Candlestick
The Japanese Candlestick theory
forms the foundation of most Technical Analysis used to read and analyze
the market movements and determine where the market is heading. Here we
will list some of the most common candlestick patterns and what it
represents.
3 Soldiers |
 3 Soldiers |
Three white
soldiers, the soldiers are the frontline people during war times. They
are the people fight for their country. When you see three green
candlestick after a prolong downtrend, then it is time for you to go for
a war. When three consecutive green candlestick is seen follow the
soldiers. If you see especially with high volumes then you can be pretty
sure that the reversal has already happened.
|
3 Black Crows |
 3 Black Crows |
Three black
crows, is directly opposite of Three soldiers. When you see three red
candlestick after a prolong uptrend, then it is time for you to sell
short. The Japanese are the people they strongly believe that bad news
has got wings. They use the word crows as they see a bad omen. When
three consecutive Crows candlestick is seen follow the crows. If you
see especially with high volumes then you can be pretty sure that the
reversal has already happened. |
Stick Sandwich |
 Stick Sandwich |
Stick
sandwich, which is a bottom reversal pattern, occurs after a prolong
downtrend. The condition is you will see a long red candlestick which
dictates the current trend and the next candlestick you see a green
candlestick which is a first warning signal that the trend is about to
change. The next candlestick again you see a long red candlestick which
closes almost the same as the first candlestick. This pattern looks like
an Engulfing pattern but the candlestick is different colour. The main
condition is the two candlestick must have the same colour and same
closing price and the in between candlestick must have a different
colour. |
The
Japanese Candlestick theory forms the foundation of most Technical
Analysis used to read and analyze the market movements and determine
where the market is heading. Here we will list some of the most common
candlestick patterns and what it represents. |
|
Engulfing |
 Engulfing (Bullish) |
Bullish
Engulfing, as the name explains the green candlestick engulfs the red
candlestick. It happens at the bottom of the market trend. There are two
conditions for this to take place.
The market must be in a clear
downtrend and the two candles must engulf; the second real body (green)
must engulf the first. The engulfing pattern also acts as a support and
resistance. |
 Engulfing (Bearish) |
Bearish
engulfing is the opposite of the bullish engulfing. Also, the market
must be in a clear uptrend. The engulfing pattern also acts as support
and resistance. |
|
|
Dark Cloud Cover |
 Dark Cloud Cover |
This pattern
is called Dark-cloud cover. The condition for this pattern to occur is
the market must be in a strong uptrend and the market must open above
the high of the previous bar and the closing price must be towards the
low. The pattern is reliable, depending how low it closes. The highest
high of the two candles acts as a resistance. Can you look at the charts
and identify the patterns? |
|
|
Piercing Line |
 Piercing Line |
The piercing
pattern is the opposite of the Dark – cloud cover and it happens in the
bottom of the market. As the name explains, the price pierces the
previous bar. The condition for this pattern to occur is the market must
be in a strong downtrend and the market must open below the low of the
previous bar and closing price must be towards the high. This pattern is
reliable on depending on how high it closes. Remember the lowest low
also acts as support. Can you look at the charts and identify the
patterns? |
|
|
Harami |
 Harami (Bullish)
 Harami (Bearish) |
Harami
pattern is a small real body that is contained within the long black or
white real body. Harami in Japanese means pregnant. Harami can be
bullish or bearish, depending on its position. If it happens after a
prolong uptrend then it is Bearish Harami. In western, they call it as
inside day. The range of the current candlestick is within the previous
candlestick. Fundamentally, it means the market is undecided and doesn’t
know which way to move. You need to have confirmation when you see this
signal. |
|
|
The
Japanese Candlestick theory forms the foundation of most Technical
Analysis used to read and analyze the market movements and determine
where the market is heading. Here we will list some of the most common
candlestick patterns and what it represents. |
|
Doji |
 Doji |
This is one
pattern that we would consider very reliable; looking at it carefully
can give you a lot of conclusion. It is called Doji in Japanese, Just by
looking at it fundamentally; you can conclude the bulls and bears have
neither won the battle.
They can’t decide which way
to move, i.e. the opening and closing price is almost the same. This
pattern is very reliable especially if it happens after a pro long
uptrend or down trend. One condition to apply in trading with this trend
is, the market must give you a confirmation that it has already turned.
Don’t just enter blindly, immediately after you see a Doji.
|
 Gravestone Doji |
This is
called a gravestone Doji in Japanese. It has got its name, the bulls
who bought after they see gravestone Doji in an uptrend and going to get
killed. Especially you see a next day to be a lower close. Can try to
identify the Doji’s and convince yourself that it really works.
|
 Dragon Fly Doji |
This is
called dragon fly Doji. It is the opposite of the gravestone Doji. It
usually occurs on the bottom. The name is given because, after you see
this pattern and you turn bullish you can fly like dragon fly.
|
|
|
Belt Hold |
 Belt Hold (Bullish)
 Belt Hold (Bearish) |
Bullish belt
hold line is a strong white or green candle that opens on the low of the
session and closes on the high with a very small higher shadow. Bearish
belt –hold line is a strong black or red candle that opens on the high
of the session and closes on the low with a very small lower shadow. The
longer the height of the belt holds with the heavy volume the more
significant it becomes. |
|
|
Counter Attack |
 Counter Attack (Bullish) |
Bullish
Counter Attack lines are formed when opposite coloured candles have the
same closing price. The bullish counter attack lines gap opens on the
low and closes on the previous closing price.
|
 Counter Attack (Bearish) |
Bearish
counter attack lines are formed when opposite candles have the same
closing price. The bearish counter attack lines gap opens on the high
and closes on the previous closing price.
|
|
|
Tweezers |
 Tweezer Top
 Tweezer Top |
Tweezers top
and bottom are with two candles with matching highs or lows. When we say
matching means it must be same price or one or two ticks variance.
| |
The
Japanese Candlestick theory forms the foundation of most Technical
Analysis used to read and analyze the market movements and determine
where the market is heading. Here we will list some of the most common
candlestick patterns and what it represents. |
|
Windows / Gap |
 Windows / Gap |
Windows are
another term used for gaps. Whenever there is a sudden shock in the
market, the windows happen. When the market opened above the previous
close, then a rising window has occurred. Windows are difficult to trade
on short term but can be very reliable on long term. Whenever you see a
window, you have to wait and see whether that window is a genuine or
false. If the window is a genuine the high or low of the previous candle
acts as support and resistance and any retracement you can take entry.
Windows have to be closed at any point of time and the markets don’t
like windows. When the market opened below the previous closing price
then a falling window has occurred.
|
|
|
Abandon Baby |
 Abandon Baby Top
 Abandon Baby Bottom |
It is a very
rare top or bottom reversal signal. The condition is it must have a Doji
star which gaps away from the prior session. The gap must be very
obvious; the shadows of the prior candlestick and the later candlestick
must not be touched. The westerners call this pattern as Island
reversals. The Island reversal can be one or more candlestick. Mr. Steve
Nison said in his book that it has to be the Doji, but we believe that
any other reversal pattern has significance. Abandoned baby can be
bullish or bearish after a prolong downtrend or uptrend.
|
|
|
Morning Star |
 Morning Star |
Morning star
means if enter long after you see this pattern you see a bright future.
The Morning star comprises of a tall red candlestick which denotes the
current trend and after that you see a small real body which opens in a
gap and closes above the open. This candlestick can be either red or
green but must be a narrow range candlestick. The next day should be a
up close or green candlestick for us to confirm a morning star pattern.
|
|
|
Evening Star |
 Evening Star |
Evening star
meaning, enter short after you see this pattern. The Evening star
comprises of a tall green candlestick which denotes the current trend
and after that you see a small real body which opens in a gap and closes
below the open. This candlestick can be either red or green but must be
a narrow range candlestick. The next day should be a down close or red
candlestick, for us to confirm an Evening star pattern.
| |