jcpr manual.pdf

Greg Morris’ Japanese Candle Pattern Recognition

MetaStock® Add-on Manual

Printed in the USAAll Rights Reserved

Copyright © 2011

MetaStock90 South 400 West, Suite 620

Salt Lake City, UT 84101 http://www.metastock.com

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Except as permitted by law, no part of this document may be reproduced or transmitted by any process or means without the prior written consent of Thomson Reuters, MetaStock, and Gregory L. Morris. By publishing this document Thomson Reuters, MetaStock, and Gregory L. Morris do not guarantee that any information contained herein is or will remain accurate or that use of the information will ensure correct and faultless operation of the relevant product or service. MetaStock and Gregory L. Morris provide products and services as tools to be used by investors who are aware of the risk inherent in securities trading, not as recommendations to buy or sell. Thomson Reuters, its agents, affiliates, and employees shall not be held liable to or through any user for any loss or damage whatsoever resulting from reliance on the information contained within this document or through the use of Thomson Reuters products or services.

This product is not a recommendation to buy or sell, but rather a guideline to interpreting the specified analysis methods. This information should only be used by investors who are aware of the risk inherent in securities trading. Thomson Reuters, MetaStock, and Gregory L. Morris accept no liability whatsoever for any loss arising from any use of this product or its contents.

Table of Contents

Chapter 1 - Introduction..................................................7Welcome ................................................................................. 7Benefits of this Add-on .......................................................... 7Background ............................................................................8How to Use this Manual .........................................................9

Chapter 2 - Getting Started ...........................................11To Install the Add-on ............................................................ 11

Chapter 3 - Components Included ................................ 13Indicators Included ...............................................................13Explorations and System Tests Included .............................13Expert Advisors Included ......................................................13Templates Included ..............................................................13

Chapter 4 - Analyzing Candle Patterns......................... 15Pattern Breakdown .............................................................. 15

Pattern Breakdown Example ...................................................... 15Pattern Detail Information ................................................... 16Price Based Support and Resistance ................................... 19Candle Pattern Filtering ...................................................... 19Ideal Acceptable Candle Patterns and Variations .............. 19

More reversal patterns than continuation patterns ................... 20More bullish reversals than bearish reversals ........................... 20

A Pattern is Identified but Changes Color .......................... 20A Clear Top/Bottom Was Made and There Was No Candle Pattern ................................................................................. 21Some Japanese Candle Patterns Do Not Appear ................ 21

Chapter 5 - Greg Morris’ Indicators ............................. 25Personal Note from Greg Morris ..........................................25JCPR Candle Trend ..............................................................25JCPR Support & Resistance .................................................26JCPR Filtering Binary ...........................................................26

Greg Morris’ Japanese Candle Pattern Recognition Manual iii

Table of Contents

JCPR Filtering Binary Example ................................................... 27Filtering Bearish Reversal Patterns ............................................ 27Filtering Bullish Reversal Patterns ............................................. 27

Chapter 6 - Candle Patterns ........................................ 29Included Candle Patterns ................................................... 29

Reversal Patterns ........................................................................29Continuation Patterns .................................................................30

Candle Pattern Images ........................................................ 31Engulfing + ...................................................................................31Engulfing - ....................................................................................31Harami + ...................................................................................... 32Harami - ....................................................................................... 32Harami Cross + ............................................................................ 32Harami Cross - ............................................................................. 32Piercing Line + ............................................................................. 32Dark Cloud Cover - ...................................................................... 32Doji Star + .................................................................................... 33Doji Star - .................................................................................... 33Meeting Line + ............................................................................. 33Meeting Line - ............................................................................. 33Three White Soldiers + ................................................................ 33Three Black Crows - .................................................................... 33Morning Star + ............................................................................34Evening Star - ..............................................................................34Morning Doji Star - ......................................................................34Evening Doji Star + ......................................................................34Abandoned Baby + ......................................................................34Abandoned Baby - ......................................................................34Breakaway + ................................................................................ 35Three Inside Up + ........................................................................ 35Three Inside Down + .................................................................... 35Three Outside Up + ..................................................................... 35Three Outside Down - ................................................................. 35Kicking + ......................................................................................36Kicking - .......................................................................................36Unique Three River + ...................................................................36Three Stars in the South + ..........................................................36Concealing Baby Swallow + ........................................................36

iv Greg Morris’ Japanese Candle Pattern Recognition Manual

Table of Contents

Stick Sandwich + .........................................................................36Homing Pigeon + ......................................................................... 37Ladder Bottom + ......................................................................... 37Matching Low + ........................................................................... 37Upside Gap Two Crows - ............................................................. 37Identical Three Crows - ............................................................... 37Deliberation - ............................................................................... 37Advance Block - ...........................................................................38Two Crows - .................................................................................38Separating Lines + .......................................................................38Separating Lines - .......................................................................38Rising Three Methods + ..............................................................38Falling Three Methods - ..............................................................39Upside Tasuki Gap + ....................................................................39Downside Tasuki Gap - ................................................................39Side by Side White Lines + ..........................................................39Side by Side White Lines - ...........................................................39Three Line Strike + ...................................................................... 40Three Line Strike - ...................................................................... 40Upside Gap Three Methods + ..................................................... 40Downside Gap Three Methods + ................................................ 40

Chapter 7 - Common Questions ................................... 43Why are single-day candles not part of this product? .........43Can you use candle patterns on intraday or weekly data? ..43What mistakes do I see the most in the analysis of candle patterns? ..............................................................................44What do you use to determine the Trend? ..........................44

Chapter 8 - Understanding Explorations and System Tests ........................................................................... 45

JCPR Reversal Patterns .......................................................45JCPR Reversal Patterns Confirmed .....................................45JPCR Filtered Reversal Patterns ..........................................45JCPR Filtered Reversal Patterns Confirm ............................45

Greg Morris’ Japanese Candle Pattern Recognition Manual v

Table of Contents

Chapter 9 - Understanding Expert Advisors .................47JCPR:Japanese Candle Pattern Recognition .......................47

Expert Commentary .................................................................... 47JCPR Expert Commentary Example ...........................................48

Chapter 10 - Understanding Templates........................53JCPR Clean Chart .................................................................53

Descriptions of JCPR Clean Chart ............................................... 53JCPR Clean Chart Example ......................................................... 53

JCPR Filtering Indicators ..................................................... 54Descriptions of JCPR Filtering Indicators ...................................54JCPR Filtering Indicators Example .............................................54

Chapter 11 - Using Indicators ....................................... 55To Plot an Indicator ............................................................. 55

Chapter 12 - Using Explorations ...................................57To Run an Exploration .........................................................57The Exploration Report ........................................................ 61

Chapter 13 - Using System Tests...................................63Changing the System Tests .................................................63Personal Note from Greg Morris ..........................................63To Run a System Test .......................................................... 64The System Test Report .......................................................67

Chapter 14 - Using Expert Advisors ............................. 69To Attach Experts to Your Charts ....................................... 69To View the Expert Commentary .........................................70

Chapter 15 - Using Templates ...................................... 71To Apply a Template to an Open Chart ................................71

Chapter 16 - Sources.....................................................73

vi Greg Morris’ Japanese Candle Pattern Recognition Manual

C HAPTER 1 INTRODUC TION

WelcomeCongratulations on your purchase of Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. This product was designed to help you quickly identify real Japanese candle patterns and offer a number of different ways to use them in your trading.

Benefits of this Add-onSo what does Greg Morris’ Japanese Candle Pattern Recognition do for you? Below are several key things this MetaStock add-on provides.

1. Accurate identification of real Japanese candle patterns.2. A number of explorations to help you find candle patterns

and filtered candle patterns.3. An expert that gives you details on each pattern.4. A new trend measure that is used by the software to find pat-

terns that you can use outside of this software for your other analysis.

5. An automatic identification of price based support and resis-tance levels used by the software to help identify the best patterns, which can also be used outside of this product for your other analysis.

6. Filtered candle patterns based upon classic technical indica-tors and volume.

7. And much more.

Greg Morris’ Japanese Candle Pattern Recognition Manual 7

Chapter 1: Introduction

BackgroundI attended a Market Technician Association seminar in Phoenix, AZ in 1988. There was a large contingent of Japanese traders present and they presented their charting techniques. It was the first time I had ever heard of "Hi Ashi," which is what the Japanese call their candlestick chart. I was working with N-Squared Computing then and we decided to create a charting product using Japanese patterns with automatic recognition capability. I traveled to Japan and stayed with Takehiro Hikita who was an active red bean and rice trader in Yokohama. He was intent on teaching me the art and also helping in translating many of the books that are listed at the end of this manual (see Sources).

There are many books out now on candle patterns and most software programs have candlestick charting capability. However, very few have the correct methodology (original Japanese). This product uses ONLY the candle patterns that came from original Japanese literature, with two exceptions. The Three Outside and Three Inside patterns were created when I was at N-Squared Computing to enhance the Engulfing and Harami patterns. They do that quite well, but please realize they are NOT real Japanese candle patterns.

Note: I find it amusing that in new books on candlesticks, the Three Outside and Three Inside patterns are generally included as if they are actual Japanese candle patterns. I think only Steve Nison and I did any original research, the rest obtained their knowledge from us.

For additional study I humbly recommend you refer to the 3rd edition of my book, Candlestick Charting Explained, published by McGraw-Hill. I cover all of the patterns included in this product, the single day patterns, and many others that were created to fill holes in the Japanese literature. This product follows closely the details laid out in the book. The book was first published in 1992 and on its 3rd edition with a vast amount of statistics.

- Greg Morris

8 Greg Morris’ Japanese Candle Pattern Recognition Manual


How to Use this ManualIf you are comfortable with basic tasks in MetaStock, this manual is all you need to learn to use Greg Morris’ Japanese Candle Pattern Recognition. If you are a beginning user, read the MetaStock Getting Started manual before using this add-on.

Below is a summary of the content contained in each chapter.

Chapter Number

Chapter Title Contents

Two Getting Started Instructions on how to install and run Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on

Three Components Included

Overview of the components included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on

Four Analyzing Candle Patterns

Basic information about interpreting candle patterns

Five Greg Morris’ Indicators

Descriptions of the included indicators

Six Candle Patterns Images of the candle patterns used with this add-on

Seven Common Questions

Answers to common questions you might have about this add-on

Eight Understanding Explorations and System Tests

Descriptions of the included Explorations and System Tests



Nine Understanding Expert Advisors

Descriptions of the information contained within the Expert Advisor Commentary

Ten Understanding Templates

Descriptions of the included templates

Eleven Using Indicators Instructions on how to add the Greg Morris’ Japanese Candle Pattern Recognition indicators to a chart

Twelve Using Explorations

Instructions on how to run an Exploration on the Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-On pattern scans

Thirteen Using System Tests

Instructions on how to run a System Test on the Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-On pattern scans

Fourteen Using Expert Advisors

Instructions on how to run an Expert on the Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-On pattern scans

Fifteen Using Templates Instructions on how to apply the Greg Morris’ Japanese Candle Pattern Recognition templates to a chart

Chapter Number




Sixteen Sources Sources used in the creation of this add-on

Chapter Number



C HAPTER 2 G ETTING STAR TED

Included in this chapter are instructions on installing Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

To Install the Add-on

Step Action

1 Insert the Program CD into your CD/DVD drive.

The setup starts automatically.ORIf the auto-run feature of Windows is not enabled on your system, then click Start > Run.

2 In the Open box, type D:\SETUP.EXE.

ORFor Vista and Windows 7 users, Type D: in the Run boxand Click OK. Right click on the Setup.exe file andchoose Run as Administrator.

Note: "D" represents the letter assigned to your CD-ROM drive. If your drive has a different letter assigned, use that letter instead of "D.

3 Click OK.

4 Follow the on-screen instructions to complete the installation.


C HAPTER 3 COMPONENTS INCLUDED

Below is a summary of the indicators, explorations, system tests, expert advisors, and templates included with Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

Indicators Included• JCPR Candle Trend• JCPR Support & Resistance• JCPR Filtering Binary

Explorations and System Tests Included• JCPR Reversal Patterns• JCPR Reversal Patterns Confirmed• JPCR Filtered Reversal Patterns• JCPR Filtered Reversal Patterns Confirm

Expert Advisors Included • JCPR:Japanese Candle Pattern Recognition

Templates Included• JCPR Clean Chart• JCPR Filtering Indicators


C HAPTER 4 ANALYZING C ANDLE PATTERNS

Below you will find basic information on analyzing candle patterns.

Pattern BreakdownThe concept behind Pattern Breakdown is fairly simple, basically, if you combined all the days of the pattern into a single candlestick, would the interpretation support the pattern or not? For example, below is the Evening Star pattern (bearish reversal) with the breakdown to the right of the arrow. The single candlestick line is known as a shooting star which is also bearish. Therefore, the Evening Star breakdown is fully supportive and adds to the quality of the pattern. A number of patterns have breakdowns that are not supportive. This concept is dealt with in the Expert (see To View the Expert Commentary) and the scoring system (see JCPR Expert Commentary Example).

Pattern Breakdown Example

Evening Star Pattern (Bearish Reversal)


Chapter 4: Analyzing Candle Patterns

Pattern Detail InformationBelow is an example of the pattern information box which is located in Greg Morris’ book Candlestick Charting Explained.

Each pattern (bullish + and bearish -) has a box with the following information.

Pattern Name: MTL+ Matching Low + Type: R+

Japanese Name: niten zoko/kenuki

Trend Required: Yes Confirmation: No

Frequency (MDaysBP) 590 FrequentPattern Statistics from 7275 Common Stocks with over 14.6 Million Days of Data

Interval (Days): 1 2 3 4 5 6 7

% Winners: 69 64 62 61 60 59 59

Avg. % Gain: 3.63 4.71 5.42 5.98 6.64 6.98 7.37

% Losers: 31 36 38 39 40 41 41

Avg. % Loss: -2.06 -3.42 -3.92 -4.39 -4.75 -5.13 -5.48Net Profit/Net Loss: 1.23 1.43 1.55 1.65 1.77 1.79 1.82

Section Displayed Information

Pattern Name + for bullish- for bearish

Symbol MTL+ is the symbol used in MetaStock

Type R = reversalC = Continuation

Japanese Name The Romanized name

Trend Required YesNo



Confirmation RequiredSuggestedNo

Note: Confirmation was an attempt to identify candle patterns that universally fell into two categories, one that seemed to never work well, and one that seemed to always work well. Those that never seemed to work well need confirmation (Required). Those that seemed to work well all of the time do not need confirmation (No). A third category was derived because some of those that were originally in the "worked well" category still had a few statistics that were not good, therefore they were placed in the Suggested category, meaning that confirmation is suggested.

Frequency (MDaysBP)

The number of mean (average) days between patterns with a classification of Quite Frequent, Frequent, Average, Rare, and Extremely Rare.

Interval (Days) The 7 different days of performance.




IMPORTANT: A good candlestick pattern will have positive Net Profit/Loss per Trade values across many time frames. And among those patterns producing a net profit per trade, the better patterns will be those with smaller Avg Loss (100 - % Wins) values (i.e., a -3.00% Avg Loss value is better than a -6.00% Avg Loss value). Candlestick patterns are not perfect, so when a trade doesn't work out, you want a pattern whose losing trades produce on average limited losses.Note: These statistics are automatically

incorporated into the candle pattern scoring system in this product.

Net Profit / Net Loss per Trade (Net Profit / Net Loss)

The Net Profit/Loss per Trade value is the average percent gain (or loss) for all trades.Because the New Profit/Loss per Trade is the average result for all trades (winning, breakeven, and losing trades), it can be a positive or negative number, or even zero. If the Net Profit/Loss per Trade value is positive, it means the average trade produced a net profit. If the Net Profit/Loss per Trade value is negative, it means the average trade produced a net loss.The Net Profit/Loss per Trade value is the sum of all individual trade results divided by the number of trades. If all trades produced either a gain or a loss (i.e., there were no 0.00 trade results), then the Net Profit/Loss per Trade value can also be calculated as follows: Net Profit/Loss per Trade = (% Winners x Avg Win) + (% Losers x Avg Loss)




Price Based Support and ResistanceYou will find that when candle patterns occur near support or resistance levels that are price based they will generally work better than when they are not. Price based means the support and resistance lines are horizontal. This software has an automatic support and resistance calculator built in and is also part of the expert scoring technique. In fact, this unique tool can be used for all of your other technical analysis.

Candle Pattern FilteringCandle pattern filtering was developed by Greg Morris in the very early 1990s as an attempt to enhance the quality of signals generated from candle patterns. The concept is really quite simple. If you consider a common technical indicator such as Stochastics %D, we know that whenever %D rises above 80, it is just a matter of time before it will drop back below 80 for a sell signal. I call this period of time when %D is above 80 the bearish pre-signal area. So now if you also can find a bearish reversal candle pattern that occurs while %D is above 80, you are getting an emotionally driven sell signal prior to getting a technically based price sell signal. Of course the inverse is to find bullish reversal patterns when %D is in its bullish pre-signal area below 20.

Ideal Acceptable Candle Patterns and VariationsChapter 6, Candle Patterns illustrates the candle patterns included in this product. This is to show you the "ideal" pattern. One rarely finds the ideal pattern in real life and trading, but you must have some feel for what it should look like. You can then see how the pattern identified by the software can vary from the ideal. I have kept the parameters fairly tight on the identification engine, as the closer they are to ideal, the better then generally are. However, you cannot have the identification parameters too



tight or there would be very few candle patterns appear. The three vertical lines that precede the patterns are to show where the preceding trend was from. If they are descending, then the trend is down, if they are rising, then the preceding trend is up.

Note: The code to identify candle patterns has been set to show the absolute minimum requirements for a pattern. Because of this you may see patterns being identified that are not picture perfect. I felt it was better to keep the pattern identification code as flexible as possible.

More reversal patterns than continuation patterns

I think it should be obvious that identifying the beginning and end of a trend is more important for trading than the identification of a trend that is continuing. While the continuation patterns should not be ignored, they rarely offer a trading opportunity. Continuation patterns are more a sign of confirmation that the trend is still in place. However, if you did not take a position in the early stage of the trend, the continuation would be a second opportunity to place a trade. In this product there are 38 reversal patterns and 15 continuation patterns.

More bullish reversals than bearish reversals

If you have ever studied long term charts of the markets or stocks, you can quickly see that when they are developing tops, they are usually long drawn out affairs (distribution), the decision making of selling is more difficult for most investors. However, at bottoms, the emotions are quicker and bottoms tend to be more sharp and defined. This is why there are more bullish reversal patterns than bearish reversal ones. In this product there are 21 bullish reversal patterns and 17 bearish reversal patterns.

A Pattern is Identified but Changes ColorThe pattern identification process begins with the oldest data loaded and moves forward from there. Many times a pattern such



as a bullish engulfing pattern is identified, then followed by a day where the close is higher, which would be a Three Outside Up pattern. Both patterns are identified. Sometimes you might see a blue continuation pattern turn into a green bullish pattern. Both are still identified, just the coloring changes - it is the later pattern that you should consider. The other instance of change is when the trend measure changes from bullish to bearish in the middle of a developing pattern, then only the first part of the pattern will show.

A Clear Top/Bottom Was Made and There Was No Candle PatternCandle patterns are not to be traded solely by themselves. One cannot expect a candle pattern to identify each top or bottom, it just won't happen. However, after you study a number of charts you will see that they still do a good job of identifying most tops and most bottoms.

Some Japanese Candle Patterns Do Not AppearMy goal with this product was to include all of the real Japanese candle patterns. When I was translating the Japanese literature many of the patterns, in fact, most of the patterns were discussed in general terms. Remember, there were no computers and it was strictly a visual process. I had to interpret the discussion and convert it into computer code for identification. There are a handful of patterns that are extremely rare (detailed discussion in my book "Candlestick Charting Explained") that do not appear unless searching through vast amounts of data. For example, the pattern "3 Stars in the South+" appears so infrequently that I deem it as almost useless. There were only 35 occurrences in over 14.6 Million days of data. "Unique 3 River Bottom" only occurred 36 times. However, it was included because it was a pattern that was discussed in one of the Japanese books. The experimental data was accomplished on a list of 7275 common U.S. stocks,



which included large data histories that totaled over 14.6 Million days of data. Remember this: These are just statistics and all based upon past data - their frequency could improve over time or get worse. You just need to be aware of the fact that they are rare and not be concerned if you don't see them often, if ever.

So, when you see one of these extremely rare patterns, what should you do? I suggest that you make a note of it but do not act upon it. For reference purposes I have also included a list of rare patterns first.

Here is a list of the rare patterns:

Pattern Name Frequency (mean days between patterns)

Concealing Baby Swallow+ 59,109

Side by Side White Lines+ 16,295

Side by Side White Lines- 47,557

Three Line Strike- 17,402

Upside Gap 3 Methods+ 21,598

Downside Gap 3 Methods- 18,365

Upside Tasuki Gap+ 18,839

Downside Tasuki Gap- 20,278

Stick Sandwich+ 19,338

3 Line Strike+ 20,506

Ladder Bottom+ 25,260

Two Crows- 34,679

Advance Block- 60,833

Abandoned Baby+ 87,952

Abandoned Baby- 89,571

Breakaway+ 97,333



Here is a list of extremely rare patterns:

Pattern Name Frequency (mean days between patterns)

In Neck Line- 239,344

Upside Gap 2 Crows- 317,391

Unique 3 River Bottom+ 405,556

3 Stars in the South+ 417,143


C HAPTER 5 G REG MORRIS’ INDICATORS

This MetaStock add-on comes with three powerful indicators that you can use outside of the add-on. In other words, you have access to these indicators from the usual indicator selection process in MetaStock.

Personal Note from Greg MorrisThe JCPR Candle Trend is a new indicator I created that is a powerful trend measure of the market. While it is used within this product to identify trends, you have complete access to it and can change the number of periods if you wish to identify longer trends of data.

Likewise, the JCPR Support and Resistance Indicator can be used outside of this add-on. I think you will find that horizontal support and resistance lines are much better than slanted ones.

JCPR Candle TrendThe JCPR Candle Trend is a new method of identifying short term trends and is used in Greg Morris' Candle Pattern Recognition automatically. However, it is also provided so that you can use it anywhere in MetaStock for any other trend analysis you would like to do. You can change the input value to increase or decrease the trend measure. The default value of 15 is used in the product. If you wanted to look at longer term trends, just increase the input value as appropriate. For example, you can set it at 50, to see longer trends similar to a 50 day average.

The JCPR Candle Trend indicator takes into consideration the true range of prices and expands or contracts based upon those ranges to follow the trend adaptively.


Chapter 5: Greg Morris’ Indicators

JCPR Support & ResistanceThe JCPR Candle Support and Resistance indicator is the one used in this product to automatically calculate the support and resistance lines. The input value is set at 126 and is the number of periods (days) that it looks back in the data to calculate the lines. You can increase the look back periods to expand the concept. Sometimes it will encompass more data and widen the support and resistance lines but not always.

JCPR Filtering BinaryThis binary uses a combination of 3 indicators, 9 day Stochastic %D, 14 day Stochastic %D, and DI (Directional Movement).

Each indicator carries the following weight:

The binary oscillates between +40 and -40.

9%D 20

14%D 10

DI 10


Chapter 5: Greg Morris’ Indicators

JCPR Filtering Binary Example

Filtering Bearish Reversal Patterns

To utilize this as a bearish pattern filter, whenever the indicator is above 20 and the prices are in an uptrend, any bearish reversal pattern will be considered filtered. In other words, that pattern has a better chance at being right than if the Filtering Binary were below 20.

Note: You can use values other than +20 as the bearish reversal filter, such as +30, or even +40. If you use +40, then you are requiring all 3 indicators to be in their signal areas (see above chart).

Filtering Bullish Reversal Patterns

To utilize this as a bullish pattern filter, whenever the indicator is below -20 and the prices are in an downtrend, any bearish reversal pattern will be considered filtered. In other words, that pattern has a better chance at being right than if the Filtering Binary were above -20.


C HAPTER 6 C ANDLE PATTERNS

Included Candle PatternsThe following candle patterns are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

Reversal Patterns Abbrevi

ationPattern Name

E+ Engulfing +E- Engulfing -H+ Harami +H- Harami -HC+ Harami Cross +HC- Harami Cross -PL+ Piercing Line +DC- Dark Cloud Cover -DS+ Doji Star +DS- Doji Star -ML+ Meeting Line +ML- Meeting Line -3WS+ Three White Soldiers +3BC- Three Black Crows -MS+ Morning Star +ES- Evening Star -MDS- Morning Doji Star -EDS+ Evening Doji Star +AB+ Abandoned Baby +AB- Abandoned Baby -B+ Breakaway +


Chapter 6: Candle Patterns

Continuation Patterns

3IU+ Three Inside Up +3ID+ Three Inside Down +3OU+ Three Outside Up +3OD- Three Outside Down -K+ Kicking +K- Kicking -U3R+ Unique Three River +3SS+ Three Stars in the South +SKS+ Stick Sandwich +CBS+ Concealing Baby Swallow +HP+ Homing Pigeon +LB+ Ladder Bottom +MTL+ Matching Low +G2C- Upside Gap Two Crows -ITC- Identical Three Crows -D- Deliberation -AVB- Advance Block -2C- Two Crows -

Abbreviation

Pattern Name

Abbreviation

Pattern Name

SL+ Separating Lines +SL- Separating Lines -R3M+ Rising Three Methods +F3M- Falling Three Methods -TG+ Upside Tasuki Gap +TG- Downside Tasuki Gap -SS+ Side by Side White Lines +



Candle Pattern ImagesBelow are images of the candle patterns used in Greg Morris’ Japanese Candle Pattern Recognition.

SS- Side by Side White Lines -3LS+ Three Line Strike +3LS- Three Line Strike -G3M+ Upside Gap Three Methods +G3M+ Downside Gap Three Methods +ON- On Neck Line -IN- In Neck Line -

Abbreviation

Pattern Name

Candle Pattern Name

Image Candle Pattern Name

Image

Engulfing +

Engulfing -



Harami + Harami -

Harami Cross +

Harami Cross -

Piercing Line +

Dark Cloud Cover -

Candle Pattern Name


Image



Doji Star +

Doji Star -

Meeting Line +

Meeting Line -

Three White Soldiers +

Three Black Crows -

Candle Pattern Name


Image



Morning Star +

Evening Star -

Morning Doji Star -

Evening Doji Star +

Abandoned Baby +

Abandoned Baby -

Candle Pattern Name


Image



Breakaway +

Three Inside Up +

Three Inside Down +

Three Outside Up +

Three Outside Down -

Candle Pattern Name


Image



Kicking + Kicking -

Unique Three River +

Three Stars in the South +

Concealing Baby Swallow +

Stick Sandwich +

Candle Pattern Name


Image



Homing Pigeon +

Ladder Bottom +

Matching Low +

Upside Gap Two Crows -

Identical Three Crows -

Deliberation -

Candle Pattern Name


Image



Advance Block -

Two Crows -

Separating Lines +

Separating Lines -

Rising Three Methods +

Candle Pattern Name


Image



Falling Three Methods -

Upside Tasuki Gap +

Downside Tasuki Gap -

Side by Side White Lines +

Side by Side White Lines -

Candle Pattern Name


Image



Three Line Strike +

Three Line Strike -

Upside Gap Three Methods +

Downside Gap Three Methods +

Candle Pattern Name


Image



On Neck Line -

Note: The second day’s opening is below the first day’s low. Also, the close of the second day is at the low of the first day.

In Neck Line -

Note: The second day’s opening is below the first day’s low. Also, the close of the second day is just barely into the body of the first day.

Candle Pattern Name


Image


C HAPTER 7 COMMON QUESTIONS

Below you will find answers to commonly asked questions.

Why are single-day candles not part of this product?Every day the market sends a message. Here is what I say about single day candlesticks: They are not candle patterns in that you cannot see the evolution of trader psychology through multiple days like you can on candle patterns that are more than one day. I also say single candlesticks still send a message that should neither be traded, nor ignored.

Can you use candle patterns on intraday or weekly data?Of course you can, however, I don't recommend it. The Japanese were adamant about the period of time between the close of one day and the open of the next day as being critically important to the psychological evolution of traders in developing the pattern. With intraday charts, that time period is just the next data tick, not a lot of time to develop a thought. Weekly truly voids the concept as the open is Monday's open, the close is Friday's close, the high is the high for the week (could occur on any day), and the low is the low for the week (again, it could occur on any day of the week). In fact, the open, high, and low could all occur on Monday, with the close on Friday. The trading activity for the last 4 days of the week would not be seen in a candlestick. However, as with any art form, if it works for you, use it.


Chapter 7: Common Questions

What mistakes do I see the most in the analysis of candle patterns?Let's begin with a question! If you find a bullish reversal candle pattern, what does the mean? First it is supposedly reversing something, right? What is it reversing? It is reversing the preceding trend. Second, if it is bullish reversal, wouldn't the preceding trend have to be down? Yes, and many tend to ignore this critical element in pattern identification. Pattern analysis in isolation is poor analysis.

What do you use to determine the Trend?Originally, and in my book, I used a 10 period exponential average to determine the trend. If the midpoint of the body of the first day was above the 10 period average, then the trend was up. In an uptrend you can only have bearish reversal and bullish continuation patterns and in a down trend you can only have bullish reversal and bearish continuation patterns. In this software product I created a much more sophisticated method of determining trend. It reacts to price changes and price ranges with greater accuracy than the previously used average. And remember, it can be used as a trend measure for your other technical analysis.


C HAPTER 8 U NDERSTANDING E XPLORATIONS AND SYSTEM TESTS

The following explorations and system tests are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

JCPR Reversal PatternsThe exploration and system test identify only reversal patterns.

JCPR Reversal Patterns ConfirmedThe exploration and system test identify reversal patterns that also have the next day close in the appropriate direction the pattern was calling for.

JPCR Filtered Reversal PatternsThe exploration and system test identify reversal patterns that are filtered with 14 day Stochastics %D.

JCPR Filtered Reversal Patterns ConfirmThe exploration and system test identify filtered reversal patterns (using 14 day %D) that also have a following day in the appropriate direction.


C HAPTER 9 U NDERSTANDING E XPER T ADVISORS

JCPR:Japanese Candle Pattern Recognition

Expert Commentary

Besides the automatic identification of candle patterns, the Expert Commentary is loaded with additional information to help you surmise the quality of the current candle pattern. An example of the Expert Commentary is shown below with a corresponding explanation of each section.


Chapter 9: Understanding Expert Advisors

JCPR Expert Commentary Example

Item Description of the Information in the Commentary

Available on each day in your data and is always part of the Expert Commentary. • In this example, the stock being analyzed is BK. • The current close of the selected date is shown.• The Trend analysis for this stock is Bullish or Bearish; in this

case it is Bullish.



The support and resistance levels are always shown based upon the last part of the loaded data. If selecting a day other than the last day (default), these will not change, they remain for your reference only.

If the last day of a candle pattern is selected, it will identified here.

The Pattern Scoring will ONLY appear when there is a reversal candle pattern that has been completed on the last day of the data loaded. This section of the Expert Commentary will not appear on any other selected date in the data, even if a previously identified pattern is selected. This is because the support and resistance calculations are ONLY accomplished on the last part of the loaded data.Caution: If you are viewing the Expert Commentary on any data other than the last day loaded, the support and resistance lines are still only associated with the last day of data, not the day selected.There are four columns of information in the Pattern Score data:•Pattern Score: lists the five different components that make up the Pattern Score•Score: is the percentage that is awarded when it meets the various components' criteria•Maximum Possible: shows the fixed maximum that a component can contribute to the Pattern Score•Qualifiers: is a list of the various sub-components that contributed to the Score

Support / ResistanceIf a pattern falls on the appropriate support (bullish reversal) or resistance (bearish reversal) line and any part of the data (within the high low range of the entire pattern) is touching the line, then it receives 15% in the scoring. If the body of the pattern falls over the line, it receives the full 25% in the scoring.




FilteredA filtered pattern is one that is supported by at least one to three technical indicators.9%D 9 period %D Stochastic (> 80 or < 20) 20%14%D 14 period %D Stochastic (> 80 or < 20) 10%DI +DI > or < - DI (DI = Directional Indicator) 10%

Please note that these indicators are used for both bullish and bearish reversal patterns. Therefore the filtering component could be 0%, 10%, 20%, 30%,or 40% depending upon which measures are met.

StatisticsThe determination of the statistical computation was based upon a weighted average of the Net Profit / Net Loss and Avg. % Loss using a combination of performance periods. Obviously the performance based upon the next day after the pattern is most important and hence carried most of the weight. Candle patterns only make short term predictions about trend reversal and continuation, so if the prices move in that direction initially, the pattern did its job.

The various codes are assigned from A to H based upon the weighted score of the two categories used.A = 15% Top 25% of all statistics in both categories.B = 12% Top 25% in the Net Profit / Net Loss category.C = 9% Top 25% in the Avg. % Loss category.D = 6% Top 25% in Net Profit / Net Loss, but bottom 25% in Avg. % Loss.E = 3% Not in the top 25% or bottom 25% in either categoryF - H = 0% Bottom 25% in one or both categories.




VolumeVolume support is important as the psychological evolution of a pattern unfolds. The percentages used are as follows:VL Volume on the last day > than the 15 day average of volume 5%VI Volume increased on each day of the pattern 5%VC Volume on last day > volume on other days 5%

If all the volume conditions were met, the contribution to the Pattern Score would be 15%. Possible scores would be 0%, 5%, 10%, or 15%.

BreakdownThe contribution to the Pattern Score is simply, if the breakdown supports the pattern (Y), then 5% is awarded. If the pattern breakdown does not support (N), then 0% is the score.

Links to separate html files are included. These html files have additional information regarding the candle patterns.




If there is no pattern selected in the expert, this is what the commentary will look like.

If a pattern is selected, but it is not the last day of the data loaded, this is what the commentary will look like.


C HAPTER 10 U NDERSTANDING TEMPLATES

JCPR Clean Chart

Descriptions of JCPR Clean Chart

This template displays the following components:

• Candles• Support Lines• Resistance Lines• Trend

JCPR Clean Chart Example


Chapter 10: UnderstandingTemplates

JCPR Filtering Indicators

Descriptions of JCPR Filtering Indicators

This template contains the following components:

• Candles• Support Lines• Resistance Lines• Filtering Indicators

• Stochastics %D 9 Day• Stochastics %D 14 Day• Directional Movement

• JCPR Support & Resistance• Volume Data

JCPR Filtering Indicators Example


C HAPTER 11 U SING INDICATORS

The following indicators are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

• JCPR Candle Trend• JCPR Support & Resistance• JCPR Filtering Binary

To Plot an Indicator

Step Action

1 Select the chart.

2 Choose Insert>Indicators.

3 Select the indicator(s) in the Indicators list.

4 From the Inner Windows list, choose the inner window to plot the indicator in.

5 Click OK.


C HAPTER 12 U SING E XPLORATIONS

The following explorations are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

• JCPR Reversal Patterns• JCPR Reversal Patterns Confirmed• JCPR Filtered Reversal Patterns• JCPR Filtered Reversal Patterns Confirmed

To Run an Exploration

Step Action

1 Click .

The Explorer dialog box opens.


Chapter 12: Using Explorations

2 Select the scan and click Explore.

The Select Securities dialog opens.

3 Click Add Securities.

The Add Securities dialog opens.

Note: It is recommended that you select Local Data to reduce processing time.

Step Action



4 Select the items to explore.

Note: To select all the items in a folder, choose Tools > Select all.

5 Click Open.

Step Action



6 Click OK.

The exploration will begin and the Exploration Status dialog opens.

7 When the exploration is complete, click Reports.

Step Action



The Exploration Report

Item Name Description

Results tab Displays all results generated during the scan

Rejects tab Displays all stocks rejected during the scan

Exploration tab

Displays the column formulas, filter rule, periodicity and exploration information

Buy column Displays the stocks with a current buy opportunity (listed with a 1 in the buy column). Rank the list by clicking on the column header

Short column

Displays he stocks with a short opportunity (listed with a 1 in the short column). Rank the list by clicking on the column header

Open Chart Opens the chart in MetaStock (highlight a stock/stocks and click Open Chart)

Save List Saves this scan into your Favorites folder

Close Closes the Exploration Report dialog


C HAPTER 13 U SING SYSTEM TESTS

The following system tests are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

• JCPR Reversal Patterns• JCPR Reversal Patterns Confirmed• JCPR Filtered Reversal Patterns• JCPR Filtered Reversal Patterns Confirmed

Changing the System TestsThe system tests that are included in this product are not password protected so that you can change the stop loss function. Currently the stop loss function is set as follows:

• Once in a trade, if the price moves more than 3% below the highest high value set in the last 15 days, it is stopped and awaiting the next candle pattern.

• The opposite is for shorting. If the stops is not hit, then an opposing candle pattern will trigger the next trade.

Personal Note from Greg MorrisSystem Tests serve many purposes, but I will adamantly state here that trading solely on candle patterns is not wise. Use the system tests with caution. I strongly suggest before you edit any test, make a copy of the original code so that you can recover if necessary.


Chapter 13: Using System Tests

To Run a System Test

Step Action

1 Click .

The Select System Tester - System View opens.

2 Click New Simulation.

The Select Systems dialog opens.



3 Select the test and click Next.

The Select Securities dialog opens.

4 Click Add Securities.

The Add Securities dialog opens.

5 Select the items to explore.

6 Click Open.

Step Action



7 Click Next.

The System Testing Options dialog opens.

8 Select the options for the system test and click Start.

The Begin Trading Simulation dialog opens.

9 Click Start.

10 After the simulation is completed, click View Results.

Step Action



The System Test Report

Item Name Description

Profitable stocks

Displays profitable trades produced with the system in green

Non-profitable stocks

Displays non-profitable trades produced with the system in red

Report columns

Sorts data in the column(s) in ascending or descending order. Click on any of the columns in the report to sort. Click once to sort ascending, twice to sort descending

View Opens the Result Details dialog


C HAPTER 14 U SING E XPER T ADVISORS

The following expert advisor is included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

• JCPR Japanesse Candle Pattern Recog.

To Attach Experts to Your Charts

Step Action

1 Open a chart.

2 Click .

The Expert Advisor dialog opens.

3 Select the Expert and click Attach.

4 Click Close.

Buy and sell signals will appear on the chart. The signals will update as new data is added to the chart.


Chapter 14: Using Expert Advisors

To View the Expert Commentary

Step Action

1 Open a chart with an Expert Advisor attached.

2 Right-click on an open area of the chart.

3 Choose Expert Advisor > Commentary.

The Commentary Window will open.


C HAPTER 15 U SING TEMPLATES

The following template is included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on.

• JCPR Clean Chart• JCPR Filtering Indicators

To Apply a Template to an Open Chart

Step Action

1 Open the chart.

2 Right-click on the chart.

3 From the shortcut menu, choose Apply Template.

The Apply Template dialog opens.

4 Choose the template from the Apply Template dialog.


Chapter 15: Using Templates

5 Activate the checkbox next to Use Template’s periodicity.

6 Click Open.

The layout appears.

Step Action


C HAPTER 16 S OURCES

While in Japan in 1991, my friend Takehiro Hikita, helped me translate most of the following books. They were rich with market history, but my focus was on obtaining the various candle patterns and the details of their construction. Many cases were presented where the actual details were insufficient to completely develop the concept - keep in mind that much of this is long before computers and basic technology. We strived to obtain patterns as close as possible with the information provided. Hikita had written about this a decade before so his experience was invaluable.

Hikita, Takehiro. Shin Shuu-Ashi Tohshi Hoh - Tohkel to Kakuritus de Toraeru. New weekly chart method - based on statistics and probability. IOM Research Publications, 1977.

Hikita, Takehiro. Daizu no Sekai - Yunyu Daizu no Semekata Mohhekata. The world of Soybeans - attacking methods on imported soybeans and how to profit from it. IOM research Publications, 1978.

Kaburagi, Shigeru. Sakimono Keisen - Sohba Okuno Hosomichi. Futures charts - explained in a detailed way to be an expert in trading. Tohshi Nipoh Sha, 1991.

Kisamori, Kichitaro. Kabushiki Keisen no Mikata Tsukaikata - Tohshika no Tameno Senryakuzu. How to read and apply charts on stocks - Strategies for the investor. Toyo Keizai Shinpoh Sha, 1978.

Morris, Gregory. Litchfield, Ryan. Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures. 3rd ed. New York: McGraw-Hill, 2006.


Chapter 16: Sources

Nison, Steve. Japanese Candlesticks Charting Techniques. New York: New York Institute of Finance, 1991. Note: Steve was one of the first to write about Japanese

candlesticks and coined many of the translated names - I have not changed that.

Ohyama, Kenji. Inn-Yoh Rohsoku-Ashi no Mikata - Jissenfu ni Yoru. How to read black and white / negative and positive candlefoot - In view of the actual record. Japan Chart Co., Ltd., 1986.

Analysis of Stock Price in Japan. Tokyo: Nippon Technical Analysis Association, 1988.

Sakata Goho wa Fuurin Kazan - Sohba Keisen no Gokui. The Sakata Rules are wind, forest, fire, and mountain. 2nd updated 3rd ed. Nihon Shohken Shimbun Sha, 1991. Note: The above reference was an excellent source for many of

the candle patterns. The name Fuurin Kazan may be translated as Fu - the speed like wind, Rin - that quietness like forest, Ku - that battle like fire, and Zan - that immobile positions like mountains. This idiom originated from the Chinese battle strategy the Honma was said to have read.

Shimizu, Seiki. The Japanese Chart of Charts. Tokyo: Tokyo Futures Trading Publishing Co., 1986.

Yasui, Taichi. Kabushiki Keisen no Shinzui - Nichi Bei Keisen Bunseki no Subete. A picture of the stock chart. Tokyo: Toyo Keizai Shinpoh Sha, 1981.

Yatsu, Toshikazu. Tensai Shohbashi "Honma Shohkyu Hiden" - Kabu Hisshoh Jyutsu. A genius trader Sohkyu Honma into his secret - To be confident of victory on stock investments. Diamon Sha, 1990.

Yoshimi, Toshihihko. Toshihiko Yoshimi no Chato Kyoshitsu. A classroom on charting. Japan Chart Co., Ltd., 1991.


jcpr manual.pdf

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