candlestick charts provide profitable swing trades

Candlestick Charts Provide Profitable Swing Trades


Swing Trading, a relatively new trading technique. The advent of computers over the

past seven to ten years has opened the opportunity for investors to trade stocks and

other investments from their home or office. The vast improvement in charting services

on the Internet now provides a method for individuals to take advantage of the quick

fluctuations in stock prices. Swing trading provides investors a huge opportunity to

make profits. As the market sentiments evolve, long term investing becomes less of a

dominant form of investing. Swing trading has many advantages over long term

investing, especially when implementing with a timing technique such as candlestick

trading.

Candlestick analysis has "common sense" built into its signals. Understanding the

investor sentiment prepares the candlestick investor to maximize profits in short term

swing trading. To get into a trade at the optimal point, anticipating when a trend is about

to reverse, is crucial. Understanding how the common investor thinks and reacts

permits fast profits to be made by swing trading.

When most trends reverse, they do so with vigor. The initial day or two of a trend

reversal can produce magnificent profits. Swing trading is centered upon taking

advantage of that initial move. If the trader has the tools to find and exploit these moves,

swing trading becomes a profitable and comfortable form of extracting profits from the

market. Our contention is that the candlestick signals ARE the tools needed.

Swing trading requires the alignment and concentration of events to maximize profits.

Long-term investing does not require the stringent perusal of profit parameters. How

often have you heard somebody rationalize about a setback in their position, "Oh well,

I’m in it for the long term." This statement is often uttered instead of taking a progressive

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stance towards one's investment goals.

Swing trading represents the exact opposite. An investor trying to maximize profits from

a two to ten day holding period has to have analyzed all elements. When swing trading,

the establishment of a trade has to be exacting in its purpose, making a profit NOW in

that trade.

The innate characteristics built into candlestick signals produce the parameters that

make swing trading successful. The recognition of a reversal in a trend can be visually

depicted in the signals. For the aggressive swing trader, knowing how the signals are

formed can produce trades that pinpoint the exact point in which to enter a trade.

Additionally, the same indications that get the candlestick swing trader into a trade will

alert the trader when it is time to get out.

As seen in the following chart, notice the Doji signals at each turn. Knowing what to do

after each signal creates the format for profitable swing trading. Knowing the simple

rules about what to do once observing a Doji has the candlestick swing trader in and out

of trades at the optimal points.




Learning the methods to evaluate the signals makes swing trading an easy program to

extract profits out of the market consistently. Candlestick signals provide two valuable

facets. First, the signal searches locate the high potential profitable swing trades. The

searches can be constructed to find the signals that occur at the best positions during a

trend movement. Finding a candlestick buy signal when stochastics are oversold or

searching for a gap up after a Doji are a couple of examples on how to fully utilize the

search capabilities. The second facet is the pinpointing when to get into and out of a

trade as explained earlier.

Swing trading concentrates on the alignment of parameters to maximize profits. The

candlestick signals add the dimension of allowing successful trades to run, as well as

showing when a trade has fizzled

The Major Japanese Candlestick Patterns

There are really only 12 major Candlestick patterns that need to be committed to

memory. The Japanese Candlestick trading signals consist of approximately 40

reversal and continuation patterns. All have credible probabilities of indicating

correct future direction of a price move. The following dozen signals illustrate the

major signals. The definition of "major" has two functions. Major in the sense that

they occur in price movements often enough to be beneficial in producing a

ready supply of profitable trades as well as clearly indicating price reversals with

strength enough to warrant placing trades.

Utilizing just the major Japanese Candlesticks trading signals will provide more

than enough trade situations for most investors. They are the signals that

investors should contribute most of their time and effort. However, this does not




mean that the remaining patterns should not be considered. Those signals are

extremely effective for producing profits. Reality demonstrates that some of them

occur very rarely. Other formations, although they reveal high potential reversals,

may not be considered as strong a signal as the major signals.

Here are a few of the major candlestick formations:

A Doji is formed when the open and the close are the same or very

close. The length of the shadows are not important. The Japanese

interpretation is that the bulls and the bears are conflicting. The

appearance of a Doji should alert the investor of major indecision.

The Gravestone Doji is formed when the open and the close

occur at the low of the day. It is found occasionally at market

bottoms, but it's forte is calling market tops. The name, Gravestone

Doji, is derived by the formation of the signal looking like a

gravestone.

The Long-legged Doji has one or two very long shadows. Long-

legged Doji's are often signs of market tops. If the open and the

close are in the center of the session's trading range, the signal is

referred to as a Rickshaw Man. . The Japanese believe these

signals to mean that the trend has "lost it's sense of direction."




The Bullish Engulfing Pattern is formed at the end of a

downtrend. A white body is formed that opens lower and closes

higher than the black candle open and close from the previous day.

This complete engulfing of the previous day's body represents

overwhelming buying pressure dissipating the selling pressure.

The Bearish Engulfing Pattern is directly opposite to the bullish

pattern. It is created at the end of an up-trending market. The black

real body completely engulfs the previous day's white body. This

shows that the bears are now overwhelming the bulls.

The Dark Cloud Cover is a two-day bearish pattern found at the

end of an upturn or at the top of a congested trading area. The first

day of the pattern is a strong white real body. The second day's price

opens higher than any of the previous day's trading range.

The Piercing Pattern is a bottom reversal. It is a two candle pattern at the end of

a declining market. The first day real body is black. The second day

is a long white body. The white day opens sharply lower, under the

trading range of the previous day. The price comes up to where it

closes above the 50% level of the black body.




Hammer and Hanging-man are candlesticks with long lower

shadows and small real bodies. The bodies are at the top of the

trading session. This pattern at the bottom of the down-trend is

called a Hammer. It is hammering out a base. The Japanese word

is takuri, meaning "trying to gauge the depth".

The Morning Star is a bottom reversal signal. Like the morning

star, the planet Mercury, it foretells the sunrise, or the rising prices.

The pattern consists of a three day signal.

The Evening Star is the exact opposite of the morning star. The evening

star, the planet Venus, occurs just before the darkness sets in. The

evening star is found at the end of the uptrend.

A Shooting Star sends a warning that the top is near. It got its

name by looking like a shooting star.

The Shooting Star Formation, at the bottom of a trend, is a bullish

signal. It is known as an inverted hammer. It is important to wait for




the bullish verification. Now that we have seen some of the basic signals, let's

take a look at the added power of some of the other formations

The Dynamic Doji - A Clear Trend Reversal Signal

The Doji Signal–

Learning how to read stock charts can be a very simple process. The major

signals clearly illustrate trend reversals. Most investors, when learning how to

read stock charts, feel that they need a multitude of indicators on one chart.

Candlestick analysis does not require numerous indicators. When utilizing the

major candlestick signals, chart analysis becomes very easy. The major signals

reveal an immense amount of information. When learning how to read stock

charts, the process should be as simple as possible.

The Doji is one of the most revealing signals in Candlestick trading. It clearly

indicates that the Bulls and the Bears are at an equilibrium, a state of indecision.

The Doji, appearing at the end of an extended trend, has significant implications.

The trend may be ending. Just this fact alone creates a multitude of investment

programs that can produce inordinate profits. What is the best method for making

big trading profits? Knowing how to read the stock charts! Knowing the direction

of a trading entity and the strength of that move! Candlestick analysis perfects

that trading strategy. Candlestick charts reveal high probability profitable

reversals. Hundreds of years of investing refinement have proven that point.

The Japanese say that whenever a Doji appears, always take notice. A well-

founded rule of Candlestick charts followers is that when a Doji appears at the



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top of a trend, in an overbought area, sell immediately. Conversely, a Doji seen at

the bottom of an extended downtrend requires buying signals the next day to

confirm the reversal. Otherwise, the weight of the market could take the trend

lower. Knowing how to read the stock charts reveals the parameters that make a

major signal most effective.

The Doji signal is comprised of one candle. It is formed when the open and the

close occur at the same level or very close to the same level in a specific

timeframe. In candlestick charting, this essentially creates a cross formation. As

the following illustration demonstrates, the horizontal line represents the open

and close occurring at the same level. The vertical line represents the total

trading range during that time.

DOJI STAR

Upon seeing a doji in an over-bought or oversold conditions, (over-bought or oversold

conditions can be defined using other indicators such as stochastics),

becomes an extremely high probability reversal situation. When a doji

appears, it is demonstrating that there is indecision now occurring at an

extreme portion of a trend. This indecision can be portrayed in a few

variations of the doji.

Criteria

1. The open and close are the same or nearly the same

2. The length of the shadow should not be excessively long, especially when

viewed at the end of a bullish trend.




Signal Enhancements

1. A gap away from the previous day's close sets up for a stronger reversal move.

2. Large volume on the signal day increases the chances that a blowoff day has

occurred, although it is not a necessity.

3. It is more effective after a long candle body, usually an exagerated daily move

compared to the normal daily trading range seen in the majority of the trend.

The Doji is one of the most revealing signals in Candlestick trading. It clearly

indicates that the bulls and the bears are at an equilibrium, a state of indecision.

The Doji, appearing at the end of an extended trend, has significant implications.

The trend may be ending. Just this fact alone creates a multitude of investment

programs that produce inordinate profits. What is the best method for making big

trading profits? Knowing the direction of a trading entity and the strength of that

move, Candlestick analysis perfects the trading strategy. Candlestick formations

reveal high probability profitable reversals. Hundreds of years of investing

refinement have proven that point.

Candlestick analysis incorporates approximately 50 to 60 Candlestick signals.

However, twelve of the signals, considered the major signals, will produce the

vast majority of the trend reversals. Recognizing and understanding the

psychology that formed these major signals will provide completely new insights

for investors in understanding optimal times to buy and sell. Japanese rice

traders realized that prices do not move based on fundamentals, they move

based on the investor perception of those fundamentals. The Doji signal is one of



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the most predominant reversal indicators. It is very effective in all-time frames,

whether using a one-minute, five-minute, or fifteen-minute chart for day trading or

daily, weekly, and monthly charts for the swing trader and long-term investor.

The Japanese say that whenever a Doji appears, always take notice. A well-

founded rule of Candlestick followers is that when a Doji appears at the top of a

trend, in an overbought area, sell immediately. Conversely, a Doji seen at the

bottom of an extended downtrend requires buying signals the next day to confirm

the reversal. Otherwise, the weight of the market could take the trend lower.

The Doji signal is composed of one candle. It is formed when they open and the

close occur at the same level or very close to the same level in a specific

timeframe. In Candlestick charting, this essentially creates a “cross” formation.

As the following illustration demonstrates, the horizontal line represents the open

and close occurring at the same level. The vertical line represents the total

trading range during that time.

Doji Star

Upon seeing a Doji in an overbought or oversold condition, an extremely high

probability reversal situation becomes evident. Overbought or oversold

conditions can be defined using other indicators such as stochastics, When a

Doji appears, it is demonstrating that there is indecision now occurring at an




extreme portion of a trend. This indecision can be portrayed in a few variations of

the Doji.

The Long-legged Doji is composed of long upper and lower shadows.

Throughout the time period, the price moved up and down dramatically before it

closed at or very near the opening price. This reflects the great indecision that

exists between the bulls and the bears.

Long-legged Doji

The Gravestone Doji is formed when the open and the close occur at the low end

of the trading range. The price opens at the low of the day and rallies from there,

but by the close the price is beaten back down to the opening price. The

Japanese analogy is that it represents those who have died in battle. The

victories of the day are all lost by the end of the day. A Gravestone Doji, at the

top of the trend, is a specific version of the Shooting Star. At the bottom, it is a

variation of the Inverted Hammer.

Gravestone Doji




The Dragonfly Doji occurs when trading opens, trades lower, then closes at the

open price which is the high of the day. At the top of the market, it becomes a

variation of the Hanging Man. At the bottom of a trend, it becomes a specific

Hammer. An extensively long shadow on a Dragonfly Doji at the bottom of a

trend is very bullish.

Dragonfly Doji

Doji’s that occur in multi-signal patterns make those signals more convincing

reversal signals




Harami – Doji Evening Star - Abandoned Baby

Having the knowledge of what a Doji represents, indecision, allows the

Candlestick analyst to take advantage of reversal moves at the most opportune

levels. Regardless of whether you are trading long-term holds for day trading

from the one-minute, five-minute, and fifteen-minute charts, the Doji illustrates

indecision in any time frame.

A prime example can be seen in the Taser chart from this past year. The

Candlestick signals become an important tool to cut through all the investment

rhetoric. As was demonstrated during Taser’s price run from approximately a $5

range up to the $65 range in a matter of months, the news station commentary

started exuding accolades on the company’s products. As the price skyrocketed,

it became clear that the price had gotten well ahead of the fundamentals. But

where did you take profits? Where did you start shorting a stock? That answer

became obvious once we saw all of the huge Doji’s at the top.






This graphic

illustration of

indecision provided a

format for taking

profits or even, more

aggressively, being

prepared to short the

stock on the next

day’s lower open.

The Doji becomes

the illustration of

indecision at these

prices. This is not

rocket science. It is

based on the the observations of successful Candlestick trading over the past

four centuries

Learning to Invest in the Stock Market Using the

Bullish Engulfing Signal

Learning to invest in the stock market is a difficult process. There are

multitudes of sources that will give their opinions on how to invest. For the

person that is just learning to invest in the stock market, the massive amount of

information can be overwhelming. Becoming educated in investing should be

narrowed down to one basic premise. What investment programs should I utilize

that fit my investment risk factors? Learning to invest in the stock market not




only includes finding an investment program that fits ones investment nature, but

also finding a program that produces the results an investor expects.

Utilizing candlestick signals makes learning to invest in a stock market much

easier to understand. The 12 major signals found in candlestick analysis not only

reveal high probability reversal situations but understanding the psychology that

formed those signals makes understanding why reversals occur much easier to

comprehend. One of the fastest and easiest processes for learning to invest in

the stock market is learning the candlestick signals. Each major signal provides

an immense amount of information.

A Bullish Engulfing signal is one of the major signals. When the elements out of

a Bullish Engulfing signal are broken down, an investor can clearly understand

what was going on in investor sentiment to cause a reversal. 400 years of

observations from Japanese Rice traders has recognized the Bullish Engulfing

signal as a very high probability reversal signal.

BULLISH ENGULFING PATTERN

Description




The Engulfing pattern is a major reversal pattern comprised of two opposite

colored bodies. The Bullish Engulfing Pattern formed after a downtrend. It opens

lower that the previous day’s close and closes higher than the previous day’s

open. Thus, the white candle completely engulfs the previous day’s black candle.

Criteria

1. The body of the second day completely engulfs the body of the first day.

Shadows are not a consideration.

2. Prices have been in a definable down trend, even if it has been short term.

3. The body of the second candle is opposite color of the first candle, the first

candle being the color of the previous trend. The exception to this rule is when

the engulfed body is a doji or an extremely small body.

Signal Enhancements

1. A large body engulfing a small body. The previous day shows the trend

was running out of steam. The large body shows that the new direction has

started with good force.

2. When the engulfing pattern occurs after a fast move down, there will be

less supply of stock to slow down the reversal move. A fast move makes

a stock price over extended and increases the potential for profit taking.

3. Large volume on the engulfing day increases the chances that a blowoff

day has occurred.

4. The engulfing body engulfs the body and the shadows of the previous day,

the reversal has a greater probability of working.




5. The greater the open gaps down from the previous close, the greater the

probability of a strong reversal.

Pattern Psychology

After a downtrend has been

in effect, the price opens

lower than where it closed

the previous day. Before the

end of the day, the buyers

have taken over and moved

the price above where it

opened the day before. The

emotional psychology of the

trend has now been altered.

When investors are

learning the stock market they

should utilize information that has worked with high probability in the past. Candlestick

patterns have been observed and utilized by Japanese Rice traders for centuries. Not

only did they become wealthy using these signals, they became legendarily wealthy.

Using the candlestick charts helps an investor become acclimated to the common

sense psychology that make prices move.

Learning how to use the Bullish Engulfing signal at the proper locations in a trend can

produce consistent and high profit trades. The Bullish Engulfing signal, a major

candlestick reversal signal, allows an investor to improve their probabilities of been in a

correct trade. Learning to invest in the stock market does not need to be confusing.

The common sense elements conveyed in candlestick signals makes for a clear and

concise trading technique for beginning investors as well as experienced traders.




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Using the Bearish Engulfing Signal

Most investors get confused with the massive amounts of stock market data.

Especially for new investors, trying to decipher which stock market data is the

most important is an impossible hurdle. Candlestick signals dramatically reduce

the time for importing important stock market data. The information built into the

signals is the accumulation of observations from Japanese Rice traders over the

centuries. How do you know which stock market data is pertinent? The

information that is used consistently for centuries is an obvious clue. The 12

major candlestick signals make for very high probability research. The

information conveyed in each major signal has viable results.

What becomes the most important element when utilizing stock market data?

The results the information has produced in the past. Understanding how to

evaluate what each of the major candlestick signals reveals is very important.

The Bearish Engulfing signal is one of the 12 major signals. It provides a very

clear representation of what is going on in investor sentiment. Where most stock

market data is numeric, the candlestick signals provide that same information in

a graphic form. Most stock market data requires evaluation. This evaluation

often involves complicated formulas. The candlestick signals are very basic

visual analytical tools. The Bearish Engulfing signal visually illustrates that there

has been a dramatic change in investor sentiment. Candlesticks were developed

specifically to add more information to chart analysis.

A simple description of the Bearish Engulfing signal reveals why the signal works

very well as a candlestick sell signal. This is the stock market data that an



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investor should be using for both technical analysis as well as fundamental

analysis. The information conveyed in this signal creates an extremely high

probability that the buying is over. It also reveals an opportunity for establishing

a good short position.

BEARISH ENGULFING PATTERN

Candlestick Engulfing Patterns - Neon Signs to Buy and Sell, Stocks &

Commodities Magazine

The most striking facet of Japanese candlesticks is their ease of identification.

Hundreds of years ago, Japanese rice traders become ultra-wealthy using

Candlestick signals to trade rice. These signals were developed through simple

observation. As years of successful utilization of the signals progressed, they

even were able to analyze the psychology behind forming the signals. This

provided a very powerful tool for projecting future price movement.

Two of the most compelling candlestick signals are the Bullish Engulfing Pattern

and

Bearish Engulfing Pattern. They are most effective when founding the oversold




area, at the end of a substantial downtrend or the overbought area for the

Bearish pattern. The Bullish Engulfing pattern consists of two bodies. The first

body is the same color as the current trend, the second is the opposite color. The

signal day opens lower than the previous days close, then it trades higher so by

the end of the day, it will close above the previous days open. This new white

candle now engulfs the previous days candle, known as the DAKI, or the

embracing line.

Figure 1 - Bullish Engulfing

Witnessing a white bullish candle, engulfing the previous black candle, stands

out like a neon sign after a series of black candles. It becomes very plain to see

that a change has occurred in investor sentiment. A couple of simple factors

make the Bullish Engulfing pattern more convincing. The bigger the previous

days candle being engulfed, the more effective the new trend signal will be. Or

the lower the open of the white candle, then coming back up to engulf the

previous day, the more powerful the next advance should be.

The formula is relatively simple;

(O1>C1) and (O O1). Defined as the open of yesterday is greater than the close




of yesterday. And the open today is less than the close of yesterday, And the

close of today is greater than the open of yesterday.

The Bullish Engulfing pattern represents a complete change in investor

sentiment. Using this pattern as a buy signal eliminates the need to grab for the

fallen knife. When is “low” the right time to buy? The Bullish Engulfing pattern

reveals when the buyers have stepped in. Note in the Dow Jones industrial chart

that the whole market sentiment reversed at the Bullish Engulfing formations.

The signals work equally well when analyzing indexes as they do for individual

stocks, commodities, futures or any other trading entity.

Having the knowledge of just eight or nine Candlestick signals, the Bullish and

Bearish Engulfing patterns being on that list, produces huge advantages for

analyzing the direction of the markets in general. This reinforces the analysis of

an individual stock price.

Figure 2 - Dow Jones Industrials




The Bearish Engulfing pattern is the exact opposite that of the Bullish Engulfing

pattern. After an obvious uptrend, the bulls finally gap it open due to there

exuberance to get in the position. If stochastics are showing that this is occurring

in the overbought area, the candlestick investor becomes very diligent. A gap,

however slight, away from the previous days close, should alert the candlestick

investor that the trend may be ending. If long, putting a stop one half way down

the last bullish candle is usually prudent. If trading comes back through that point

and closes below the open of the previous day, a bearish engulfing pattern has

formed. Now you can short the stock with confidence. If nothing more than being

long, you now know to close the position. Knowing the direction of the market

allows the investor to establish positions with more confidence. Knowing that the

market indexes have turned positive permits an investor to commit funds to the

long side with more aggression than normal. As seen in the above DOW chart,




being able to visualize the Bullish Engulfing patterns after extensive downtrend

would have allowed an investor to get in and make impressive profits.

As in the Bullish Engulfing pattern, the Bearish Engulfing pattern is very easy to

see. It stands out as a blatant change of direction in the trend. The white bodies

in the uptrend now have a large black candle stopping the trend.

Figure 3 - Bearish Engulfing

The black candle acts as an obvious sign against the uptrend. The formula is

exactly opposite of the Bullish Engulfing pattern formula. ( C1 >O1) and

the(O>C1) and (C>O1), The close of the first day is higher than the open, thus a

white candle. The next day has an open than is higher than the previous day’s

close and closes lower than the previous days open.

The visual depiction of a Bearish Engulfing pattern creates an ominous darkness

at the top of a trend. It does not take learning complicated formulas or analyzing

numerous indicators to understand a candlestick signal.

Figure 4 - Enzon Inc




Note how the Bearish engulfing pattern terminates the uptrend in the Enzon Inc.

chart.. As the trend persists, buyers finally get so exuberant, they gap the price

up. It immediately starts losing ground until it finally closes lower than where it

opened the previous day. This clearly illustrates that the sellers have gained

strength. That confirmation of selling starts a trend of selling.

The Engulfing patterns are statistically valid for indicating reversals at the tops

and the bottoms. As stated early, the signals are highly accurate when a bullish

Engulfing pattern is witnessed during oversold conditions. Conversely, the

Bearish Engulfing pattern is valid in the overbought area. But both have a

recognized indicator at the other end of a trend. A big bullish Engulfing pattern

observed at the top of a trend usually represents the last gasp of the trend. The

same occurs at the bottom of a trend with the Bearish Engulfing pattern. The last

gasp sellers create a bearish engulfing pattern which usually is followed by

increased buying. Remembering this fact provides another opportunity to extract




profits out of a price trend. When the “hopeful” are buying once more at the top or

the “panicked” are selling their last stock position at the bottom, the Candlestick

investor is already familiar with what that last bullish or bearish engulfing pattern

indicates at the wrong end of a trend. Putting on positions becomes a

comfortable endeavor while everybody else is buying or selling the wrong way.

The Candlestick Engulfing patterns have survived centuries of investment

skepticism. The Japanese Rice traders become ultra-wealthy utilizing these

patterns. This is not rocket science. Rice traders developed high profit trading

programs using purely visual recognition of reoccurring high probability

formations. This is the most convincing form of statistical analysis. Use it to your

advantage.




Candlestick Pattern Formations

Japanese Candlestick charting dramatically increases the information conveyed

to the visual analysis. Each candlestick trading formation or series of formations

can clearly illustrate the change of investor sentiment. This process is not

apparent in standard bar chart interpretation. Each candle formation has a

unique name. Some have Japanese names, others have English names.

Single candles are often referred to as YIN and YANG lines. These terms are

actually Chinese, but are used by Western analysts to account for opposites;

in/out, up/down, and over/under. INN and YOH are the Japanese equivalents.

YIN is bearish. YANG is bullish. There are nine basic YIN and YANG lines in

Candlestick analysis. These are expanded to fifteen to cover all possibilities

clearly. The combination of most patterns can be reduced to one of these

patterns.

Long days




A long day represents a large price move from open to close. Long represents

the length of the candle body. What qualifies a candle body to be considered

long? That is a question that has to be answered relative to the chart being

analyzed. The recent price action of a stock will determine whether a "long"

candle has been formed. Analysis of the previous two or three weeks of trading

should be a current representative sample of the price action.

Short Days

Short days can be interpreted by the same analytical process of the long

candles. There are a large percentage of the trading days that do not fall into

either of these two catagories.

Maruboza

In Japanese, Marubozu means close cropped or close-cut. Bald or Shaven Head

are more commonly used in candlestick analysis. It's meaning reflects the fact

that there are no shadows extending from either end of the body.

White Maruboza




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The White Marubozu is a long white body with no shadows on either end. This is

an extremely strong pattern. Consider how it is formed. It opens on the low and

immediately heads up. It continues upward until it closes, on its high. Counter to

the Black Marubozu, it is often the first part of a bullish continuation pattern or

bearish reversal pattern. It is called a Major Yang or Marubozu of Yang.

Black Marubozu

A long black body with no shadows at either end is known as a Black Marubozu.

It is considered a weak indicator. It is often identified in a bearish continuation or

bullish reversal pattern, especially if it occurs during a downtrend. A long black

candle could represent the final sell off, making it an "alert" to a bullish reversal

setting up. The Japanese often call it the Major Yin or Marubozu of Yin.

Closing Marubozu




A Closing Marubozu has no shadow at it's closing end. A white body will not have

a shadow at the top. A black body will not have a shadow at the bottom. In both

cases, these are strong signals corresponding to the direction that they each

represent.

Opening Marubozu

The Opening Marubozu has no shadows extending from the open price end of

the body. A white body would not have a shadow at the bottom end , the black

candle would not have a shadow at it's top end. Though these are strong signals,

they are not as strong as the Closing Marubozu.




Spinning Top

Spinning Tops are depicted with small bodies relative to the shadows. This

demonstrates some indecision on the part of the bulls and the bears. They are

considered neutral when trading in a sideways market. However, in a trending or

oscillating market, a relatively good rule of thumb is that the next days trading will

probably move in the direction of the opening price. The size of the shadow is not

as important as the size of the body for forming a Spinning Top.

Doji

The Doji is one of the most important signals in candlestick analysis. It is formed

when the open and the close are the same or very near the same. The lengths of

the shadows can vary. The longer the shadows are, the more significance the

Doji becomes. More will be explained about the Doji in the next few pages.

ALWAYS pay attention to the Doji.

The dimension of knowing what the formations signify magnifies the potential for




profits. The bodies, unlike the bars of bar charts, reveal an immense amount of

information.

Trading the Tri-Star Pattern

Technical analysis stock tutorials provided by The Candlestick Forum. This is part of our

ongoing training for technical analysis stock tutorials for trading candlestick charts and

candlestick patterns. We hope you are benefiting from the weekly additions of these

secondary candlestick chart patterns and encourage you to check back often. For a

complete list of all the technical analysis stock tutorials in our site you will want to begin

with The Major Candlestick Signals (click here.)

Tri Star Pattern

Description

The Tri Star pattern is relatively rare. However, it is a very significant

reversal indicator. It is comprised of three Dojis. The three-day period

illustrates indecision of a period of days.

Criteria

1. All three days are Dojis.

2. The middle day gaps above or below the first and third day. The length of the

shadow should not be excessively long, especially when viewed at the end of a

bullish trend.





Signal Enhancements

1. The greater the gap, away from the previous days close, sets up for a stronger

reversal move.

2. Large volume on one of the signal days increases the chances that a significant

reversal is taking place.

Pattern Psychology

After an up-trend or a downtrend has been in effect, the appearance of the first Doji

reveals that there is now indecision in the bull’s and the bear’s camp. The next day gaps

in the same direction as the existing trend and forms the second Doji. This reveals that

no certainty for either direction has become apparent. The third day opens opposite the

previous trends direction and forms another Doji that day. The final Doji is the last gasp.

Any investor that had any conviction is now reversing their position. Because of the

rarity of this pattern, double-check the data source to confirm that the Dojis are not bad

data.

Candlestick charts provide huge amounts of information

Candlestick charts allow an investor to develop trading strategies that maximize profit potential.

Unlike bar chart that illustrate what price movements did during a specific timeframe,

candlestick charts reveal 'how' that price moved. Candlestick charts demonstrate what investor

sentiment was doing during the timeframe and how it did it. This additional information creates a

huge advantage for the candlestick investor. Although a price may have been up on the day, the

candlestick chart will reveal whether a specific candlestick signal had been formed.

This information becomes valuable for projecting a reversal or a continuation of a trend. The

simple logic that is built into candlestick charts makes the evaluation for trade entry and exit




strategies much easier to execute. For example, a candlestick chart that reveals a price that

closed higher on the day in an overbought condition may not have any relevance to somebody

that does not recognize a candlestick signal. However, if that price, during that day, had been

much higher but closed near the lower end of the trading range, it may still appear as a positive

day to somebody using bar charts or just reading the results of the day from the Wall Street

Journal. Utilizing a candlestick chart would reveal a different story. A Shooting Star signal

would have formed, providing a completely different scenario.

When the major signals appear on candlestick charts, an investor can prepare for when they get

in and out of trades with a much more clear analysis. Being able to execute trades at an early

stage of a reversal keeps an investor from having to execute less favorable trades when a trend

is already in motion, trying to sell when the buyers are stepping away. Candlestick charts

produce the evaluation graphics that allow an investor to make decisions instantly.

Market Direction - What are the markets telling us? Both the Dow and the NASDAQ have been

in the overbought conditions for the past few weeks. The Dow has now reached the obvious

resistance level at the 10,700 level. The past three days of trading have demonstrated spinning

tops. This indicates indecision occurring at an important technical level. Stochastics are now in

the process of turning down. As of yet, the selling has been indecisive. Two scenarios can be

put forth upon seeing this type of market condition. The spinning tops could be illustrating the

prelude to a pullback. That will be confirmed by a long bearish candle in the next day or so. This

would give a clear indication that the spinning tops were a reversal action. If the next few days

show more spinning tops, doji, or other indecisive trading formations, without any severe selling,

that would be more of an indication that the markets are not selling off, but just taking some

profits at a major resistance level. A day or two more of indecisive selling could then be followed

by another strong candle that would take prices up through the obvious resistance level.





The NASDAQ showed some minor indecisive trading over the past few days. The large selling

of Tuesday was followed by a hammer/doji formation. Although the stochastics are turning over,

the selling has not yet shown any severe sell signals. A large bearish candle at this level would

confirm the selling. After the doji on Wednesday, any indecisive or positive trading would reveal

that the uptrend may not be over.

What is the best way to position a portfolio with this type of market scenario? Since the market

direction is still in question, an obvious factor can be evaluated. There are stocks moving in a

positive direction due to those sectors still remaining strong or at least have not revealed any sell

signals. There are other sectors/stocks that are now showing good bearish signals. When the

direction of the market is in doubt, a prudent strategy would be to have both long and short

positions open. This becomes a much easier strategy to implement when utilizing the candlestick




charts. The rationale is always that the candlestick signals are the cumulative knowledge of all

investors buying and selling a particular trading entity during a specific timeframe. Simply

stated, the charts still show bullish tendencies will probably not selloff as hard as the charts that

show clear candlestick sell signals. Of course, the opposite is true. The charts that are showing

candlestick sell signals will not move in a very bullish manner even if the market starts showing

great bullish strength. This allows an investor to still produce a net profit from the proper

positioning of long and short positions of the portfolio despite which direction the market may

move with strength. This becomes a very simple money management technique that can still

take advantage of indecisive periods in the markets.




As illustrated in the Advanced Energy Industries chart, a Shooting Star signal in the

overbought condition illustrated that the buying was now been overtaken by the sellers.

No matter which way the market may move in the next few days, the probabilities are

extremely strong that this stock price should continue its downtrend, with the possibility

of testing the next support level, the 50 day moving average.

SHOOTING STAR

(Nagare Boshi)




Description

The Shooting Star is also comprised of one candle. It is easily identified by the

presence of a small body with a shadow at least two times greater than the body.

It is found at the top of an up trend. The Japanese named this pattern because it

looks like a shooting star falling from the sky with the tail trailing it.

Criteria

1. The upper shadow should be at least two times the length of the body.

2. The real body is at the lower end of the trading range. The color of the body is not

important although a black body should have slightly more bearish implications.

3. There should be no lower shadow or a very small lower shadow.

4. The following day needs to confirm the Shooting Star signal with a black candle or

better yet, a gap down with a lower close.

Signal Enhancements

1. The longer the upper shadow, the higher the potential of a reversal occurring.

2. A gap up from the previous days close sets up for a stronger reversal move

provided:

3. The day after the Shooting Star signal opens lower.

4. Large volume on the Shooting Star day increases the chances that a blow-off day

has occurred although it is not a necessity.

Pattern Psychology

After a strong up-trend has been in effect, the atmosphere is bullish. The price opens

and trades higher. The bulls are in control. But before the end of the day, the bears step

in and take the price back down to the lower end of the trading range, creating a small

body for the day. This could indicate that the bulls still have control if analyzing a

Western bar chart. However, the long upper shadow represents that sellers had started

stepping in at these levels. Even though the bulls may have been able to keep the price



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positive by the end of the day, the evidence of the selling was apparent. A lower open or

a black candle the next day reinforces the fact that selling is going on.

Using The Hammer Signal

Learning about the stock market for personal stock market investing can be very

costly if not approached in the right manner. Attributes built into candlestick

charts greatly reduce the potential of losses while learning about the stock

market. The knowledge conveyed in just one of the 12 major signals helps

investors understand the dynamics of what makes price move. This is true for

investors that are just learning about the stock market all the way up to

experienced traders. The candlestick charts are in use today because they have

worked effectively throughout the centuries. Japanese Rice traders recognized

that investor sentiment operates in reoccurring patterns. They recognized

candlestick charts provided patterns that would reoccur as a trend was about

ready to reverse. This became valuable information. The psychological

elements that are incorporated into the major candlestick signals makes

learning about the stock market easier and more profitable.

Out of a universe of 50 to 60 candlestick reversal signals, it has been found that

only 12 of the signals require attention. These 12 major signals will provide more

trade situations than most investors will be able to utilize. The insights gained







from dissecting each of the 12 major signals becomes a valuable tool for

learning about the stock market. The common complaint for most investors

learning to read candlestick charts was there were too many candlestick

signals. When learning the stock market, an investor wants a proven

investment technique. Candlestick charts produces a very strong trading platform

the candlestick signals have proven themselves to work. The question is not

whether they work or not, the question is whether somebody can learn how to

use them correctly. The Candlestick Forum is a stock market education site that

takes candlestick charts and individual candlestick signals and reduces the

information down to the basic elements. If each signal is dissected and studied,

the information that the signal conveys will become a powerful investment tool for

the rest of your life. The knowledge presented in Candlestick Charts makes

learning the stock market, or any other trading market, much easier to

understand. Each signal provides an immense amount of information.

One of the most visually compelling signals is the Hammer signal. The hammer

signal is easily recognized by the lower shadow ( the tail ) protruding to the

downside after an extended downtrend.

HAMMERS AND HANGING MAN





Description

The Hammer is comprised of one candle. It is easily identified by the presence of

a small body with a shadow at least two times greater than the body. Found at

the bottom of a downtrend, this shows evidence that the bulls started to step in.

The color of the small body is not important but a white candle has slightly more

bullish implications than the black body. A positive day is required the following

day to confirm this signal.

Criteria

1. The lower shadow should be at least two times the length of the body.

2. The real body is at the upper end of the trading range. The color of the body is

not important although a white body should have slightly more bullish

implications.

3. There should be no upper shadow or a very small upper shadow.

4. The following day needs to confirm the Hammer signal with a strong bullish

day.

Signal Enhancements

1. The longer the lower shadow, the higher the potential of a reversal

occurring.

2. A gap down from the previous day's close sets up for a stronger reversal

move provided the day after the Hammer signal opens higher.




3. Large volume on the Hammer day increases the chances that a blow off

day has occurred.

Pattern Psychology

After a downtrend has been in effect, the atmosphere is very bearish. The price

opens and starts to trade lower. The bears are still in control. The bulls then step

in. They start bringing the price back up towards the top of the trading range. This

creates a small body with a large lower shadow. This represents that the bears

could not maintain control. The long lower shadow now has the bears

questioning whether the decline is still intact. A higher open the next day would

confirm that the bulls had taken control.

The Hanging Man Signal

Learning how the stock market works for novices is a difficult process. The first

thing an investor should learn is the basics of why prices move. Unfortunately,

the new investor can be overwhelmed with stock trading advice. Most of that

advice does not teach an investor how to utilize human emotions. The

candlestick signals, especially the 12 major signals, involve the visual elements

produced by human emotions. Being able to correctly analyze what these

emotions are doing at specific points of a trend becomes a valuable tool for

successful investing Learning how the stock market works for novices is an

endeavor that most investors never master. Learning how the stock market

works for novices involves controlling one's emotions. Candlestick signals are a

great benefit for the beginning investor as well as the experienced trader. The

information conveyed in the major candlestick signals is the visual depiction of

investor sentiment. Most investors sentiment unfortunately involves the




extremes of human emotions, fear and greed. Learning how the stock market

works for novices is an educational process.

The information incorporated into a major candlestick signal provides a huge

advantage for those investors just learning how to play the stock market.

Learning how the stock market works for novices should be made is simple as

possible. The results of simple visual analysis permits an investor to take

advantage of high probability situations. The major signals are created by the

aspects of human emotions being put into trading decisions. Investor psychology

produces reoccurring thought processes as investors go through different

stresses of a price trend. The 12 major signals are a very important tool when

learning how to play the stock market. Understanding the investment psychology

that creates each signal is an important element for understanding how

professional investors think. One of the most important facets for learning how a

stock market works for novices is knowing how to put the probabilities in your

favor. The candlestick signals create a format that does just that. Hundreds of

years of observations have resulted in reversal signals that are easy to identify.

When learning how the stock market works for novices, it is very important to find

indicators that have a high probability of producing profits and a low probability of

producing losses. This may be stating the obvious. However, the utilization of

candlestick signals is being done by a very small percentage of the investment

population. Use the major signals to start profiting from your investment

decisions immediately.

The Hanging Man produces some very important attributes when analyzing a

potential reversal. It is considered one of the 12 major signals. Learn how to use

a Hanging Man signal correctly. The probabilities of being in a correct trade when

utilizing this signal becomes extremely high.




HANGING MAN

Description

The Hanging Man is also comprised of one candle. It is easily identified by the

presence of a small body with a shadow at least two times greater than the body.

It is found at the top of an up trend. The Japanese named this pattern because it

looks like a head with the feet dangling down.

Criteria


2. The real body is at the upper end of the trading range. The color of the body is

not important although a black body should have slightly more bearish

implications.


4. The following day needs to confirm the Hanging Man signal with a black

candle or better yet, a gap down with a lower close.

Signal Enhancements

1. The longer the lower shadow, the higher the potential of a reversal occurring.

2. A gap up from the previous days close sets up for a stronger reversal move

provided the day after the Hanging Man signal trades lower.

3. Large volume on the signal day increases the chances that a blowoff day has

occurred although it is not a necessity.

Pattern Psychology

After a strong up-trend has been in effect, the atmosphere is bullish. The price

opens higher but starts to move lower. The bears take control. But before the end




of the day, the bulls step in and take the price back up to the higher end of the

trading range, creating a small body for the day. This could indicate that the bulls

still have control if analyzing a Western bar chart. However, the long lower

shadow represents that sellers had started stepping in at these levels. Even

though the bulls may have been able to keep the price positive by the end of the

day, the evidence of the selling was apparent. A lower open or a black candle the

next day reinforces the fact that selling is going on.

When identifying the Hanging Man signal under the correct conditions, with

stochastics in the overbought conditions, at the top of an uptrend, provides the

information needed for identifying the possibility of a trend reversal. When

learning to play the stock market, being able to put all the probabilities in ones

favor is very important. When will an uptrend reverse? When indications start

appearing that demonstrate that the sellers are starting to take control! The

Hanging Man signal provides the elements that indicate the sellers stepping into

a trend. Use this information to your advantage.

The candlestick signals produce high probability

situations.

Stock market tips are usually the demise of most investors. The dream of most

investors is to find the stock market tips that are going to make them wealthy.

Unfortunately, that does not happen. Depending upon stock market tips will lead

most investors into a demoralizing method of investing. Consider the factors that

surround stock market tips. The information is usually relatively old by the time it

reaches the ordinary investor. If the stock market tips are coming from an

acclaimed guru of a stock market, it has probably been well positioned into

accounts before the general public is made aware of the recommendation.




What you do when executing stock market tips? That should be the first

question. Most stock market tips emphasize getting into the position as quickly

as possible. Whatever great things are going to happen in the stock price are

going to happen soon. Stock market tips are not representative of an intelligent

investment strategy. Investing involves implementing a program where an

investor can continue to improve return results. Candlestick signals provide the

format for establishing consistent investment returns.

The major problem that comes from putting funds into everybody's stock market

tips is very simple to understand. If that particular investment situation does not

perform as expected, the investor is right back where they started. They do not

have a viable investment strategy. Candlestick signals, on the other hand, are

based upon high probability situations. Establishing a position based upon one

of the major candlestick signals allows an investor to evaluate when to get into a

position and when to get out of a position.

The signals are the result of many centuries of observations. If the statistical

results of the major candlestick signals were not proven, we would not be looking

at them today. The psychology built into a major signal is simple common sense

investment philosophy. As demonstrated in the piercing signal, the Japanese

Rice traders have a high expectation of what the result should be. Having this

knowledge makes investment programs very easy to implement.

PIERCING PATTERN





Description

The Piercing Pattern is composed of a two-candle formation in a downtrending

market. The first candle is black, a continuation of the existing trend. The second

candle is formed by opening below the low of the previous day. It closes more

than midway up the black candle, near or at the high for the day

Criteria

1. The body of the first candle is black; the body of the second candle is white.

2. The downtrend has been evident for a good period. A long black candle occurs

at the end of the trend.

3. The second day opens lower than the trading of the prior day.

4. The white candle closes more than halfway up the black candle.

Signal Enhancements

1. The longer the black candle and the white candle, the more forceful the

reversal.

2. The greater the gap down from the previous days close, the more pronounced

the reversal.

3. The higher the white candle closes into the black candle, the stronger the




reversal.

4. Large volume during these two trading days is a significant confirmation.

Pattern Psychology

After a strong downtrend has been in effect, the atmosphere is bearish. Fear

becomes more predominant. The prices gap down. The bears may even push

the prices down further. However, before the end of the day, the bulls step in and

dramatically turn prices around. They finish near the high of the day. The move

has almost negated the price decline of the previous day. This now has the bears

concerned. More buying the next day will confirm the move.

Being able to utilize information that has been used successfully in the past is a

much more viable investment strategy than taking shots in the dark. Keep in

mind, when you are given privileged information about stock market tips,

where you are in the food chain. Are you one of those privileged few that gets

top-notch pertinent information on a timely manner, or you one of the masses

that feed into a frenzy and allow the smart money to make the profits?

Technical analysis courses should utilize the

candlestick signals

Technical analysis courses usually educate investors with masses of amounts of

information. Technical analysis courses are usually directed towards providing

numerous analytical techniques. Unfortunately, many of these techniques are

not crucial for pinpointing investment information. Most technical analysis

courses instruct investors on watching indicators that other investors usually




watch. The benefit of utilizing candlestick signals is being able to instantly

evaluate what investor sentiment is doing at those levels that everybody else is

watching.

The information that is built into candlestick signals reveal immediately what

investment sentiment is doing. If a candlestick buy signal occurs right on a major

technical level, a level that many other investors are watching, the candlestick

investor has the advantage of visually seeing the confirmation immediately of that

level. Other investors may require confirmation that comes in the form of

additional buying. That is a benefit to the candlestick investor. They can get in

before the rest of the technical investors get in. There are many good technical

analysis courses available. Click here to view Intelyze training course. An

investor that is planning to take technical analysis courses should learn

candlestick signals before hand. This knowledge will make any technical

analysis courses much easier to comprehend.

The 12 major candlestick signals provide an immense amount of technical

information. Learning the stock market becomes much easier when utilizing the

correct analytical tools. Applying the candlestick information to any information

learned in technical and analysis courses will dramatically speed the positive

results to investors accounts. Learn each of the major signals . The information

that is conveyed in each one of the signals provides insights into price trends not

found in most technical analysis courses. The candlestick signals should be the

basis of an investors analytical toolbox.

The Dark Cloud signal is a signal that tells an obvious reversal of a trend. It is

name because it looks like a dark cloud over a nice bright sunny uptrend.

DARK CLOUD COVER






Description

The dark Cloud Cover is the bearish counterpart to the Piercing pattern. The first

day of the pattern is a long white candle at the top end of a trend. The second

day’s open is higher that the high of the previous day. It closes at least one-half

way down the previous day candle, the further down the white candle, the more

convincing the reversal. Remember that a close at or below the previous day’s

open turns this pattern into a Bearish Engulfing pattern. Kabuse means to get

covered or to hang over.

Criteria

1. The body of the first candle is white, the body of the second candle is black.

2. The up-trend has been evident for a good period. A long white candle occurs

at the top of the trend.

3. The second day opens higher than the trading of the prior day.

4. The black candle closes more than half-way down the white candle.

Signal Enhancements

1. The longer the white candle and the black candle, the more forceful the

reversal.

2. A higher the gap up from the previous days close, the more pronounced the




reversal.

3. The lower the black candle closes into the white candle, the stronger the

reversal.

4. Large volume during these two trading days is a significant confirmation

Pattern Psychology

After a strong up-trend has been in effect, the atmosphere is bullish. Exuberance

sets in. They gap the price up. The bears start to show up and push the price

back down. It finally closes at or near the lows for the day. The close has negated

most of the previous days gains. The bulls are now concerned. They obviously

see that the uptrend may have stopped. This signal makes for a good short, with

a stop being the high of the black candle day. Notice that if the Dark Cloud Cover

were to close lower, below the open of the previous day, it becomes a Bearish

Engulfing pattern. The Bearish Engulfing pattern has slightly stronger bearish

implications.

The Harami - A High Profit Candlestick Signal, Stocks

& Commodities Magazine

The Harami is one of the major candlestick signals in Japanese Candlestick

analysis. There are approximately 50 to 60 signals in the Candlestick signal

universe. The biggest deterrent for many investors trying to learn the candlestick

signals is a large number of signals. Most investors complain that there are too

many to learn. Mastering Candlestick analysis can be done very easily by

learning the 10 major signals. Knowing the signals, and understanding how those

signals are formed, provide investors with a tremendous insight into what goes




on an investor sentiment at reversal areas in a trend. Being able to identify the

major signals and understand the investor sentiment that created those signals

allows an investor to project market reversals with a high degree of accuracy.

This is based upon hundreds of years of actual observations by Japanese rice

traders. Simple logic tells us that if these signals did not work, they would not be

here for us to view after centuries of use.

All the candlestick signals do not need to be memorized. Most signals do not

occur often enough to use mental energy for identifying them. The 10 major

signals will produce more investment opportunities than most investors will

require. The Harami is considered one of the major signals. The Bullish Harami is

a two formation pattern. The first formation is usually a large black candle

appearing at the end of a downtrend. The end of a downtrend is represented by

stochastics being in the oversold area. The Bullish Harami is formed by the

second candle opening above the previous day's close and closing below the

previous day's open. In Japanese, Harami means pregnant woman. As you see

in the illustration, the black candle is the woman's body, the white candle is her

belly sticking out.

A Harami at an important support level, as seen in the Nasdaq chart, is more

effective when a Doji is part of the two day Harami signal. Once the trading came

near the 200-day moving average, the Doji/Harami being confirmed with a gap-




up the next day becomes a very high probability projection that the trend has

reversed.

Exerpt from the book “Profitable Candlestick Trading”

Description

The Harami is an often seen formation. The pattern is composed of a two candle

formation in a down-trending market. The body of the first candle is the same

color as the current trend. The first body of the pattern is a long body, the second

body is smaller. The open and the close occur inside the open and the close of

the previous day. It's presence indicates that the trend is over.




The Japanese definition for Harami is pregnant woman or body within. The first

candle is black, a continuation of the existing trend. The second candle, the little

belly sticking out, is usually white, but that is not always the case (see Homing

Pigeon). The location and size of the second candle will influence the magnitude

of the reversal.

Criteria

1. The body of the first candle is black, the body of the second candle is

white.

2. The downtrend has been evident for a good period. A long black candle

occurs at the end of the trend.

3. The second day opens higher than the close of the previous day and

closes lower than the open of the prior day.

4. Unlike the Western “Inside Day”, just the body needs to remain in the

previous day's body, where as the “Inside Day” requires both the body and

the shadows to remain inside the previous day's body.

5. For a reversal signal, further confirmation is required to indicate that the

trend is now moving up.

Signal Enhancements


reversal.




2. The higher the white candle closes up on the black candle, the more

convincing that a reversal has occurred despite the size of the white

candle.

Pattern Psychology

After a strong down-trend has been in effect and after a selling day, the bulls

open the price a higher than the previous close. The short's get concerned and

start covering. The price finishes higher for the day. This is enough support to

have the short sellers take notice that the trend has been violated. A strong day

after that would convince everybody that the trend was reversing. Usually the

volume is above the recent norm due to the unwinding of short positions.

End of excerpt

The significance of a Harami is that it tells us that the selling has stopped. As far

as a trend reversal, the Harami has excellent capabilities of indicating how strong

the new trend to the up side will be. For example, if a Harami opens and closes

at the very low end of the previous day's black candle, the trajectory of the new

uptrend may be very flat or slow. If the Harami closes midway into the previous

black candle, the up words trend will be moderately strong. If the Harami closes

near the top of the previous day's black candle, the new uptrend may be very

strong. In this way, a Harami can act as a barometer for the buying sentiment in

the new uptrend.

A Harami can be additionally determined if it appears at a significant technical




level such as a trend line or a moving average line. For example, witnessing a

Harami that is formation in an oversold condition becomes much more significant

if it is also forming on a 50-day moving average or a 200-day moving average.

This becomes instant verification that what most western technical analysis is

using for a possible support level is becoming instantly verified by a Candlestick

signal. The Candlestick signal creates an immediate buy point whereas other

technical analysis may need additional time to confirm. The candlestick analyst

can profit immediately.

The Bearish Harami is exactly opposite the Bullish Harami. After an uptrend and

the stochastics are in the overbought area, there will be one last white candle.

The following day opens below the previous day's close and closes above the

previous day's open. This will form a black candle inside the previous day's white

candle. This essentially tells us that the buying has stopped. Confirmation is

seeing the next day open weaker.




Notice the Bearish Harami's in the Crude Oil chart. In late May, the “experts”

were projecting that oil prices could go to $60.00 per barrel. This analysis was

prompted by Crude Oil going above $40.00 a barrel for the first time in decades.

However, every time the price would push above the $40.00 per barrel price, the

Harami's revealed that the sellers were stepping in. What is the smart money

doing? You do not need extensive research team to delve into what is happening

in each industry, stock or commodity. The signals tell what is the actual investor

sentiment.

Just like the Bullish Harami, the Bearish Harami will indicate the magnitude of the

new downtrend by where it closes in the previous day's candle. A very small

candle at the top end of the previous day's white candle would indicate every

slow downtrend whereas they close at the lower end of the previous day's white




candle would indicate that the selling pressure is going to be much stronger.

Understanding what the Harami signal is representing, the better the opportunity

is to profit from the signal. The results, from witnessing a Harami, are fairly

predictable. The Japanese rice traders established the statistical analysis to

warrant the signals to still be in effect after centuries of use. Use that information

to your advantage.

How to Trade the Bullish Harami.

Most stock market strategies involve complicated approaches and formulas.

Candlestick analysis provides a platform for making stock market strategies very simple

to implement. Unfortunately, most investors put money into the markets without any

concern for stock market strategies. This not only skews many investors investment

perceptions, it also delays the process for how to learn to trade the stock market

correctly. Stock market strategies should be incorporated into an investors learning

process from the very beginning.

Candlestick signals provide the information that can put investors on the right track from

the beginning. Taking advantage of the investor knowledge incorporated into candlestick

signals allows an investor to eliminate bad habits. Stock market strategies should

involve investment programs that put the probabilities of being in a correct trade in an

investor's favor. To simplify the process, if an investor merely learns the 12 major

candlestick signals, the correct investor habits will be much easier to implement.

Successful stock market strategies involve investment practices that can be accounted

for and constantly improve. The 12 major candlestick signals provide a framework for

establishing a high probability trades. They also convey to an investor when the investor

sentiment is not working properly. Most stock market strategies pay little attention to

procedures on losing trades. The candlestick signals provide an expected result. When

they do not occur, losses can be cut short . Funds can then be moved on to high

probability situations.






Utilizing the 12 major signals establishes a knowledge base for what should happen in

the future. Knowing the investor sentiment that developed the signals provides a much

better insight for investors to determine successful trade situations. The Bullish Harami

is an example of visual statistic analysis. Upon witnessing a bullish Harami at the end of

a downtrend, an investor has a good idea of what to expect. This major signal becomes

a vital information packed analytical tool.

HARAMI

BULLISH HARAMI

Description

The Harami is an often seen formation The pattern is composed of a two candle

formation in a down-trending market. The body of the first candle is the same color as

the current trend. The first body of the pattern is a long body, the second body is

smaller. The open and the close occur inside the open and the close of the previous

day. It’s presence indicates that the trend is over.

The Japanese definition for Harami is pregnant woman or body within. The first candle

is black, a continuation of the existing trend. The second candle, the little belly sticking

out, is usually white, but that is not always the case. The location and size of the second

candle will influence the magnitude of the reversal.

Criteria

1. The body of the first candle is black, the body of the second candle is white.




2. The downtrend has been evident for a good period. A long black candle occurs at

the end of the trend.

3. The second day opens higher than the close of the previous day and closes

lower than the open of the prior day.

4. Unlike the Western "Inside Day", just the body needs to remain in the previous

day’s body, where as the "Inside Day" requires both the body and the shadows to

remain inside the previous day’s body.

5. For a reversal signal, further confirmation is required to indicate that the trend is

now moving up.

Signal Enhancements

1. The longer the black candle and the white candle, the more forceful the reversal.

2. The higher the white candle closes up on the black candle, the more convincing

that a reversal has occurred despite the size of the white candle.

Pattern Psychology

After a strong down-trend has been in effect and after a selling day, the bulls open the

price a higher than the previous close. The short’s get concerned and start covering.

The price finishes higher for the day. This is enough support to have the short sellers

take notice that the trend has been violated. A strong day the next day would convince

everybody that the trend was reversing. Usually the volume is above the recent norm

due to the unwinding of short positions.




Commodity Trading with Candlestick Signals and the

Bearish Harami

Commodity trading principles are the basic elements incorporated in the

candlestick signals. Commodity trading principles are easier to analyze than

stock trades. This is derived from one simple factor. Commodity trading

principles are based upon supply and demand. Whereas stock analysis involves

a multitude of external factors that can affect a price, commodity trading

principles relied mostly upon the perception of supply and demand. This creates

a much smoother trend analysis than stock prices.

Candlestick signals were developed on the most basic commodity trading

principles. 400 years of investor observations occurred while trading Rice, one of

the most basic commodities. Over the past four centuries, the 50 or 60

candlestick signals became recognized. Of these, 12 signals were found to

occur a majority of the time. Their appearance also indicated extremely high

probability reversal situations. These 12 signals are now considered the major

candlestick signals. Learning these signals allows an investor to gain valuable

insights into investor sentiment.

Understanding the investor psychology that formed the major signals is the basis

for fully understanding commodity trading principles. The facets of supply and

demand do not immediately change commodity prices. The perception of what

supply and demand forces may be doing is what changes commodity prices.

Candlestick signals are the graphic depiction of those reversals in investor

sentiment. Understanding the factors that go into a candlestick signal formation

makes understanding commodity trading much easier to comprehend.




The Bearish Harami is one of the major signals that exhibits common sense into

graphic depiction. Candlestick analysis provides a clear understanding of what

happens to investor sentiment at the reversal areas. The elements that create

a Bearish Harami produce clear insights into what was going on in investor minds

at a reversal.

BEARISH HARAMI

Description

The Bearish Harami is the exact opposite of the Bullish Harami. The pattern is

composed of a two-candle formation. The body of the first candle is the same

color as the current trend. The first body of the pattern is a long body; the second

body is smaller. The open and the close occur inside the open and the close of

the previous day. Its presence indicates that the trend is over.

Criteria

1. The body of the first candle is white; the body of the second candle is

black.

2. The uptrend has been apparent. A long white candle occurs at the end of

the trend.

3. The second day opens lower than the close of the previous day and closes

higher than the open of the prior day.




4. For a reversal signal, confirmation is needed. The next day should show

weakness.

Signal Enhancements


reversal.

2. The lower the black candle closes down on the white candle, the more

convincing that a reversal has occurred, despite the size of the black

candle.

Pattern Psychology

After a strong uptrend has been in effect and after a long white candle day, the

bears open the price lower than the previous close. The longs get concerned and

start profit taking. The price finishes lower for the day. The bulls are now

concerned as the price closes lower. It is becoming evident that the trend has

been violated. A weak day after that would convince everybody that the trend

was reversing. Volume increases due to the profit taking and the addition of short

sales.

Having insight ito the effect of Haramis provides an opportunity to maximize

returns. If all of your investment funds are being fully used, a Harami may reveal

that one of the positions has stalled for a few days. An aggressive trader may

want to move those funds to a better trade, and then come back after a few days

to reinvest once the position is moving.

Stock Market Advice for Trading The Morning Star

Signal




Stock market advice is plentiful over the internet. There is sage stock market advice

like; Don't try to time the market, use cost averaging, diversify, and limitless tid-bits but

they do not teach you anything about trading. What good is stock market advice if you

still don't know how to read a stock chart? The Candlestick Forum provides practical

stock market advice by continued "How To Trade" articles for identifying specific

candlestick charts. This article will help you to identify The Morning Star signal and the

trading criteria used for successful implementation. We hope these articles are helping

you along your way to successful stock market trading. Be sure to join Stephen Bigalow

live over the internet for his free Thursday evening Chat Sessions.

MORNING STAR

Description

The Morning Star is a bottom reversal signal. Like the planet Mercury, the morning star,

it foretells that brighter things - sunrise, is about to occur, or that prices are going to go

higher. It is formed after an obvious downtrend. It is made by a long black body, usually

one of the fear-induces days at the bottom of a long decline. The following day gaps

down. However, the magnitude of the trading range remains small for the day. This is

the star of the formation. The third day is a white candle day. And represents the fact

that the bulls have now stepped in and seized control. The optimal Morning Star signal

would have a gap before and after the star day.





The make up of the star, an indecision formation, can consist of a number of candle

formations. The important factor is to witness the confirmation of the bulls taking over

the next day. That candle should consist of a closing that is at least halfway up the black

candle of two days prior.

Criteria

1. The downtrend has been apparent.

2. The body of the first candle is black, continuing the current trend. The second

candle is an indecision formation.

3. The third day shows evidence that the bulls have stepped in. That candle should

close at least halfway up the black candle.

Signal Enhancements

1. The longer the black candle and the white candle, the more forceful the reversal.

2. The more indecision that the star day illustrates, the better probabilities that a

reversal will occur.

3. A Gap between the first day and the second day adds to the probability that a

reversal is occurring.

4. A gap before and after the star day is even more desirable.

5. The magnitude, that the third day comes up into the black candle of the first day,

indicates the strength of the reversal.

Pattern Psychology

A strong downtrend has been in effect. The sellers start getting panicky. There is a large

sell-off day. The next day as the selling continues, bulls are stepping in at the low prices.

If there is big volume during these days, it shows that the ownership has dramatically

changed hands. The second day does not have a large trading range. The third day the

bears start to lose conviction as the bull increase their buying. When the price starts




moving back into the trading range of the first day, the sellers diminish and the buyers

seize control.

The Morning Star - A Powerful Candlestick Reversal

Signal, Stocks & Commodities Magazine

The major Candlestick reversal signals are very illuminating. They are hundreds

of years of visual observations revealing high probabilities of a reversal

occurring. Not to overstate the obvious, but if Candlestick signals didn’t work, we

would not be looking at them today. The Japanese rice traders that they used

candlestick signals became enormously wealthy.

The major benefit of Candlestick signals is that they are very easy to learn and

identify. You do not need to learn formulas. You do not have to do extensive

fundamental analysis. A Japanese Candlestick reversal signal is a visual

identification of a change in investor sentiment. Of the 50 or 60 Candlestick

signals, there are 10 major signals that occur at the reversals the majority of the

time.

The Morning Star signal is one of the most clear, symmetrical candlestick

reversal patterns.




The Japanese rice traders described it as the planet Mercury, the morning star. It

foretells that brighter things, sunrise, is about to occur, meaning that prices are

going to go higher. It is formed after an obvious downtrend. The three day signal

consists of a long black body, usually one produced of the fear induced at the

bottom of a long decline. The following day gaps down. However, the magnitude

of the trading range remains small for the day. This produces an indecision type –

day. The third day is a white candle day. The white candle represents the fact

that the bulls have now stepped in and seized control. The optimal Morning Star

signal would have a gap before and after the star day.

The make up of the star, an indecision formation, can consist of a number of

candle formations, however a Doji or a spinning top is usually the predominant

formation in a Morning Star signal. The important factor is to witness the

confirmation of the bulls taking control the next day. That candle should consist of

a closing more than half-way up the black candle of two days prior.

Identifying the Morning Star signal is relatively easy. It is visually apparent to the

eye. There are some very simple parameters that can enhance the Morning Star

signal’s probabilities of creating a reversal.





reversal. This demonstrates a more severe change in investor sentiment.

2. The more indecision that the star day illustrates, the better probabilities

that a reversal will occur, such as a Doji signal.

3. A gap between the first day and the second day adds to the probability that

a reversal is occurring. A gap before and after the star day is even more

desirable.

4. The higher the close of the third day, coming up past the middle point of

the black candle of the first day, reveals more potential in the strength of

the reversal.

The probability of a Morning Star signal reversing a trend becomes extremely

high when found in oversold conditions. Using a simple indicator such as

stochastics, in the 20 area or below, represents an oversold condition.The most

important element of the signal is the magnitude of the white candle’s close

during the third day.

Candlestick analysis can be used in all trading entities. Whether doing a long-

term evaluation on a monthly Dow chart or a one minute chart trading the e-

minis, the signals working just as effectively for revealing change in investor

sentiment during that time frame. As seen in the daily Dow chart, the Morning

Star signals revealed when the Dow established a bottom. Being able to analyze

the direction of a DOW l increases the probabilities of being a correct trade when

analyzing individual stock charts.




In July and August 2004, the Dow index reversed after Morning Star signals.

Note point A, when the stochastics were on the oversold condition, a three day

morning Star signal appeared. Then two Morning Star signals appeared a week

later to start the next rally again in the Dow Jones Averages. In both cases, it

becomes very clear to start buying stocks that have produced good candlestick

“buy” signals.

Being able to evaluate that the market is moving up in general allows the

candlestick investor to identify and establish long positions more aggressively at

the bottom of tread reversals. For example, buying the AVI Biopharma Inc. chart




as it produced a Morning Star signal, just as the markets were bottoming, would

have created a very large percentage return.

Candlestick signals occur in the markets every single day. Scanning software

makes finding the signals very easy. They can find the best candlestick trade in

less than 10 minutes every day. This is not rocket science. This is using the same

successful analysis that has been used for centuries. There we willcan be a very

simple trading parameter. When you see a Morning Star occurring in oversold

condition, the probabilities of being in a successful trade is very high.

Stock Market Information on How to Trade the

Shooting Star Signal




There is no shortage of stock market information, whether you are researching the

internet or the book stores. Be prepared to be flooded with material covering stock

market information. The biggest decision is how to go about selecting which materials to

start reading. Do you want to learn about day-trading? Are you more interested in

learning options, or trading commodities? Maybe you want to be better educated to

discuss your portfolio with your Broker. How do you know if the stock market information

you are reviewing was written by someone qualified in the subject? Perhaps you will

allow us to narrow the field a bit. Stephen Bigalow is not only the author of 'High Profit

Candlestick Patterns', and 'Profitable Candlestick Trading', but He Trades For A

Living! The same information he teaches throughout this website, and in all his

training products, is the same information he uses every day to make his own trading

decisions for his personal portfolio and for his professional Hedge Fund. He contributes

new articles each week to aid other investors on the advantage of combining

candlestick signals and how to read candlestick charts. We hope you enjoy the following

training information for the Shooting Star Signal. For additional articles on trading

individual candlestick signals please begin with Candlestick Images and Explanations.

The Shooting Star

Description

The Shooting Star is comprised of one candle. It is easily identified by the presence of a

small body with a shadow at least two times greater than the body. It is found at the top







of an uptrend. The Japanese named this pattern because it looks like a shooting star

falling from the sky with the tail trailing it.

Criteria


2. The real body is at the lower end of the trading range. The color of the body is

not important although a black body should have slightly more bearish

implications.

3. There should be no lower shadow or a very small lower shadow.

4. The following day needs to confirm the Shooting Star signal with a black candle

or better yet, a gap down with a lower close.

Signal Enhancements


2. A gap up from the previous day's close sets up for a stronger reversal move

provided.

3. The day after the Shooting Star signal opens lower.

4. Large volume on the Shooting Star day increases the chances that a blow-off

day has occurred although it is not a necessity.

Pattern Psychology

After a strong up-trend has been in effect, the atmosphere is bullish. The price opens

and trades higher. The bulls are in control. But before the end of the day, the bears step

in and take the price back down to the lower end of the trading range, creating a small

body for the day. This could indicate that the bulls still have control if analyzing a

Western bar chart. However, the long upper shadow represents that sellers had started




stepping in at these levels. Even though the bulls may have been able to keep the price

positive by the end of the day, the evidence of the selling was apparent. A lower open or

a black candle the next day reinforces the fact that selling is going on.

Investing stock market advice using the Evening Star

Candlestick signal

So you want investing stock market advice and naturally you begin with a 'Google'

search. But, this returns 56,700,000 pages for your review. Where do you begin? Do

you really want to plow through all those pages and be bombarded with "buy this" or

"register here for investing stock market advice"? Internet sites are a business, and we

are no exception, but what happened to all the great 'free' material the internet is

supposed to provide? The Candlestickforum continues it's commitment to provide free

stock market advice. We hope you are following our 'Candlestick Images and

Explanations'. Each week we add another candlestick signal where we provide a

graphic illustration of candlestick chart signals with descriptions for recognizing the

candlestick signal, the trading criteria with signal enhancements and the pattern

psychology behind the signal. We back up our promise to provide free stock market

advice. Every Thursday evening Stephen Bigalow presents a live stock chat session

over the internet. Absolutely FREE, no registration needed, come join us and you will

find the investing stock market advice you have been looking for. Now for the free

advice we promised....

EVENING STAR

( Sankawa Yoi No Myojyo )



http://candlestickforum.com/PPF/Parameters/10__/candlestick.asp




Description

The Evening Star pattern is a top reversal signal. It is exactly the opposite of the

Morning Star signal. Like the planet Venice , the evening star, it foretells that darkness is

about to set or that prices are going to go lower. It is formed after an obvious uptrend. It

is made by a long white body occurring at the end of an uptrend., usually when the

confidence has finally built up. The following day gaps up, yet the trading range remains

small for the day. Again, this is the star of the formation. The third day is a black candle

day and represents the fact that the bears have now seized control. That candle should

consist of a closing that is at least halfway down the white candle of two days prior. The

optimal Evening Star signal would have a gap before and after the star day.

Criteria

1. The uptrend has been apparent.

2. The body of the first candle is white, continuing the current trend. The second

candle is an indecision formation.

3. The third day shows evidence that the bears have stepped in. That candle should

close at least halfway down the white candle.

Signal Enhancements

1. The longer the white candle and the black candle, the more forceful the reversal.

2. The more indecision that the star day illustrates, the better probabilities that a

reversal will occur.




3. A gap between the first day and the second day adds to the probability that a

reversal is occurring.

4. A gap before and after the star day is even more desirable. The magnitude, that

the third day comes down into the white candle of the first day, indicates the

strength of the reversal.

Pattern Psychology

A strong uptrend has been in effect. The buyers can't imagine anything going wrong,

they are piling in. However, it has now reached the prices where sellers start taking

profits or think the price is fairly valued. The next day all the buying is being met with the

selling, causing for a small trading range. The bulls get concerned and the bears start

taking over. The third day is a large sell off day. If there is big volume during these days,

it shows that the ownership has dramatically changed hands. The change of direction is

immediately seen in the color of the bodies.

Swing Trading Refined Using Candlestick Signals!

Candlestick signals become important for swing trading. Understanding what the

signals are telling you will produces a very accurate format for swing trading as

well as all other forms of investing. Swing trading, with a short-term outlook,

requires being able to see exactly what the trends are doing over a 3 to 10 day

period. The use of Candlestick's become much more important especially in a

market trend that is not showing very much conviction one way or the other.

Understanding what the Candlestick signals are telling you becomes an

important factor for making profits and for limiting losses. Interpreting what the

signals are telling you is very easy. Whether swing trading, day-trading, or long




term investing, the probabilities of being on the correct side of the trade grows

dramatically when utilizing the information conveyed in a Candlestick signal.

Market Direction - As was noted late last week and early this week, two Harami

signals indicated that the downtrend had stopped. At that time, with the trend

apparently bottoming midway between the 50 day moving average in the 200 day

moving average, a quick analysis would have suggested an up move to test

either the 20 day moving average or the 50 day moving average. However,

Thursday produced a doji, demonstrating indecision, and Friday created a

bearish candle in the Dow, that closed more than halfway down the bullish candle

the day prior to the doji. The last three days formed an Evening Star signal. A

true Evening Star signal would be witnessed when the stochastics are in the

overbought area.




Even though the Evening Star signal did not occur in overbought area, the

formation still has to be evaluated as to what is the investor sentiment appearing

to be at this time. Very simply stated, after Thursday's doji, there was an

opportunity for the Bulls to continue the rally. But we saw that the selling had

stepped back in. Had we seen a bullish day on Friday, the evaluation of the

market trend would have been simple, they are still moving this market up. After

the big sell-off on Friday, and the stochastics coming out of the oversold area but

turning back down, now allows us to analyze what Monday's market action could

produce.

Before the appearance of the two harami's last week, the Dow’s pullback had

been fairly severe. The projection had been that it may test the 200 day moving

average down near the 9800 level. The market action, as seen this past week




reveals a mild bounce in a down-trending market. Friday's action, after the doji,

and forming a an evening Star signal, should now tell us that if we see weakness

on Monday, the last weeks bounce may be over and we are now still heading for

the 200 day moving average.

Is this a complete change of projections for just a few days ago? Yes, but that is

what using the candlestick signals tell you to do. What could have been the

possibilities from the market indications a few days ago has been completely

altered by what the candlestick signals are telling us now. That is the whole

premise of using candlestick analysis. It changes the investment strategy from

being positioned in the direction of what you " think" the market is going to do to

a market strategy based upon what the candlestick signals are indicating the

investor sentiment is now.

What may have been the correct analysis five days ago may not be the same

analysis today. Most investors lose money because once they make an analysis

of the market direction, their ego holds them to that analysis versus being willing

to alter their analysis when things change, whether it be three days, three weeks,

or three months. What looked like could be a test of the 50 day moving average

in the Dow just a few days ago, now has the probabilities reverting back to

testing the 200 day moving average if further weakness as seen in the market on

Monday.

The Evening Star signal, as described from the excerpt from the book " Profitable

Candlestick Trading" is considered one of the major signals. Although it did not

occur in overbought situation, as seen in the market this week, it still represents




the there has been a change in investor sentiment compared to three days ago.

Recognizing the signals gives the candlestick investor a leg up on which way the

market may be heading.

EVENING STAR

(Sankawa Yoi No Myojyo)

Description

The Evening Star pattern is a top reversal signal. It is exactly opposite the

Morning Star signal. Like the planet Venice, the evening star, it foretells that

darkness is about to set or that prices are going to go lower. It is formed after an

obvious uptrend. It is made by a long white body occurring at the end of an up-

trend., usually when the confidence has finally built up. The following day gaps

up, yet the trading range remains small for the day. Again, this is the star of the

formation. The third day is a black candle day. And represents the fact that the

bears have now seized control. That candle should consist of a closing that is at

least halfway down the white candle of two days prior. The optimal Evening Star

signal would have a gap before and after the star day.

Criteria

1. The uptrend has been apparent.




2. The body of the first candle is white, continuing the current trend. The

second candle is an indecision formation.

3. The third day shows evidence that the bears have stepped in. That candle

should close at least halfway down the white candle.

Signal Enhancements


reversal.

2. The more indecision that the star day illustrates, the better probabilities

that a reversal will occur.

3. A gap between the first day and the second day adds to the probability that

a reversal is occurring.

4. A gap before and after the star day is even more desirable. The

magnitude,

that the third day comes down into the white candle of the first day,

indicates the strength of the reversal.

Pattern Psychology

A strong uptrend has been in effect. The buyers can't imagine anything going wrong, they are piling in. However, it has now reached the prices where sellers start taking profits or think the price is fairly valued. The next day all the buying is being met with the selling, causing for a small trading range. The bulls get concerned and the bears start taking over. The third day is a large sell-off day. If there is big volume during these days, it shows that the ownership has dramatically changed hands. The change of direction is immediately seen in the color of the bodies.




What is the Strongest Candlestick Signal? The Kicker

Signal!

What is the strongest candlestick signal? The Kicker signal! It demonstrates a

severe change an investor sentiment. A good rule of thumb is that if an investor

sees a Kicker signal, he/she should go long or short depending on whether it is a

Bullish Kicker or a Bearish Kicker.

And that is exactly what we saw happen today in the NASDAQ index. The

Bearish Kicker signal, especially with the stochastics in the overbought area,

indicates that we want to be out of our long positions, either sitting in cash or

shorting the market.

KICKER SIGNAL

( Keri Ashi )

Description

The Kicker signal is the most powerful signal of all. It works equally well in both

directions. Its relevance is magnified when occurring in the overbought or

oversold area. It is formed by two candles. The first candle opens and moves in

the direction of the current trend. The second candle opens at the same open of





the previous day, a gap open, and heads in the opposite direction of the previous

day’s candle. The bodies of the candles are opposite colors. This formation is

indicative of a dramatic change in investor sentiment. The candlesticks visually

depict the magnitude of the change.

Criteria

1. The first day’s open and the second day’s open are the same. The price

movement is in opposite directions from the opening price.

2. The trend has no relevance in a Kicker situation.

3. The signal is usually formed by surprise news before or after market hours.

4. The price never retraces into the previous day's trading range.

Signal Enhancements

1. The longer the candles, the more dramatic the price reversal.

2. Opening from yesterday’s close to yesterday’s open already is a gap.

However, gapping away from the previous day’s open further enhances the

reversal.

Pattern Psychology

The Kicker signal demonstrates a dramatic change in the investor sentiment.

Something has occurred to violently change the direction of the price. Usually a

surprise news item is the cause of this type of move. The signal illustrates such a

change in the current direction that the new direction will persist with strength for

a good while.




There is one caveat to this signal. If the next day prices gap back the other way,

liquidate the trade immediately. This does not happen very often, but when it

does, get out immediately.

Market Direction – With the NASDAQ producing a Kicker signal to the downside

and the Dow in a severe sell-off, the probabilities point to being short in this

market. Crude Oil prices spiked up another $1.50 today. The fear of much higher

oil prices is now affecting the market conditions. Crude Oil is now trading at new

contract highs.

The Federal Reserve raised interest rates by a quarter of a point yesterday. It is

not unusual to see a rally the same day as the announcement, then a turnaround

the next day. Does this mean the turnaround is going to last for a while? The

Kicker signal today in the NASDAQ is a very good indication that it will.




The weakness shown by the Kicker signal in the NASDAQ, with stochastics in

the overbought area, should at least have the NASDAQ test the 50-day moving

average. However, the strength of the Kicker signal could start a downtrend that

could test the recent lows. The stochastics in both the NASDAQ and the Dow

indicate we should have a few days, at least, to the downside.

The semiconductors tried to bounce up in the last couple of days but have now

failed. As seen in our daily follow-ups, these positions were closed out on the

weak open today. Once again, the advantage of the Candlestick signals is that

they reveal opportune times to get into stocks as well as get out of them. The

weak signals in the semiconductor stocks, over the past day or two, made it clear

that the sellers were starting to come back into these stocks. Today, SOX pulled

back with a Bearish Engulfing signal to the 50-day moving average with




stochastics in the overbought area starting to turn down. This could also lead to a

test of the recent lows.

Entry Points - Each day our recommendations include the conditions that should

occur before entering a trade. For example, AGI and AFCI, on Wednesday, were

recommended but with the caveat of buying on strength. In both of these cases,

they opened lower than Tuesday’s close. The market conditions, showing selling

from the open Wednesday, would have had us waiting to see if there was any

strength. It is important to analyze what the market conditions are when entering

a trade. Please read all of the stipulations in the recommendations. Not entering

a trade when conditions are not correct will keep your funds from being placed in

trades that are not working. Those funds remain available to be placed in better

positions. Read the recommendation carefully.

SOX, Semiconductor Index




The retailing stocks have been acting weak for the past week. This pullback in

the market has added to their downside move. During these indecisive periods of

the market, it is wise to have both long and short positions in the portfolio. For the

specific purpose of being able to shift the portfolio quickly once the trend is

revealed coming out of that indecisive period. This makes the shift much more

manageable.

Note how the selling came into stocks such as Children’s Palace a little over a

week ago. The stochastics turning down and seeing consistent selling signals

made this a prime candidate as a short position when the market indexes were in

an iffy stage.




Stock Market Technical Analysis Simplified With

Candlestick Signals

Stock market technical analysis is dramatically improved when applying

Candlestick signals. Working off the premise that the Candlestick signals are the

cumulative knowledge of everyone who is buying or selling during a specific time

frame, the evaluation of technical trends becomes better formatted when

understanding what the signals are telling you. The effectiveness of Candlestick

signals in stock market technical analysis is more clearly evident in the past

couple of weeks when experiencing world events such as terrorist attacks.




Stock market technical analysis using Candlestick analysis allowed for a trading

strategy on the morning of the bombings. The Candlestick signals indicate what

investor sentiment is doing during any particular time frame. What were the

market conditions on the morning of the London bombings? The stochastics

were in the oversold condition. The previous two weeks had been showing

Candlestick bottoming signals. Two sets of Morning Star signals had formed as

stochastics had approached the oversold condition. This stock market technical

analysis, without an extracurricular world event, was indicating that investor

sentiment was starting to turn bullish once more.

With this stock market technical analysis in mind, upon hearing the news of the

London bombings, an event that could dramatically influence investor sentiment,

a trading strategy could be implemented. Knowing that the markets were already

in a short-term oversold condition, where the Dow had appeared to hold the

10,300 level, a simple analysis could be made after hearing the news. Our stock

market technical analysis indicated to allow the Candlestick signal of that day

dictate what our strategy should be.

Utilizing stock market technical analysis in this manner becomes very simple.

What was going to be the Candlestick formation that day? The markets

immediately sold off that morning. They did so with good strength very early in

the day. What should become the investment strategy? Our stock market

technical analysis already told as we are in an oversold condition. Our

Candlestick signals indicated that buying had been trying to start for the past two

weeks. Prices were already down big early in the day. As we had advised in our

members' morning comments, it was a day to hold the long positions until we

saw what Candlestick formation was going to occur. The candlestick charts

clearly identify when signals may occur.






Had the day closed at the lower end of the trading range, it would have provided

a completely different scenario than the formation of a Hammer signal. The

Hammer signal revealed that investor sentiment was not in a massive selling

mode. This provided the signal to buy aggressively upon seeing more strength

the following day.

HAMMERS

(Takuri)

Description

The Hammer is composed of one candle. It is easily identified by the presence of

a small body with a shadow at least two times greater than the body. Found at

the bottom of a downtrend, this shows evidence that the bulls have started to

step in. The color of the small body is not important but a white candle has

slightly more bullish implications than the black candle. A positive day is required

the following day to confirm this signal.

Criteria




1. The lower shadow should be at least two times the length of the body.

2. The real body is at the upper end of the trading range. The color of the

body is not important although a white body should have slightly more

bullish implications.


4. The following day needs to confirm the Hammer signal with a strong bullish

day.

Signal Enhancements

1. The longer the lower shadow, the higher the potential of a reversal

occurring.

2. A gap down from the previous day’s close sets up for a stronger reversal

move provided the day after the Hammer signal opens higher.

3. Large volume on the Hammer day increases the chances that a blow off

day has occurred.

Pattern Psychology

After a downtrend has been in effect, the atmosphere is very bearish. The price

opens and starts to trade lower. The bears are still in control. The bulls then step

in. They start bringing the price back up towards the top of the trading range. This

creates a small body with a large lower shadow. This represents that the bears

could not maintain control. The long lower shadow now has the bears

questioning whether the decline is still intact. A higher open the next day would

confirm that the bulls had taken control.




Market Direction - The series of Morning Star signals, confirmed with the bullish

candle after the London bombing Hammer day, started the market uptrend.

Friday, an option expiration day, started to show some toppiness. Both the Dow,

the NASDAQ, and the S&P 500 showed indecisive trading. This was not

unexpected on a Friday in the summertime and on an options expiration day.

However, the stochastics in all of the indexes have now reached the overbought

area.

It would not be unusual to see some pullback occurring from these levels. This

pullback would be more of a profit-taking process versus a reversal. The uptrend

appears to be intact. The fear of the feds continuing to raise interest rates as well

as oil prices in high trading areas has not produced any euphoric buying as of

yet. This becomes a good indicator that the uptrend should persist.




If a pullback should start appearing, with the evidence of selling starting on

Monday or Tuesday, a logical pullback target would be the 50 day and 200 day

moving averages. Weakness, confirming Friday's Doji signals, would be the time

to be taking some profits from this recent rally. The strategy, after the test of the

MA's, would be to analyze which sectors appear to be the next strong movers.




If the markets start pulling back from here, anticipating that the markets are in an

uptrend, the Candlestick signals make it very easy to identify when the pullback

is over.

As illustrated in our recommendation of CTTY, once the breakout occurred and

the profit-taking came into the stock, the Inverted Hammer, followed by a Bullish

Engulfing signal, made for a very profitable trade. CTTY formed another Inverted

Hammer on Thursday with some confirmed buying on Friday. Watch for the next

leg up.




There are always opportunities being revealed when Candlestick signals are

used for finding high profit trades.

The Inverted Hammer Signal

Learning how to play the stock market is an endeavor that most investors never

master. Learning how to play the stock market involves controlling one's emotions.

Candlestick signals are a great benefit for the beginning investor as well as the

experienced trader. The information conveyed in the major candlestick signals is the

visual depiction of investor sentiment. Most investors' sentiment unfortunately involves

the extremes of human emotions, fear and greed. Learning how to play the stock

market is an educational process. An investor should learn the basics of why prices

move. The candlestick signals, especially the 12 major signals, involve the visual

elements produced by human emotions. Being able to correctly analyze what these





emotions are doing at specific points of a trend become a valuable pool for successful

investing.

The information incorporated into a major candlestick signal provides a huge advantage

for those investors just learning how to play the stock market. The result of simple

visual analysis permits an investor to take advantage of high probability situations. The

major signals are created by the aspects of human emotions being put into trading

decisions. Investor psychology produces reoccurring thought processes as investors go

through different stresses of a price trend. The 12 major signals are a very important

tool when learning how to play the stock market. Understanding the investment

psychology that creates each signal is an important element for understanding how

professional investors think. One of the most important facets for learning how to play

the stock market is knowing how to put the probabilities in your favor. The candlestick

signals create a format that does just that. Hundreds of years of observations have

resulted in reversal signals that are easy to identify. When learning how to play the

stock market, it is very important to find indicators that have a high probability of

producing profits and a low probability of producing losses. This may be stating the

obvious. However, the utilization of candlestick signals is being done by a very small

percentage of the investment population. Use the major signals to start profiting from

your investment decisions immediately.

The Inverted Hammer produces some very important attributes when analyzing a

potential reversal. It is considered one of the 12 major signals. Learn how to use an

inverted hammer signal correctly. The probabilities of being in a correct trade when

utilizing this signal becomes extremely high.






INVERTED HAMMER

Description

The Inverted Hammer is comprised of one candle. It is easily identified by the

small body with a shadow at least two times greater than the body. Found at the

bottom of a downtrend, this shows evidence that the bulls are stepping in, but the

selling is still going on. The color of the small body is not important but the white

body has more bullish indications than a black body. A positive day is required

the following day to confirm this signal.

Criteria


2. The real body is at the lower end of the trading range. The color of the body is

not important, although a white body should have slightly more bullish

implications.

3. There should be no lower shadow, or a very small lower shadow.

Signal Enhancements


2. A gap down from the previous day's close sets up for a stronger reversal

move.

3. The day after the inverted hammer signal opens higher.

4. Large volume on the day of the inverted hammer signal increases the

chances that a blowoff day has occurred.




Pattern Psychology

After a downtrend has been in effect, the atmosphere is bearish. The price opens

and starts to trade higher. The Bulls have stepped in, but they cannot maintain

the strength. The exisiting sellers knock the price back down to the lower end of

the trading range. The Bears are still in control. But the next day, the Bulls step in

and take the price back up without major resistance from the Bears. If the price

maintains strong after the Inverted Hammer day the signal is confirmed.



candlestick charts provide profitable swing trades

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