Candlesticks Patterns

Long Black Body. This represents a bearish period in the market. Prices experienced a wide range, and the market opened near the high and closed near the low of the period.

Long White Body. This is the opposite of a long black body, and represents a bullish period in the market. Again, prices experienced a wide range, however, the market opened near the low and closed near the high of the trading period.

Spinning Tops. These are small real bodies, and can be either black or white. The small body repre-sents a relatively tight range between the open and close for the period. In a trading range environ-ment, spinning tops are neutral, but they may be-come important as parts of other chart patterns . (Sec stars and harami later in this report.)

Doji Lines. These illustrate periods where the opening and closing prices for the period arc the same. The length of the shadows can vary. As you '11 sec throughout this report, doji lines arc important in a variety of patterns.

Dark Cloud Cover Candlestick Pattern

The Dark Cloud Cover is a bearish pattern. This is the opposite of the piercing line. A strong white body is immediately followed by a black body. To qualify as a Dark Cloud Cover, the black body must open above the high - and close below the centre of - the previous white body. The Dark Cloud Cover has more significance as a top formation than the piercing line does as a bottoming formation. This is because tops are often formed faster than bottoms. Lows are made by indifference. Investors may be attracted to other markets, and in no rush to enter. This explains why bases often build over a relatively long period of time. At tops, however, there is more of a rush to get out. Thus, tops are often made more swiftly than are bottoms.

Doji Candlestick Pattern

These illustrate periods where the opening and closing prices for the period are the same. The length of the shadows can vary. Doji lines are important in a variety of patterns.

Doji Star Candlestick Pattern

The Doji Star appears after a prolonged move, and is composed of a gap and a Doji line (when the open and the close are the same price). This is often the sign of an impending top or bottom. Doji Stars often mark imminent turning points in the market, but more conservative traders should wait for the next day’s body to confirm a change in price trend.

Dragonfly Doji Candlestick Pattern

The Doji Star appears after a prolonged move, and is composed of a gap and a Doji line (when the open and the close are the same price). This is often the sign of an impending top or bottom. Doji Stars often mark imminent turning points in the market, but more conservative traders should wait for the next day’s body to confirm a change in price trend.

Engulfing Patterns Candlestick Pattern

The engulfing pattern is a strong reversal signal, especially after a prolonged trend. Only the real body is important in this formation; shadows are virtually ignored. The bearish engulfing pattern has a black real body that engulfs the prior day’s white real body. This pattern is bearish during an uptrend. Conversely, a white body at the bottom of a downtrend that engulfs the prior day’s black body is a potentially bullish signal.

Evening Star Candlestick Pattern

The Evening Star formation is the reverse of the Morning Star and is a signal of a potential top in the market. After a long white body, we see a upside gap to a small real body. This is followed by a black body that closes above the midpoint of the white body made just before the star. Aptly named because it appears just before darkness sets in, the evening star is a bearish signal. Basically, the Evening Star is similar to a dark cloud cover with a “star” in the middle.

Hammer Candlestick Pattern

Umbrellas can be either bullish or bearish depending on where they appear in a trend. If they occur during a downtrend, they are called hammers and are bullish, as in “the market is ‘hammering out’ a base”.

Hammers are excellent signals of a market at or near its bottom. At times, they are also important at the lower end of the congestion band.

Hanging Man Candlestick Pattern

Umbrellas can be either bullish or bearish depending on where they appear in a trend. If they occur during an uptrend, they are called hanging man and are bearish, as in “the market is ‘hammering out’ a base”.

The ominous name of the hanging man line (derived because it looks like a hanging man with dangling legs) hints at its bearish nature. If one appears at the top of a prolonged uptrend, it’s usually time to vacate long positions.

Harami Candlestick Pattern

This is similar to an inside day in contemporary Western analysis. But while an inside day is usually considered neutral, the Harami Line is an indication of a waning in momentum. The small body of the Harami line is contained within the long body directly preceding it.

Harami Cross Candlestick Pattern

This is similar to an inside day in contemporary Western analysis. But while an inside day is usually considered neutral, the Harami Cross is an indication of a waning in momentum.

Harami Cross indicates that the market is at a point of indecision and a trend change, or reversal, is possible. We have found that the Harami Cross pattern is useful in forecasting trend changes - especially after a long white body in an uptrend.

High Wave Candlestick Pattern

The High Wave pattern has a small body and longer shadows and represents uncertainty and lack of consensus in the market therefore a potential change in the trend.

Hikkake Candlestick Pattern

The Hikkake pattern is similar to the Three Inside Up pattern but with no restraints. This pattern does not require a downtrend nor does the direction of the candles. This can be both a continuation of a trend or reversal depending on the direction of the breakout - above or below the previous high/low.

Long Black Body Candlestick Pattern

This represents a bearish period in the market. Prices experienced a wide range, and the market opened near the high and closed near the low of the period.

Long Legged Doji Candlestick Pattern

Similar to the Rickshaw Man candlestick pattern, the candle has long upper and lower shadows meaning that the price has moved up and down significantly before it closed or near to the opening price.

Long White Body Candlestick Pattern

This is the opposite of a long black body, and represents a bullish period in the market. Again, prices experienced a wide range, however, the market opened near the low and closed near the high of the trading period.

Morning Star Candlestick Pattern

The Morning Star pattern is a signal of a potential bottom in the market. It is aptly called a Morning Star because it appears just before the sun rises (in the form of higher prices). After a long black body, we see a downside gap to a small real body. This is followed by a white body that closes above the midpoint of the black body made just before the star. The Morning Star is similar to a piercing line with a “star” in the middle.

Piercing Lines Candlestick Pattern

The piercing line is a bullish pattern. This combination is composed of a long black body followed by a white body. The white body should open lower and then close above the centre of the black body. Basically, the market gaps lower on the opening and then retraces to close above the midpoint of the previous period’s black body. If the white body does not “pierce” this halfway point, more weakness can be expected in the market. We have found this pattern to be most significant in a downtrend, or at the lower end of a congestion band.

Rickshaw Man

The Rickshaw Man is a reversal pattern, which indicates indecision and a lack of direction - and when formed in a strong trend it therefore signals a reversal.

Shooting Star

The Shooting Star pattern appears at short-term tops in the market, and is a bearish signal. As its name suggests, the Shooting Star is a small real body at the lower end of the price range with a long upper shadow.

Spinning Tops

The Spinning Top is a reversal pattern, this occurs when a small body has a long upper and lower shadow, which are at least twice as long as the body.

Three Black Crows

Crows being an ominous bird, this is a bearish pattern. After a long white body we see a series of three black bodies. There is an upside gap between the white body and first black body. Shadows are ignored. The second black body closes lower than the first. Although an upside gap is usually bullish in contemporary analysis, this pattern is bearish in candles.

Tweezer Bottoms

In a falling market, a Tweezer Bottom is formed when the lows are the same (including any lower shadows). We have found that the Tweezer is more important when it confirms either another bearish line (for a top) or bullish line (for a bottom).

Tweezer Tops

A Tweezer formation is simply two lines with matching highs or lows. The Tweezer could be composed of candle lines with real bodies and/or dojis, and could occur on consecutive or nearby periods. The pattern is similar to the double top or bottom in traditional Western technical analysis. In a rising market, a Tweezer Top is formed when the highs, including any upper shadow, match on consecutive or nearby periods. This would be a bearish reversal indicator.