Download - Candlestick Charting
Candlestick Charting
Our Challenge: We're painfully aware that technical competence (analysis) does not translate to competent trading
We have BB's, RSI, MACD.... even OHLC bar charts. Why Candlesticks?
Sort/control constant disruptions and outside influences
Visual “management” and ability to see data relationships more easily
Fast insight to short-term trading psychology
Candlestick Charting (cont.) Price is influenced by investors'
psychologically driven emotions of fear, greed, and hope. Compared to OHLC bar charts:
Candlesticks read/display changes in the makeup of investors interpretations of value
Candlesticks show interactions between buyers and sellers
Candlestick Charting (cont.) Candlestick Basics
The Real Body (JITTAI) The box indicates the
difference between the open and close
If real body is black (red, or solid), then closing price was lower than the opening price.
If real body is white (green, or outline), closing price was higher than opening price
Candlestick Charting (cont.) Candlestick Basics (cont.)
The Shadows (KAGE) Small thin lines
extending above and/or below the body
Represent the high and low prices during the trading period
Candlestick Charting (cont.) Candlestick Lines (Basis: Trading
Day)
“Long Days” Large price movement
for the day Large relative to what?
To the last 5-10 days!
Candlestick Charting (cont.) Candlestick Lines:
“Short Days” Small price movement
for the day Small relative to what?
To the last 5-10 days!
Candlestick Charting (cont.) Candlestick Lines:
“Marubozu” Close-cropped or close-
cut No shadows
extending from the real body at either the open or close, or both
Candlestick Charting (cont.) Candlestick Lines:
Black “Marubozu” Extremely weak line Often becomes part of
bearish continuation or bullish reversal especially if occurring during downtrend
Being black indicates weakness of continuing downtrend (often first day of many bullish reversal patterns)
Candlestick Charting (cont.) Candlestick Lines:
White “Marubozu” Extremely strong line Often becomes first part
of bullish continuation or bearish reversal
Candlestick Charting (cont.) Candlestick Lines:
Closing “Marubozu” No shadow extending
from the close price end, regardless of real body color
Black Closing is considered a weak line
White Closing is considered a strong line
Candlestick Charting (cont.) Candlestick Lines:
Opening “Marubozu” No shadow extending
from the open price end, regardless of color
If white, strong bullish line. If black, weak or bearish line.
Opening Marubozu is not as strong as the Closing Marubozu
Candlestick Charting (cont.) Candlestick Lines:
Spinning Tops (KOMA) Small real bodies with
upper and lower shadows greater in length than the body.
Represents indecision between bulls and bears
Color and actual shadow length is not important
Candlestick Charting (cont.) Candlestick Lines:
DOJI (goof or bungle) Real body of candle line
is so small that open and close prices are virtually equal
Open and close within only a few ticks
A perfect Doji has same open and close price
Candlestick Charting (cont.) Candlestick Lines:
DOJi (cont.) If previous days are mostly
Doji, then current Doji day not important
Doji occurring alone is a signal, warning of impending trend change
Doji preceded by a long white day in an uptrend is meaningful (bearish Doji Star)
Steve Nison: Doji are better indicators of change at tops rather than bottoms
Candlestick Charting (cont.) Candlestick Lines:
Long-Legged Doji (juji) Long upper and lower
shadows Clear indecision Close at or very near
opening price (at center of day's range)
Candlestick Charting (cont.) Candlestick Lines:
Gravestone Doji (tohba) Graves of those who died in
battle Failure to rally If upper shadow is quite
long, then much more bearish
At a market top, specific version of shooting star
Some sources claim gravestone doji can only occur on “ the ground, not in the air”. Consequently, a bullish indicator at a market low.
Candlestick Charting (cont.) Candlestick Lines:
Dragonfly Doji (tonbo) Open and close are at the
high for the day Special case of the Hanging
Man and Hammer lines If shadow or tail is very long,
then called a Takuri line which during a downward trend is extremely bullish.
Candlestick Charting (cont.) Candlestick Lines:
Four Price Doji All four price components
equal So rare that data integrity is
suspect Represents complete and
total uncertainty in direction
Candlestick Charting (cont.) Candlestick Lines:
Stars (HOSHI) Small body gaps above or
below previous day's long body.
Ideally, the gap encompasses the shadows but not always necessary
Indicates some uncertainty Contribute to many candle
patterns, primarily reversal patterns
Candlestick Charting (cont.) Candlestick Lines:
Paper Umbrella (KARAKASA) Strong reversal implications Strong similarity with
Dragonfly Doji Hammer (market bottom) Hanging Man (market top)