Do your trading charts give you a headache?

This is Mike. He’s lost thousands of dollars usingthe wrong charts.

Sound familiar?

Meet John. He’s made thousands of dollars in the market. What does

John do differently?

John uses Candlestick charts to track stock prices.

Candlestick charts were created in

the 1700’s for tracking rice prices.

Manuhisa Homma made a huge fortune with over 100 consecutive winning trades by using candlesticks!

Candlestick charts are easier to read than bar charts.

They also make it easier to tell whether the open or close price was higher.

Upper wick/shadow (buying pressure)

Real body

Lower wick/shadow (selling pressure)

Candlesticks have 3 major parts

High

Close

Open

Low

Bullish candlesticks have hollow bodies, showing that the closing price is higher than the opening price.

Bearish candlesticks have solid bodies, showing that the closing price is lower than the opening price.

High

Close

Open

Low

There are many different types of

candlesticks.

Doji The open and close are very close together, creating a very small body.

Represent indecision between Bulls and Bears

Dragonfly DojiOpen and close are the same with long selling pressure.

Gravestone DojiOpen and close are the same with long buying pressure.

Spinning Top DojiSmall real bodies with equal buying and selling pressure.

Hammer (Hanging Man)Shadow should be at least twice the height of the body.Signals a reversal after a downtrend.Control has shifted from sellers to buyers.

Inverted Hammer (Shooting Star)Converse of the Hammer (Hanging Man).Signals a reversal after an up trend.Control has shifted from buyers to sellers.

tells us what the market did, but doesn’t help us predict the future.

A single candlestick

Candlestick patterns can give us information about how prices are going to move.

Some patterns tell us there will be a reversal.

Dark Cloud CoverReversal signal after an up-trendImplies lower pricesStrong white body on 1st CandleStrong filled body on the 2nd candleThe close of the 2nd candle must be more than half-way downthe body of the first candle.

Piercing Line ReversalSignal after a down-trend.Strong filled body on 1st candle.The 2nd candle must have a strong white body. The close of the 2nd candle must be more than half-way up the body of the first candle.

Engulfing PatternsOne bullish and one bearish candle.The 2nd candle must fully cover the 1st candle.Bullish or Bearish, according to the second candle.

Morning StarBullish indicator after a downtrendClose of the 3rd candle should be in the top half of the 1st candle.

Evening StarOpposite of a Morning Star PatternReversal of an uptrendThe close of the 3rd candle should be in the lower half of the 1st candle.

Doji StarBearish reversal of an uptrendWeaker than the Evening StarRequires confirmation with next candle closing in the bottom half of the 1st candle.

Bearish reversal of an uptrend.Similar to Doji Star Pattern.2nd candle is a Shooting Star. Requires confirmation with next candle closing in the bottom half of the 1st candle.

Shooting Star Pattern

Signals reversal of an uptrend.Gap between 1st (white) candlestick and 2nd (filled) candlestick.3rd candlestick is also filled and engulfs the 2nd candlestick without filling the gap.

Upside Gap and 2 Crows

HaramiLarge candlestick followed by a small candlestick of the opposite color/directionSignals reversal of current trend

Other candlestick patterns tell us the current trend will continue.

Gaps and Windows are a type of candlestick pattern where there is a gap between two adjacent candlesticks.

Upside Gap

Occurs in an uptrend.Gap between the two white candlesticks is not filled by the shaded candlestick.Uptrend will continue.

Downside Gap

Occurs in a downtrend.Gap between the two filled candlesticks is not filled by the white candlestick.Downtrend will continue.

Rising Three MethodsIndicated continuation of uptrend.Powerful white candle followed by 3-4 small descending filled candles.Low volume.Final part is another strong white candle with a new high price.

Indicates continuation of a downtrend.Opposite of Rising Three Methods.Powerful filled candle followed by 3-4 small ascending white candles.Low volume.Final part is another strong filled candle with a new low price.

Falling Three Methods

Content What does the candlestick or pattern tell you?

ClarityIs the candlestick pattern clear?

ConfirmationDo other indicators confirm what the candlestick chart is telling you?

As always, don’t forget the 3 C’s

ResourcesWebsiteswww.IncredibleCharts.comwww.StockCharts.comwww.HotCandleCharts.com

www.CandleCharts.com www.HardRightEdge.com

BooksTechnical Analysis –

PRINGCandlesticks - Steve

Nision