Transcript Candle Chart - GEOCITIES.ws

Using Candle Stick Charts
by Simon Shannon
The Candlestick style of charting is one of the four most
popular methods used to show the course of prices.
Contrary to to the bar chart, another important piece of
information is added.
The analysts not only sees the movement in prices, but
thanks to the color of a single bar, can quickly recognize
whether the prices have risen or fallen within the measured
period.
Negative Close
H
Positive Close
Highest Price Paid
H
C
O
Real Body
O
C
Lowest Price Paid
L
L
Bullish Patterns
Long White Line –empty. This is
known as a bullish line and occurs when the
price opens towards the low of the period
and closes much higher towards the high of
the period. Buyers have been in control for
most of the day and finished in control.
Hammer. This pattern is bullish if it occurs
after a downtrend that is significant to that
chart. The pattern is easy to identify by the
small real body on top of a long lower shadow.
Early trading took the share price down and it
was the buyers later on in the period that
bought the price back up above the open. The
stock finished with the buyers in control.
In a given period the Hammer was observed
37 times with a very high statistical hit ratio of
72%, and an average 20/point increase in
price.
Piercing line. The day preceding the
long white is a negative close period.
The long white must open lower than the
first periods low and then must close
better than halfway up the first period’s
real body.
Results showed 51%. Not overly
convincing.
Bullish Engulfing lines. This pattern
is regarded as a strong reversal
indication when it forms after a
significant down trend. With the
OHLC chart it is known as a Key
Reversal. It occurs when a bullish line
engulfs a small bearish day. The
sellers were in control however the
buyers have come back with
vengeance.
In a study done on this pattern, 64%
of the time the price rose in the
following days.
Almost 70% for the Bullish Doji
Engulfing Pattern.
Morning Star. This pattern
can be a good indication of a
potential bottom with the
“star”, the small real body
being either empty or full.
In a study conducted on the
DAX, sixty five times one of
the two star patterns were
found in the period of
examination, and in 61% of
these cases prices were
higher within three days.
Bullish Doji star. The fact that
this is again a “star” pattern
which indicates a reversal,
combined with the Doji, a sign
of indecision, this pattern
usually indicates a reversal
following an indecisive period.
In this example the first line
can be empty or filled. You
should wait for confirmation of
the change in trend before
trading a Doji star.
Bearish Patterns
Long Black Line-filled in.
This is known as a bearish line
and this is where the opening
price has been towards the
high of the day and the close
is towards the low. It is an
indication that for this day the
sellers were in control.
Hanging Man. These are a
bearish sign if they are present
after a significant uptrend. As
the diagram indicates the real
bodies can be either filled or
empty. They have small real
bodies, the difference between
the open and close prices, with
a long lower shadow.
Again the study showed a
66% strike rate.
Dark Cloud cover. Another
bearish pattern, it can be more
significant if the second lines
body is below the centre of the
previous lines body.
In 106 cases, these formations
were recognized. 52% of the
time the share was lower and
48% it was higher.
Bearish Engulfing lines. This
a strong bearish signal after a
significant up trend and is
present when the last line is a
bearish line and the previous
line is a small bullish line. On
a OHLC chart this pattern is
known as a Key Reversal.
Again an impressive degree of
accuracy was attend with this
pattern. In fact in 65% of the
examples the price feel on
average 7/points.
Evening Star. A potential top
can be indicated by this
pattern. The star can be either
filled or empty.
Did not provide a high
statistical significance at 51%.
Doji Star. You would need to
wait for confirmation after
seeing this pattern but it is fair
to say that the star usually
indicates a reversal and the
Doji indicates indecision.
Shooting star. After a rally
this pattern can suggest a
minor reversal in the trend.
The star’s day must have the
body close to the low for the
period and the upper shadow
should be long.
The results for a black
shooting star were very
positive. There were ten
observations and each time
within the next three days the
price was around 13 points
lower.
Hanging Man
Shooting Star
Reversal Patterns
Long-legged Doji. Again this
is good indication of the
buyers and the sellers at the
point where neither party is
more committed that the other.
It is a time of indecision. It
often alerts us to a turning
point. The open and close are
at the same price while the
range between the high and
low are relatively large.
Dragonfly Doji. As
with the Long legged Doji,
this line also indicates a
turning point to us. The open
and close are at the same price
and towards the high of the
day with a long tail. The
feeling here is that the buyers
gained control in the latter part
of the day.
Gravestone Doji.
Another turning point line.
The open, close and low all at
the same price.
Star. A star line has
a real body that is much
smaller than the previous day.
The real bodies must not
overlap however the shadows
must.
Doji star. The star
being reversal and the Doji
indicating indecision this
pattern often indicates a
reversal following an
indecisive period.
Confirmation is required
before trading using this
signal.
Negative Harami. When a
line with a small body falls
into the boundaries of the
previous day (inside day) this
pattern indicates a decrease in
momentum.
In this indication with the
small bearish day is inside the
large bullish day implies a
weakness in the bullish trend.
The study showed that in 69%
of the times this pattern came
up the share price drop within
the next three days, on
average 16 points.
Harami Cross. Again
this pattern indicates a
decrease in momentum.
For the Cross a statistical
reliability of 55% was
achieved.
Neutral Patterns
Spinning Tops. The pattern
requires the open and close to
be relatively close.
Doji. The Doji day is a classic
indecision day. The open and
close are at the same level.
Double Doji lines imply a
forceful move will follow a
breakout from the current
indecision.
Signals of candle formations should only be analyzed
and evaluated in connection with the market context.
All signals of candle formations should be confirmed
on the following day.
With the use of candles you may be able to highlight the
opportunity earlier but there's nothing quite like
confirmation.