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17 Candlestick

This document defines and describes 17 different candlestick formations that can be used when analyzing financial markets. Some of the formations discussed include doji lines, engulfing patterns, evening stars, hammers, and hanging men. Candlestick formations provide insight into market sentiment and can be used to identify reversal patterns and signal changes in market trends. Mastering candlestick techniques allows traders to better understand price action in financial markets and spot trading opportunities.

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673 views6 pages

17 Candlestick

This document defines and describes 17 different candlestick formations that can be used when analyzing financial markets. Some of the formations discussed include doji lines, engulfing patterns, evening stars, hammers, and hanging men. Candlestick formations provide insight into market sentiment and can be used to identify reversal patterns and signal changes in market trends. Mastering candlestick techniques allows traders to better understand price action in financial markets and spot trading opportunities.

Uploaded by

Paquiro2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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17 Money Making

CandleStick
Formations

you can use today


in MarketClub

Candlestick lines and charts


Candlestick lines and charts -traditional Japanese charts whose
individual lines look like candles,
hence their name. The candlestick line
is comprised of a real body and
shadows. See "Real body" and "shadow."

Counterattack lines -- following a


black (white) candlestick in a
downtrend (uptrend), the market gaps
sharply lower (higher) on the opening
and then closes unchanged from the
prior session's close. A pattern which
reflects a stalemate between the bulls
and bears.

Belt-hold line -- there are bullish and

bearish belt holds. A bullish belt hold is a tall


white candlestick that opens on its low. It is
also called a white opening shaven bottom.
At a low price area, this is a bullish signal. A
bearish belt hold is a long black candlestick
which opens on its high. Also referred to as
a black opening shaven head. At a high price
level, it is considered bearish.

Dark-cloud cover -- a bearish reversal

signal. In an uptrend a long white


candlestick is followed by a black
candlestick that opens above the prior
white candlestick's high. It then closes well
into the white candlestick's real body.

Doji -- a session in which the open and

close are the same (or almost the same).


There are different varieties of doji lines
(such as a gravestone or long-legged
doji) depending on where the opening
and closing are in relation to the entire
range. Doji lines are among the most
important individual candlestick lines.
They are also components of important
candlestick patterns.

Doji star -- a doji line which gaps

from a long white or black candlestick.


An important reversal pattern with
confirmation during the next session.

Engulfing patterns -- there is a


bullish and bearish engulfing pattern.
A bullish engulfing pattern is
comprised of a large whie real body
which engulfs a small black real body
in a downtrend. The bullish engulfing
pattern is an important bottom
reversal. A bearish engulfing pattern
(a major top reversal pattern), occurs
when selling pressure overwhelms
buying pressure as refleccted by a long
black real body engulfing a small white
real body in an uptrend.

Evening star -- a major top reversal

pattern formed by three candlesticks.


The first is a tall white real body, the
second is a small real body (white or
black) which gaps higher to form a
star, the third is a black candlestick
which closes well into the first session's
white real body.

Evening doji star -- the same as an


evening star except the middle
candlestick (i.e., the star portion) is a
doji instead of a small real body.
Because there is a doji in this patter, it
is considered more bearish than the
regular evening star.

Hammer --- an important bottoming

candlestick line. The hammer and the


hanging man are both the same line,
that is a small real body (white or
black) at the top of the session's range
and a very long lower shadow with
little or no upper shadow. When this
line appears during a downtrend it
becomes a bullish hammer. For a
classic hammer, the lower shadow
should be at least twice the height of
the real body.

Hanging man -- an important top

reversal. The hanging man and the


hammer are both the same type of
candlestick line (i.e., a small real body
(white or black), with little or no upper
shadow, at the top of the session's range
and a very long lower shadow). But
when this line appears during an
uptrend, it becomes a bearish hanging
man. It signals the market has become
vulnerable, but there should be bearish
confirmation the next session (i.e., a
black candlestick session with a lower
close or a weaker opening) to signal a
top. In principle, the hanging man's
lower shadow should be two or three
times the height of the real body.

Harami -- a two candlestick pattern in

which a small real body holds within the


prior session's unusually large real
body. The harami implies the
immediately preceding trend is
concluded and that the bulls and bears
are now in a state of truce. The color of
the second real body can be white or
black. Most often the second real body is
the opposite color of the first real body.

Harami cross -- a harami with a doji


on the second session instead of a small
real body. An important top (bottom)
reversal signal especially after a tall
white (black) candlestick line. It is also
called a petrifying pattern.

Morning star -- a major bottom


reversal pattern formed by three
candlesticks. The first is a long black
real body, the second is a small real
body (white or black) which gaps lower
to form a star, the third is a white
candlestick that closes well into the first
session's black real body.

Inverted hammer -- following a

downtrend, this is a candlestick line


that has a long upper shadow and a
small real body at the lower end of the
session. There should be no, or very
little, lower shadow. It has the same
shape as the bearish shooting star, but
when this line occurs in a downtrend, it
is a bullish bottom reversal signal with
confirmation the next session (i.e., a
white candlestick with a higher close or
a higher opening).

Morning doji star -- the same as a


morning star except the middle
candlestick is a doji instead of a small
real body. Because there is a doji in this
pattern it is considered more bullish
than the regular morning star.

Tweezers top and bottom -- when the same highs or lows are tested the

next session or within a few sessions. They are minor reversal signals that take
on extra importance if the two candlesticks that comprise the tweezers pattern
also form another candlestick indicator. For example, if both sessions of a
harami cross have the same high it could be an important top reversal since
there would be a tweezers top and a bearish harami cross made by the same
two candlestick lines.
Graphics & text from: Japanese Candlestick Charting Techniques by Steve Nison

Footnote -- "Japanese candlestick chart analysis, so called because the lines

resemble candlesticks, thus begins Steve Nisons introduction to his great


book on Japanese Candlestick charting titled: Japanese Candlestick Charting
Techniques. I believe that Steve has done a great service in introducing this
ancient art of charting to the western world. I do not normally endorse books,
nor am I getting paid to do it. I just I think any trader interested in the art of
trading will derive much knowledge from Steves wonderful book.

J. Adam Hewison
President INO.com
Co-creator of MarketClub.com

410.867.2100

Marketclub.com

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