Candlestick Charting Our Challenge: We're painfully aware that technical competence (analysis) does not translate to competent trading We have BB's, RSI, MACD.... even OHLC bar charts. Why Candlesticks?  Sort/control constant disruptions and outside influences  Visual “management” and ability to see data relationships more easily  Fast insight to short-term trading psychology

Candlestick Charting (cont.) Price is influenced by investors' psychologically driven emotions of fear, greed, and hope. Compared to OHLC bar charts:  Candlesticks read/display changes in the makeup of investors interpretations of value  Candlesticks show interactions between buyers and sellers

Candlestick Charting (cont.) Candlestick Basics  The Real Body (JITTAI) The box indicates the difference between the open and close If real body is black (red, or solid), then closing price was lower than the opening price. If real body is white (green, or outline), closing price was higher than opening price

Candlestick Charting (cont.) Candlestick Basics (cont.)  The Shadows (KAGE) Small thin lines extending above and/or below the body Represent the high and low prices during the trading period

Candlestick Charting (cont.) Candlestick Lines (Basis: Trading Day)  “Long Days” Large price movement for the day Large relative to what? To the last 5-10 days!

Candlestick Charting (cont.) Candlestick Lines:  “Short Days” Small price movement for the day Small relative to what? To the last 5-10 days!

Candlestick Charting (cont.) Candlestick Lines:  “Marubozu” Close-cropped or close-cut  No shadows extending from the real body at either the open or close, or both

Candlestick Charting (cont.) Candlestick Lines:  Black “Marubozu” Extremely weak line Often becomes part of bearish continuation or bullish reversal especially if occurring during downtrend Being black indicates weakness of continuing downtrend (often first day of many bullish reversal patterns)

Candlestick Charting (cont.) Candlestick Lines:  White “Marubozu” Extremely strong line Often becomes first part of bullish continuation or bearish reversal

Candlestick Charting (cont.) Candlestick Lines:  Closing “Marubozu” No shadow extending from the close price end, regardless of real body color Black Closing is considered a weak line White Closing is considered a strong line

Candlestick Charting (cont.) Candlestick Lines:  Opening “Marubozu” No shadow extending from the open price end, regardless of color If white, strong bullish line. If black, weak or bearish line. Opening Marubozu is not as strong as the Closing Marubozu

Candlestick Charting (cont.) Candlestick Lines:  Spinning Tops (KOMA) Small real bodies with upper and lower shadows greater in length than the body. Represents indecision between bulls and bears Color and actual shadow length is not important

Candlestick Charting (cont.) Candlestick Lines:  DOJI (goof or bungle) Real body of candle line is so small that open and close prices are virtually equal  Open and close within only a few ticks A perfect Doji has same open and close price

Candlestick Charting (cont.) Candlestick Lines:  DOJi (cont.) If previous days are mostly Doji, then current Doji day not important Doji occurring alone is a signal, warning of impending trend change Doji preceded by a long white day in an uptrend is meaningful (bearish Doji Star) Steve Nison: Doji are better indicators of change at tops rather than bottoms

Candlestick Charting (cont.) Candlestick Lines:  Long-Legged Doji (juji) Long upper and lower shadows Clear indecision Close at or very near opening price (at center of day's range)

Candlestick Charting (cont.) Candlestick Lines:  Gravestone Doji (tohba) Graves of those who died in battle Failure to rally If upper shadow is quite long, then much more bearish At a market top, specific version of shooting star Some sources claim gravestone doji can only occur on “ the ground, not in the air”. Consequently, a bullish indicator at a market low.

Candlestick Charting (cont.) Candlestick Lines:  Dragonfly Doji (tonbo) Open and close are at the high for the day Special case of the Hanging Man and Hammer lines If shadow or tail is very long, then called a Takuri line which during a downward trend is extremely bullish.

Candlestick Charting (cont.) Candlestick Lines:  Four Price Doji All four price components equal So rare that data integrity is suspect Represents complete and total uncertainty in direction

Candlestick Charting (cont.) Candlestick Lines:  Stars (HOSHI) Small body gaps above or below previous day's long body. Ideally, the gap encompasses the shadows but not always necessary Indicates some uncertainty Contribute to many candle patterns, primarily reversal patterns

Candlestick Charting (cont.) Candlestick Lines:  Paper Umbrella (KARAKASA) Strong reversal implications Strong similarity with Dragonfly Doji Hammer (market bottom) Hanging Man (market top)