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)