17 money making candlestick formations

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Graphics & text from: Japanese Candlestick Charting Techniques by Steve Nison

17 Money MakingCandlestick Formations




Candlestick Line

}RealBody

UpperShadow

LowerShadow

Candlestick lines and charts -- tra-ditional Japanese charts whoseindividual lines look like candles,hence their name. The candle-stick line is comprised of a realbody and shadows. See "Realbody" and "shadow."

1




Belt-hold line -- there are bullish and bear-ish belt holds. A bullish belt hold is a tallwhite candlestick that opens on its low. It isalso called a white opening shaven bottom.At a low price area, this is a bullish signal. Abearish belt hold is a long black candlestickwhich opens on its high. Also referred to asa black opening shaven head. At a highprice level, it is considered bearish.

Bullish Bearish

Belt Hold Lines

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Counterattack Lines

Bullish Bearish

Counterattack lines -- following a black(white) candlestick in a downtrend (up-trend), the market gaps sharply lower(higher) on the opening and then closesunchanged from the prior session's close.A pattern which reflects a stalemate be-tween the bulls and bears.

3




Dark-cloud cover -- a bearish reversal sig-nal. In an uptrend a long white candlestickis followed by a black candlestick thatopens above the prior white candlestick'shigh. It then closes well into the whitecandlestick's real body.

Dark-Cloud Cover

4




Doji --a session in which the open and closeare the same (or almost the same). Thereare different varieties of doji lines (such as agravestone or long-legged doji) dependingon where the opening and closing are inrelation to the entire range. Doji lines areamong the most important individual candle-stick lines. They are also components ofimportant candlestick patterns.

Grave-StoneLong

Legged

Doji

5




Engulfing Patterns

Engulfing patterns -- there is a bullish andbearish engulfing pattern. A bullish engulfingpattern is comprised of a large whie real bodywhich engulfs a small black real body in a down-trend. The bullish engulfing pattern is an impor-tant bottom reversal. A bearish engulfing pattern(a major top reversal pattern), occurs when sell-ing pressure overwhelms buying pressure asrefleccted by a long black real body engulfing asmall white real body in an uptrend.

BearishBullish

6




Doji Star

Doji star -- a doji line which gaps froma long white or black candlestick. Animportant reversal pattern with confir-mation during the next session.

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Evening star -- a major top reversalpattern formed by three candlesticks.The first is a tall white real body, thesecond is a small real body (white orblack) which gaps higher to form a star,the third is a black candlestick whichcloses well into the first session's whitereal body.

Evening Star

8




Evening doji star -- the same as anevening star except the middle candle-stick (i.e., the star portion) is a dojiinstead of a small real body. Becausethere is a doji in this patter, it is consid-ered more bearish than the regularevening star.

Evening Doji Star

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Hammer

10

Hammer --- an important bottoming candle-stick line. The hammer and the hanging manare both the same line, that is a small realbody (white or black) at the top of the session'srange and a very long lower shadow withlittle or no upper shadow. When this lineappears during a downtrend it becomes abullish hammer. For a classic hammer, thelower shadow should be at least twice theheight of the real body.




Hanging Man

11

Hanging man -- an important top reversal. The hangingman and the hammer are both the same type of candlestickline (i.e., a small real body (white or black), with little or noupper shadow, at the top of the session's range and a very longlower shadow). But when this line appears during an uptrend,it becomes a bearish hanging man. It signals the market hasbecome vulnerable, but there should be bearish confirmationthe next session (i.e., a black candlestick session with a lowerclose or a weaker opening) to signal a top. In principle, thehanging man's lower shadow should be two or three times theheight of the real body.




Harami

Harami -- a two candlestick pattern inwhich a small real body holds within the priorsession's unusually large real body. Theharami implies the immediately precedingtrend is concluded and that the bulls andbears are now in a state of truce. The colorof the second real body can be white orblack. Most often the second real body isthe opposite color of the first real body.

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Harami cross -- a harami with a dojion the second session instead of asmall real body. An important top (bot-tom) reversal signal especially after atall white (black) candlestick line. It isalso called a petrifying pattern.

Harami Cross

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Inverted Hammer

15

Inverted hammer --- following a down-trend, this is a candlestick line that has a longupper shadow and a small real body at thelower end of the session. There should beno, or very little, lower shadow. It has thesame shape as the bearish shooting star, butwhen this line occurs in a downtrend, it is abullish bottom reversal signal with confirma-tion the next session (i.e., a white candlestickwith a higher close or a higher opening).




Morning star -- a major bottom reversalpattern formed by three candlesticks. Thefirst is a long black real body, the second isa small real body (white or black) whichgaps lower to form a star, the third is a whitecandlestick that closes well into the firstsession's black real body.

Morning Star

15




Morning Doji Star

Morning doji star -- the same as amorning star except the middle candle-stick is a doji instead of a small realbody. Because there is a doji in thispattern it is considered more bullishthan the regular morning star.

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Piercing Pattern

Piercing pattern -- a bottom reversalsignal. In a downtrend, a long blackcandlestick is followed by a gap lowerduring the next session. This sessionfinishes as a strong white candlestickwhich closes more than halfway into theprior black candlestick's real body. Com-pare to the on-neck line, the in-neck line,and the thrusting line.

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Tops

Bottoms

Tweezers

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Tweezers top and bottom -- when the samehighs or lows are tested the next session or withina few sessions. They are minor reversal signalsthat take on extra importance if the two candle-sticks that comprise the tweezers pattern also formanother candlestick indicator. For example, if bothsessions of a harami cross have the same high itcould be an important top reversal since therewould be a tweezers top and a bearish haramicross made by the same two candlestick lines.

17 money making candlestick formations

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