3-4 small decending black lines. With low volume - indicates a fine balance between buyers and sellers Final part is a Strong white body taking the price to a new high & Volume spike. Falling is opposite except that volume is not significant
On the Graph Tab (Enter your Symbol) Left Side Under Graph Links Select Interactive Chart Bottom Left of new Graph Click CLONE button Maximize Window (if you are blind like me) Top Left Default setting ‘Bar’ Click down arrow to your right, select ‘Candle’ Apply Favorite Study Set (Workshop if you are new)
Candlesticks Basic understanding How to use them
Introduction to Candlesticks <ul><li>Use to time your entry in a stock or option </li></ul><ul><li>Identifies possibility of current trend reversal or continuation </li></ul><ul><li>Visually Appealing vs. Bar Charts </li></ul><ul><li>Must be confirmed by another indicator </li></ul><ul><li>Only for markets that have all data </li></ul>
Look For the 3 C’s Content Clarity Conformation
What Candlesticks Tell Us <ul><li>Indicators that signal </li></ul><ul><ul><li>A trend reversal </li></ul></ul><ul><ul><li>Conformation of trend </li></ul></ul><ul><ul><li>Indecision in strength of the Trend </li></ul></ul>
Candlesticks <ul><li>Bullish Real </li></ul><ul><li>Body Color: </li></ul><ul><li>-Hollow </li></ul><ul><li>-White </li></ul><ul><li>-Green </li></ul>Bearish Real Body Color: -Shaded -Black -Red
Where Can You Find Candlesticks on the Investools Website
The Interactive Chart <ul><li>On the Graph Tab (Enter your Symbol) </li></ul><ul><li>Left Side Under Graph Links Select Interactive Chart </li></ul><ul><li>Bottom Left of new Graph Click CLONE button </li></ul><ul><li>Maximize Window (if you are blind like me) </li></ul><ul><li>Top Left Default setting ‘Bar’ Click down arrow to your right, select ‘Candle’ </li></ul><ul><li>Apply Favorite Study Set (Workshop if you are new, or Bowtie covered later) </li></ul>
Candlesticks Review <ul><li>Helpful to time entry an exit points </li></ul><ul><li>Illustrates the battle between Buyers and Sellers. </li></ul><ul><li>Not reliable to use as only indicator </li></ul><ul><li>Easier to see direction of price moves </li></ul>