teoria dos candlesticks

1Teoria dos candlesticks Análise gráfica das cotações, originária do Japão, que se baseia no valor máximo, mínimo, de abertura e fecho de uma cotação. O intervalo de preços entre a abertura e o fecho é representado por um rectângulo. Se o preço de fecho for superior ao preço de abertura, o corpo da vela será branco. Se o preço de fecho for inferior ao preço de abertura, o corpo da vela é negro. O máximo e o mínimo são as sombras e representadas apenas por um linha. Padrões de inversão Harami e Harami Cross Padrão de inversão segundo a teoria dos Candlesticks que assinala o nascimento de uma nova tendência de curto-prazo. Harami (harami)

- Padrão de inversão bullish ou bearish - Necessita confirmação Harami, palavra japonesa para "grávida" ou "corpo por dentro". O Harami é bastante parecido com o ocidental Inside Day, com a diferença que no Inside Day consideramos máximos e mínimos do dia, enquanto no Harami consideramos o «body» do dia, isto é, a abertura e o fecho. Um Harami representa uma disparidade de sentimentos face ao movimento do mercado, a vela pequena do padrão assinala incerteza e o nascimento de uma nova tendência de curto-prazo. Composição/como reconhecer?: Este padrão tal como o Engulfing é composto por dois dias opostos. 1. Um dia longo é precedido por uma tendência de curto prazo com alguma extensão; 2. A cor do primeiro dia não é importante, mas é melhor se reflectir a tendência do mercado; 3. A seguir ao dia longo, surge um dia curto, com o seu corpo completamente dentro do corpo do dia longo anterior; 4. O dia curto deve ter uma cor oposta à do dia longo.

2Interpretação do padrão: Harami Bullish: existe uma tendência descendente de curto prazo há algum tempo. Um grande dia longo (negro) ocorre, com volume médio, o que ajuda a perpetuar o sentimento bearish no mercado. No dia seguinte, os preços abrem em alta, questionando as expectativas dos Bears menos convictos, que correm a fechar as suas posições short. Este movimento de «short covering» faz com que os preços subam. A subida da cotação é travada por aqueles que tinham uma perspectiva Bear, mas que tinham perdido o início da tendência. Assim, estavam a aguardar uma oportunidade para entrarem curtos no mercado. O volume neste segundo dia é superior ao do dia anterior, o que sugere a existência de um grande «short covering». Uma abertura em alta no terceiro dia seria a confirmação de que a tendência de curto prazo se teria invertido, de baixa para alta. Harami Bearish: existe uma tendência ascendente de curto prazo há algum tempo. Um grande dia longo (branco) ocorre com forte volume. No dia seguinte, os preços abrem em baixa e evoluem durante a sessão dentro um intervalo apertado, para fechar abaixo da abertura mas dentro do corpo do dia anterior. As convicções Bull ficam abaladas com esta segunda sessão que travou a tendência de alta em vigor. A confirmação da inversão bearish vem com um fecho no terceiro dia abaixo do segundo. Harami Cross (harami yose sen) ( Bullish)

(Bearish)

(

- Padrão de inversão bullish ou bearish - Confirmação não é um requisito, mas é recomendada. O padrão Harami consiste num dia longo seguido de um dia mais curto (em termos de corpo, claro). É a dimensão relativa dos dois corpos que determina a importância do Harami. O Harami Cross como as figuras demonstram, é uma variação do padrão Harami em que a segundo vela é um Doji (vela em que a abertura é igual ao fecho e que representa dias de indecisão), o que torna este padrão e as suas indicações mais fiáveis que o normal acima descrito. Composição/ como reconhecer?: 1. Um dia longo é precedido por uma tendência de curto prazo com alguma extensão; 2. A cor do primeiro dia não é importante, mas é melhor se reflectir a tendência do mercado; 3. O segundo dia do padrão é um Doji; 4. O segundo dia fica dentro do corpo do dia anterior. Interpretação do padrão: A interpretação dada ao Harami Cross é praticamente a mesma que a do Harami normal, com uma pequena e importante diferença. O facto de o segundo dia fechar igual à abertura, formando o Doji,

3reflecte ainda mais a falta de convicção do mercado em continuar a tendência em vigor. Uma significativa inversão de tendência de curto prazo terá ocorrido. Flexibilidade do padrão: A abertura e fecho do Doji não têm de ser exactamente iguais, mas é necessário que estejam bastante próximos, para que num gráfico de médio prazo seja quase imperceptível a diferença. Hammer e Hanging Man (kanazuchi/tonkachi e kubitsuri)

- Padrão de inversão bullish (Hammer) ou bearish (Hanging Man) - Necessita confirmação

Composição: O Hammer e o Hanging Man são constituídos por uma única linha de Candlesticks. Têm grandes sombras inferiores e um pequeno corpo, que está colocado no topo ou muito perto do topo da linha. O Hammer acontece numa tendência de baixa, e é assim chamado por estar a «martelar» num possível fundo de mercado. A palavra japonesa para Hammer (tonkachi), também significa chão ou solo. O Hanging Man acontece durante ou no topo de uma tendência de alta. O nome vem do facto desta linha de candlestick realmente se assemelhar à figura de um homem enforcado. Para que o Hammer e o Hanging Man se verifiquem realmente, é necessário que a sombra inferior tenha no mínimo o dobro do comprimento do corpo. Como reconhecer? 1. O pequeno corpo está no topo do trading range. 2. A cor do corpo tem pouca relevância. No entanto, um Hammer com corpo branco e um Hanging Man com corpo preto, ou seja com cor contrária à da tendência, têm normalmente mais força. 3. A sombra inferior deverá ser muito mais longa do que o corpo. Normalmente terá um comprimento de 2 a 3 vezes o do corpo. 4. Não deverá existir uma sombra superior, ou se existir, deverá ser muito pequena.

4 Interpretação do padrão: Hammer O mercado tem estado numa tendência de curto prazo descendente. Abre num ponto e cai abruptamente nas horas seguintes. No entanto, o sell-off começa a perder força e o mercado volta para perto do máximo do dia. O falhanço do mercado em continuar a queda reduz o sentimento Bear, e a maioria dos traders sentir-se-á preocupado com as posições short que possa deter. Se o fechamento acabar por ser acima da abertura, causando um corpo branco, a situação é ainda mais favorável aos bulls. A confirmação da inversão de tendência de curto prazo acontecerá se o mercado no dia seguinte abrir em alta e fechar ainda mais alto. Hanging Man O mercado está em tendência de curto-prazo ascendente. Abre e sofre um sell-off negociando grande parte da sessão bem abaixo da abertura, depois verifica-se um rally para um fechamento perto do máximo do dia. Este comportamento intra diário leva à formação da longa sombra inferior que dá indicações de que o mercado poderá ter começado um sell-off mais alargado. Se o mercado abrir em baixa na sessão seguinte, a pressão vendedora tende a aumentar, com o fechamento perto dos mínimos a confirmar os sinais de inversão do padrão.

Piercing Line

Padrão de inversão Bullish segundo a Teoria dos Candlesticks.

Piercing Line (kirikomi)

- Padrão de inversão bullish - É aconselhável esperar pela confirmação, embora esta não seja uma exigência Composição – Duas velas de cor oposta num mercado em tendência descendente. A primeira vela tem corpo real negro reflectindo a tendência do mercado, a segunda vela tem corpo real branco abrindo num novo mínimo para fechar acima do ponto intermédio (“mid-point”) do corpo dia anterior. Pode-se dizer que é a versão bullish do Dark Cloud Cover. Nota: O “Mid-point” é calculado somando metade da a amplitude do corpo real duma vela ao seu valor de fecho. Ou seja, (Abertura – Fecho)/2 + Fecho = Mid-point

5Como reconhecer? 1- O primeiro dia é uma longa vela negra que dá continuidade à tendência de baixa em vigor; 2- O segundo dia é uma vela de corpo real branco que abre abaixo do mínimo do dia anterior; 3- O segundo dia fecha dentro do corpo da vela anterior e acima do seu ponto intermédio. Factores que reforçam o sinal de inversão dado pelo padrão Piercing Line: 1- Quanto maior for o grau de penetração no corpo da primeira vela do padrão, maior a probabilidade de sucesso da inversão assinalada; (Se o fecho do segundo dia for acima da abertura da primeira vela. Estamos na presença dum Bullish Engulfing ) 2- As velas que formam o Piercing Line devem ser longas. 3- É imprescindível que o segundo dia feche acima do ponto intermédio do corpo da primeira vela. Caso contrário o padrão não existe e pode ser considerado um dos seguintes padrões de continuação: On-neck, In-Neck e Thrusting 4- Numa tendência de baixa prolongada, em que uma forte vela negra abre nos seus máximos para fechar nos mínimos da sessão e é seguida de uma longa vela branca que abre nos mínimos e fecha nos máximos, o sinal de inversão sai reforçado; 5- Se o segundo dia do padrão abrir abaixo dum importante suporte para depois vir a fechar acima do mesmo. Verificou-se uma falsa ruptura, os bears foram incapazes de manter o controlo do mercado e o suporte funcionou como tal. A interpretação dada a este padrão é a seguinte: o mercado está em tendência descendente, a formação duma vela negra reforça esse tendência. No dia que se segue o mercado abre em gap-down, reforçando as convicções bearish do mercado, segue-se uma subida intra diária que termina com um fecho acima do ponto intermédio do dia anterior. Os bears ficam com dúvidas em relação ás suas posições curtas e os bulls convencem-se que os mínimos estão fixados e é altura para entrar longo.

Padrão Engulfing

Explicação de mais um padrão de inversão segundo a Teoria dos Candlesticks - Engulfing.

ENGULFING (tsutsumi) Bullish Engulfing

Bearish Engulfing

6- Padrão de inversão bullish ou bearish - Necessita confirmação Composição – Duas velas com cor oposta, em que o corpo da segunda “engole/abraça” o corpo da primeira. Como reconhecer? 1- O mercado apresenta uma tendência de alta ou de baixa bem definida; 2- Duas velas formam o padrão Engulfing acima descrito. O corpo da segunda vela tem de engolir (“engulf”) o da primeira. As sombras não são consideradas; 3- A cor da primeira vela reflecte a tendência em vigor: encarnado se esta for de baixa e branco se for de alta; 4- A cor da segunda vela é oposta à da primeira vela. (Pode-se fazer uma excepção no caso de o corpo da primeira vela ser tão pequeno que possa ser ou seja mesmo um doji) A confirmação do sinal de inversão dado por este tipo de padrão é dado no “terceiro dia”, com o mercado a manter-se abaixo da segunda vela no caso do Bearish Engulfing ou acima no caso da Bullish Engulfing. Factores que reforçam o sinal de inversão dado pelo padrão Engulfing: 1- O corpo da primeira vela do padrão é muito pequeno quando comparado com o corpo longo da segunda vela. A interpretação dada é que, a primeira vela mostra por si só um abrandar/travar da tendência em vigor que sai confirmado no dia seguinte, com uma longa vela a contrariar a tendência e a assinalar uma inversão da mesma; 2- O Engulfing aparece depois de um rápido movimento. Um movimento rápido “estica o mercado” tornando-o mais vulnerável a tomadas de mais-valias que resultam numa inversão desse movimento; 3- Se o padrão aparece no seguimento de um movimento sustentado é menor a probabilidade de haver força no mercado para continuar esse movimento. Isto é, uma vez que o movimento tem já algum tempo a força compradora ou vendedora pode estar esgotada, faltando munições para contrariar o sinal dado pelo padrão; 4- O volume no dia da segunda vela é claramente superior ao da primeira. O interesse do mercado mudou de lado, essa mudança é dada por um aumento de volume do lado contrário ao da tendência que vinha a vigorar; 5- O segundo dia “engole” mais do que um corpo.

7Exemplo: Gráfico do BPI

Sticky Sandwich

Sticky Sandwich (gyakusashi niten zoko)

- Padrão de inversão bullish

8- Necessita confirmação Composição - Duas velas negras que têm entre elas o corpo de uma vela branca. O fecho das duas velas negras deve ser igual. Foi encontrada uma zona de suporte de curto-prazo (nos dois fechos das velas negras) existindo uma oportunidade de inversão junto a esse valor. Como reconhecer? 1- Numa tendência descendente uma vela de corpo negro é seguida de uma vela de corpo branco que negocia acima do fecho da vela negra. 2 - O terceiro dia é negro com um fecho igual ao do primeiro dia do padrão Neste padrão, por regra, apenas são considerados os corpos das velas, ou seja, as sombras são ignoradas dando maior consistência ao suporte identificado pelo padrão. Existem no entanto, alguns autores que optam por ser mais flexiveis e usam os mínimos das velas negras como suporte quando estes não coincidem com o fecho. A confirmação do padrão deverá vir com um fecho acima do ponto intermédio do corpo terceira vela, com a cotação a distanciar-se em alta da mesma nas sessões seguintes. ----------------------------------------------------------- Bibliografia: "Candlestick Charting Explained" de Gregory L. Morris

- Japanese Candlestick Charting Techniques, de Steve Nison

Padrões de Continuação Thrusting Line Padrão de continuação que resulta do Piercing Line. Thrusting (sashikomi)

- Padrão de continuação bearish - Necessita confirmação O Thrusting é a mais forte das três variações possíveis do padrão de inversão bullish Piercing Line. Como reconhecer?

9 - Uma vela negra é formada durante uma tendência de baixa; - O segundo dia do padrão é uma vela branca que abre abaixo do mínimo do dia anterior, acabando por fechar bem dentro do corpo real da vela negra, mas abaixo do seu ponto intermédio (mid-point). O “Mid-point” é calculado somando metade da a amplitude do corpo real duma vela ao seu valor de fecho. Ou seja, (Abertura – Fecho)/2 + Fecho = Mid-point A interpretação dada ao Thrusting é muito simples, o padrão representa uma tentativa falhada de inversão durante uma tendência de baixa. (Nota: O padrão Thrusting pode ser considerado bullish quando aparece a meio de uma tendência de alta, ou quando num mercado em baixa ocorre mais do uma vez num curto espaço de dias).

In Neck

Padrão de continuação que resulta do Piercing Line.

In Neck (iri kubi)

- Padrão de continuação bearish - Necessita é sugerida O On-neck é uma das três variações possíveis do padrão de inversão bullish Piercing Line. Como reconhecer? - Uma vela negra é formada durante uma tendência de baixa; - O segundo dia do padrão é uma vela branca que abre abaixo do mínimo do dia anterior; - O fecho do segundo dia é praticamente ou mesmo igual ao do dia anterior, fazendo com a segunda vela entre por muito pouco no corpo real da primeira. A interpretação é precisamente a mesma que a dada ao On-neck, com a excepção de que a probabilidade de continuação da tendência de baixa diminui em resultado do fecho mais alto. Nota: Se o volume do segundo dia for alto, a probabilidade de continuação da tendência é maior.

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On Neck

Padrão de continuação que resulta do Piercing Line

On Neck (ate kubi)

- Padrão de continuação bearish - Necessita é sugerida O On-neck é uma das três variações possíveis do padrão de inversão bullish Piercing Line. Como reconhecer? - Uma vela negra é formada durante uma tendência de baixa; - O segundo dia do padrão é uma vela branca que abre abaixo do mínimo do dia anterior e que normalmente apresenta um corpo real pequeno. Formações com uma longa segunda vela parecem-se com o padrão bullish, Meeting Line. - O segundo dia fecha no mínimo da primeira vela. A interpretação dada ao On-neck é a seguinte: o sentimento bearish é reforçado com o aparecimento de uma primeira longa vela negra num mercado em queda. No dia seguinte o mercado abre em gap down, abaixo do mínimo da vela negra, mas sem dar continuidade à descida. A cotação sobe durante a sessão para encontrar resistência no mínimo do dia anterior, acabando por fechar a esse valor e lançando dúvidas na mente dos que tentaram adivinhar um fundo de curto-prazo. O regresso de pressão vendedora ao mercado nas sessões seguintes, leva o mercado a novos mínimos e confirma as indicações bearish do Padrão On-neck. Nota: Se o volume do segundo dia for alto, a probabilidade de continuação da tendência é maior.

Rising e Falling Three Methods

Segue-se a explicação do Rising e Falling Three Methods, padrões de continuação que assinalam um abrandar da tendência em vigor sem que uma inversão esteja em causa. São dias de descanso que podem ser boas oportunidades de entrada ou reforço de posições a favor da tendência.

Rising Three Methods (uwa banare sanpoo ohdatekomi)

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- Padrão de continuação bullish - Não necessita confirmação Composição/ Como reconhecer: 1- Uma longa vela branca é formada a meio de uma tendência de alta; 2- segue-se um grupo de velas com corpo pequeno que demonstram alguma resistência à tendência de alta, mantendo-se dentro da amplitude ("range") da vela branca, máximos e mínimos. O número ideal de velas de corpo pequeno é como nome do padrão indica o 3, no entanto formações com apenas duas ou mais de três velas podem ser aceitas desde que estas não fechem acima ou abaixo da vela branca. A cor destas velas de corpo pequeno é indiferente, sendo mais comum que estas sejam pretas; 3- O último dia do padrão é novamente uma vela branca de corpo longo que abre acima do fecho da sessão anterior e fecha igualmente acima do fecho da primeira vela do padrão a favor da tendência.

Falling Three Methods (shita banare sanpoo ohdatekomi)

Padrão de continuação bearish - Não necessita confirmação Composição/ Como reconhecer:

12 1- Uma longa vela negra é formada a meio de uma tendência de baixa; 2- segue-se um grupo de velas com corpo pequeno que demonstram alguma resistência à tendência de baixa, mantendo-se dentro da amplitude ("range") da vela negra, máximos e mínimos. O número ideal de velas de corpo pequeno é como nome do padrão indica o 3, no entanto formações com apenas duas ou mais de três velas podem ser aceites desde que estas não fechem acima ou abaixo da vela negra. A cor destas velas de corpo pequeno é indiferente, sendo mais comum que estas sejam brancas; 3- O último dia do padrão é novamente uma vela negra de corpo longo que abre abaixo do fecho da sessão anterior e fecha igualmente abaixo do fecho da primeira vela do padrão a favor da tendência. ----------------------------------------------------------- A interpretação dada a estes dois padrões é muito simples, o mercado está a "descansar" da tendência em vigor, as velas de corpo pequeno representam precisamente esse descanso e um recuperar de forças para que se possa retomar o sentido da tendência. Os dias de "descanso" são de grande conflito entre bulls e bears, lançando dúvidas quanto à possiblidade de continuação ou não da tendência. O facto de no caso do Rising, máximo da primeira vela não ser quebrado em fecho deixa os bulls reticentes e a questionar a tendência de alta, com as aproximações aos mínimos da mesma vela a alimentarem as esperanças dos bears. Esta indecisão termina quando a última vela distancia-se em força dos máximos com o mercado a mostrar que a tendência de alta era para continuar. (Podemos fazer a interpretação oposta para o Falling Three Methods) Em ambos os casos, existe alguma flexibilidade na identificação do padrão sendo permitido que as sombras das velas pequenas ultrapassem o máximo ou o mínimo, conforme o caso, da primeira vela . Caso haja esta flexiblidade, é aconselhável que as velas pequenas cheguem a cobrir o range do primeiro dia. Depois de formado e confirmado o padrão Rising Three Methods pode ser resumido a uma só longa vela branca que suporta a continuação bullish. O padrão Falling Three Methods resume-se logicamente a uma longa vela negra que suporta uma continuação bearish. Bibliografia utilizada: -Japanese Candlestick Charting Techniques, de Steve Nison (disponível na loja do Clube); - Candlestick Charting Explained, de Gregory L. Morris; - The Candlestick Course, de Steve Nison.

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CANDLESTICK TERMS

REAL BODY The real body is the 2-dimensional rectangle made by the difference between the open and close of the trading day. The real body will be white on days that the stock closes higher than it opens,

and black on days that it closes lower than it opens. UPPER AND LOWER SHADOWS

The upper shadow is the vertical line drawn from the top of the candlestick's real body to the day's high. The lower shadow is the vertical line drawn from the bottom of the candlestick's real body to

the day's low.

SPECIAL CANDLESTICKS

LONG DAY A candlestick that has a long day is one in which there has been a big difference in opening and

closing price compared with typical trading days in the previous five to ten days. SHORT DAY

A candlestick that has a short day is one in which there has been a small difference in opening and closing price compared with typical trading days in the previous five to ten days.

MARUBOZU A marubozu candlestick is one that exhibits no (or very little) upper or lower shadow. For a white candlestick this means that its open is equal to its low, and its close is equal to its high. For a black candlestick it means that its open is equal to its high, and its close is equal to its low.

SPINNING TOP A spinning top is candlestick with a small real body and long upper and lower shadows.

DOJI A doji is the most extreme case of a spinning top. It occurs when the real body exists as a line (when the day's open and close are the same). A long legged doji has long upper and lower

shadows. A gravestone doji has a long upper shadow and no lower shadow. A dragonfly doji has no upper shadow and a long lower shadow. And a four price doji has no upper or lower

shadows (the open, high, low, and close are the same). STAR

A star is a small real body that gaps above or below a long candlestick occurring the previous day. UMBRELLA and INVERTED UMBRELLA

An umbrella is similar to a dragonfly doji: a small real body with no upper shadow and a long lower shadow. An inverted umbrella is similar to a gravestone doji: a small real body with a long upper

shadow and no lower shadow.

ANALYSIS TERMS

INDICATOR An indicator is a group of candlesticks (as many as five or as few as one) that meet a set of

predetermined criteria. These criteria may include prior trend, real body and/or shadow length, long and short days, opening and closing gaps, etc. Associated with each indicator are a trend (bullish or bearish) and a pattern (reversal or continuation) that should ensue for the short-term.

TREND (Tendência) The term trend is used to sum up the general movement of a stock's value over a period of time. If a stock's price is generally increasing over a short period of time it is said to be in a bullish trend. If

14a stock's price is generally decreasing over a short period of time it is said to be in a bearish

trend. In candlestick charting the previous trend is used as a criteria for identifying most indicators. The method we employ is the Three Line Break graph; a technique that is well-suited to

candlestick charting. PATTERN (Padrão)

When an indicator is identified, a pattern is associated with it. This pattern could be a Continuation pattern, meaning that if a stock is in a bullish trend it should continue to stay bullish, or if a stock is in a bearish trend it should continue to stay bearish. If the pattern is a Reversal pattern, it means that if a stock is currently bullish it likely to turn bearish, or if it is bearish it is likely to turn bullish

RELIABILITY (Confiabilidade) Reliability is a term we use to loosely classify how adequate indicators are at determining the

short-term future of an investment. Some indicators are, of course, more decisive than others (the indicators that take a three or more days develop or those that have strong candlesticks, such as stars or marubozus tend to have a higher rate of success). We have segregated indicators by High, Moderate, and Low reliability's based on their success rates on historical market data.

Glossary of Candlestick Indicators

Bullish Indicators Bearish Indicators

• Abandoned Baby • Belt Hold • Breakaway • Concealing Baby Swallow • Doji Star • Dragonfly Doji • Engulfing • Gravestone Doji • Hammer • Harami • Harami Cross • Homing Pigeon • Inverted Hammer • Kicking • Ladder Bottom • Mat Hold • Matching Low • Meeting Lines • Morning Doji Star • Morning Star • Piercing Line • Rising Three Methods • Separating Lines • Side By Side White Lines • Stick Sandwich • Three Inside Up • Three Line Strike • Three Outside Up • Three Stars In The South • Three White Soldiers • Tri Star • Unique Three River Bottom

• Abandoned Baby • Advance Block • Belt Hold • Breakaway • Dark Cloud Cover • Deliberation • Downside Gap Three Methods • Downside Tasuki Gap • Doji Star • Dragonfly Doji • Engulfing • Evening Doji Star • Evening Star • Falling Three Methods • Gravestone Doji • Hanging Man • Harami • Harami Cross • Identical Three Crows • In Neck • Kicking • Meeting Lines • On Neck • Separating Lines • Shooting Star • Side By Side White Lines • Three Black Crows • Three Inside Down • Three Line Strike • Three Outside Down • Thrusting • Tri Star

15• Upside Gap Three Methods • Upside Tasuki Gap

• Two Crows • Upside Gap Two Crows

Bullish Indicators

Abandoned Baby Bullish

Pattern: Reversal Trend: Bullish Reliability: High

How to Identify it

• First day is usually a long black day • Second day is a doji that gaps in the direction of the previous trend • The third day is a white day, gapping in the opposite direction, with no overlapping

shadows

What it Means

In a downtrend, the market bolsters the bearish trend with a long black day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario definitely shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal is given by the white third day, and is well defined by the upward gap.

Belt Hold Bullish

Pattern: Reversal Trend: Bullish Reliability: Low

How to Identify it

• A white body occurs in a downtrend with no lower shadow

What it Means

In a downtrend, a white body occurs with an open that is also the low for the day. This may signify a rally for the bulls.

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Breakaway Bullish

Pattern: Reversal Trend: Bullish Reliability: Moderate

How to Identify it

• The first day is a long black day • The second day is a black day that gaps below the first day • The third and fourth days continue to in the direction of the second with lower

consecutive closes • The fifth day is a long white day that closes into the gap between the first and

second days

What it Means

A downtrend sees prices bottoming out and leveling off. The result is a long white day which does not close the gap into the body of the first day. This suggests a short term reversal.

Concealing Baby Swallow Bullish


How to Identify it

• The first two days are Black Marubozu days • The third day is black day that gaps downward, but trades into the body of the

second day • The fourth day is a Black Marubozu day that engulfs the third day

What it Means

In a strong downtrend, highlighted by two consecutive Black Marubozu days, a gapping black day trades into the body of the previous day. The last day, another Black Marubozu, shows investors selling off, as it closes at a new low. This provides an opening for the shorts to cover their positions. A bullish reversal should ensue.

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Doji Star Bullish


How to Identify it

• First day is a long black day • Second day is a doji that gaps in the direction of the previous trend • The shadows of the doji should not be long

What it Means

In a downtrend, the market bolsters the bears with a long black day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal would be a higher open on the next trading day.

Hammer / Dragonfly Doji Bullish

Pattern: Reversal Trend: Bullish Reliability: Low/Moderate

How to Identify it

• Small real body at the upper end of the trading range • Lower shadow at least twice as long as the real body • No (or almost no) upper shadow

What it Means

There is a sharp sell off after the market opens during a downtrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies a weakening of the previous bearish sentiment, especially if the real body is white (the close is higher than the open price). Since the certainty for a Hammer indicator is low, the trend reversal can be confirmed by a higher open and an even higher close on the next trading day. If the open and the close are identical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hammer.

Engulfing Bullish

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How to Identify it

• A long black day occurs • The second day is a white that completely engulfs the real body of the first day

What it Means

Occurring in a downtrend, the Engulfing depicts an opening at a new low, followed by a high buy-in that closes at or above the previous day’s open. This signifies that the downtrend has lost momentum and the bulls may be gaining strength. The Engulfing indicator is also the first two days of the Three Outside patterns.

Inverted Hammer / Gravestone Doji Bullish


How to Identify it

• Small real body at the lower end of the trading range • Upper shadow usually no more than twice as long as the real body • No (or almost no) lower shadow

What it Means

As the market opens below the close of the previous day, the bulls rally briefly, but not enough to close above the previous day’s close. As this leaves shorts in a losing position, the Inverted Hammer presents the potential for an upcoming rally. Confirmation of the trend reversal would by an opening above the body of the Inverted Hammer on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than an Inverted Hammer.

Hammer / Dragonfly Doji Bullish

19


How to Identify it


What it Means

There is a sharp sell off after the market opens during a downtrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies a weakening of the previous bearish sentiment, especially if the real body is white (the close is higher than the open price). Since the certainty for a Hammer indicator is low, the trend reversal can be confirmed by a higher open and an even higher close on the next trading day. If the open and the close are identical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hammer.

Harami Bullish


How to Identify it

• A long black day occurs • The second day is a white day where the real body is completely engulfed by the

real body of the first

What it Means

After a long black day at the low end of a downtrend, a white candlestick opens higher than the previous day’s close. The price is driven up, as many shorts are covered, which encourages further buy-ins. The Harami indicator should be confirmed with the next trading day’s candlestick following the reversal trend. The Harami pattern is also the first two days of the Three Inside patterns.

Harami Cross Bullish

20


How to Identify it

• A long black day occurs • The second day is a doji within the real body of the previous day

What it Means

After a long black day at the low end of a downtrend, the market opens higher than the previous day’s close and closes at the open. The Harami Cross indicator is more definite than the basic Harami indicator, and signifies a reversal for the bulls.

Homing Pigeon Bullish


How to Identify it

• The first day is a long black day • The second day is a smaller black day that is within the body of the first day

What it Means In a downtrend, the bears continue to have their way. However, the second day opening and closing within the body of the first day suggests an erosion of the downtrend. Ensuing sell-offs, followed by buy-ins could result in a bullish reversal.

Inverted Hammer / Gravestone Doji Bullish


How to Identify it

• Small real body at the lower end of the trading range • Upper shadow usually no more than twice as long as the real body • No (or almost no) lower shadow

What it Means

21As the market opens below the close of the previous day, the bulls rally briefly, but not enough to close above the previous day’s close. As this leaves shorts in a losing position, the Inverted Hammer presents the potential for an upcoming rally. Confirmation of the trend reversal would by an opening above the body of the Inverted Hammer on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than an Inverted Hammer.

Kicking Bullish


How to Identify it

• The first day is a Black Marubuzo day • The second day is a White Marubuzo day that gaps upward

What it Means

This pattern is a strong sign that the market is headed upward. With this indicator, the previous market direction is not as important as with other indicators.

Ladder Bottom Bullish


How to Identify it

• Three black days occur with consecutively lower opens and closes • The fourth day is black with some upper shadow • The fifth day is a white day that opens above the body of the fourth day

What it Means

In a considerable downtrend, the shorts may have a chance to sell and take in any profits by the fourth day. This results in a gap upward on the fifth day. If the body of the fifth day is long, or the volume of trading is high, a bullish reversal has likely occurred.

Mat Hold Bullish

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Pattern: Continuation Trend: Bullish Reliability: High

How to Identify it

• The first day is a long white day • The second day gaps up and is a black day • The second, third, and fourth days have small real bodies and follow a brief

downtrend pattern, but stay within the range of the first day • The fifth day is a long white day that closes above the close of the first day

What it Means

The Mat Hold pattern is similar to the Rising Three Methods pattern. In an uptrend, a long white day occurs, following by three days of small real bodies that fall into a short downtrend. On the fifth day, the bulls come in strong to close at a new high. It appears that attempts to reverse the trend occurred, but failed. The upward trend should continue.

Matching Low Bullish


How to Identify it

• The first day is a long black day • The second day is a black day with a close equivalent to the first day’s close

What it Means In a downtrend two black days occur with equal closes. This suggests short-term support, and can cause a reversal on the next day of trading.

Meeting Lines Bullish


How to Identify it

• The first day is a long black day, and has a body that is lower than the previous trend

23• The second day is a long white day, and has a body that is also lower than the

previous trend. • Both days have identical closes

What it Means In a downtrend two days open below the previous trend. Even though the second day open low, it rallies to close at the close of the previous day. This typically means a benchmark has be defined by traders, and a reversal is likely.

Morning Doji Star Bullish


How to Identify it

• First day is a long black day • Second day is a doji that gaps in the direction of the previous trend • The third day is a white day

What it Means In a downtrend, the market bolsters the bearish trend with a long black day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal is given by the white third day. The Morning Doji Star is a fully realized bullish Doji Star pattern.

Morning Star Bullish


How to Identify it

• First day is a long black day • Second day is a small day that gaps in the direction of the previous trend • The third day is a white day

What it Means In a downtrend, the market bolsters the bearish trend with a long black day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal is given by the white third day.

Piercing Line Bullish

24


How to Identify it

• First day is a long black day • Second day is a white day with an open below previous days low • Second days close is within but above the midpoint of the first days body

What it Means In a downtrend the market gaps open, but rallies strong to close above the previous days midpoint. This pattern suggests an opportunity for the bulls to enter the market and support the trend reversal. The Piercing Line pattern is the opposite of the Dark Cloud Cover.

Rising Three Methods Bullish


How to Identify it

• The first day is a long white day • The second, third, and fourth days have small real bodies and follow a brief

downtrend pattern, but stay within the range of the first day • The fifth day is a long white day that closes above the close of the first day

What it Means In an uptrend, a long white day occurs, following by three days of small real

bodies that fall into a short downtrend. On the fifth day, the bulls come in strong to close at a new high. This small downtrend, in between two long white days, is consistent with investors taking a break. The upward trend should continue.

Separating Lines Bullish

Pattern: Continuation Trend: Bullish Reliability: Low

How to Identify it

• The first day is a black day • The second day is a white day that has the same opening price as the first day

25What it Means In an uptrend a long black day occurs. The second day, however, picks up where the previous day’s trading left off and rallies to close higher. This suggests that the uptrend should remain intact.

Side-by-Side White Lines Bullish


How to Identify it

• The first day is a white day • The second day is a white day that gaps up • The third day is a white day of about the same body length and close as the second

day

What it Means In an uptrend three white days occur with an upward gap between the first two and a similar body length and close for the last two. This suggests a definite building of the uptrend.

Stick Sandwich Bullish


How to Identify it

• The first day is a black day • The second day is a white day that trades above the close of the first day • The third day is a black day with a close equivalent to the first day

What it Means This pattern shows three days consecutive higher opens, but results in an eventual close equal to the first day’s close. This pattern is indicative of the market finding a support price. The overall trend has the potential to reverse, building on the new support price.

Three Inside Up Bullish

26


How to Identify it

• A bullish Harami pattern occurs in the first two days • The third day is a white day with a higher close than the second day

What it Means This pattern is a more reliable addition to the standard Harami pattern. The third day is confirmation of the bullish trend reversal.

Three-Line Strike Bullish

Pattern: Continuation Trend: Bullish Reliability: Low

How to Identify it

• Three long white days occur with consecutively higher closes • The fourth day opens higher and closes below the open of the first day

What it Means The black day drives prices back to where they were at the start of the pattern. If the bullish trend was strong before the pattern, then it should continue.

Three Outside Up Bullish


How to Identify it

• A bullish Engulfing pattern occurs in the first two days • The third day is a white day with a higher close than the second day

What it Means This pattern is a more reliable addition to the standard Engulfing pattern. The third day is confirmation of the bullish trend reversal.

Three Stars in the South Bullish

27


How to Identify it

• The first day is a long black day with a long lower shadow • The second day is a black day similar to the first, but smaller, with a low above the

first days low • The third day is a small Black Marubozu that lies within the second days trading

range

What it Means In a downtrend three black days occur. However each day is consecutively weaker within the trend, suggesting that some buying is occurring. Small rallies on each day keep the market’s lows from reaching that of the first day. All indications are that the tide is slowly turning toward the bulls.

Three White Soldiers Bullish


How to Identify it

• Three long white days occur, each with a higher close than the previous day • Each day opens within the body of the previous day and closes near the high of the

day

What it Means In a downtrend three long white days occur with consecutively higher closes. Generally this suggests future market fortitude, as a reversal is in progress that is building on moderate upward steps.

Tri Star Bullish


How to Identify it

28• A doji occurs on three consecutive trading days • The second doji gaps below the first and third

What it Means In an long downtrend, the market shows signs of a rally as the real bodies have grown progressively smaller. The trend culminates with the bullish Tri Star, identifying that many bearish positions may be reversing.

Unique Three River Bottom Bullish


How to Identify it

• The first day is a long black day • The second is a black Harami day, with a shadow that sets a new low • The third day is a short white day which closes below the close of the second day

What it Means Two black days occur consecutively, with the second day’s body within that of the first day. However, the long lower shadow shows the bearish tide may be reversing. The third day opens lower, reinforcing the indecision of the market and ends in a rally. The bulls should take over.

Upside Gap Three Methods Bullish

Pattern: Continuation Trend: Bullish Reliability: Moderate

How to Identify it

• Two long white days occur with a gap between them • The third day is a black day that fills the gap between the first two days

What it Means An uptrend is followed by two long white days with a gap upward between them. The third day is a black day, but one that closes the gap between the first two. This should be seen as support for the upward trend, and may be caused by temporary profit taking.

Upside Tasuki Gap Bullish

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Pattern: Continuation Trend: Bullish Reliability: Moderate

How to Identify it

• The first two days are white days with an opening gap • The third day is a black day that opens within the body of the second day and closes

within the gap of the first two days

What it Means In an uptrend a white day occurs, followed by another white day that gaps up. A black day ensues, and is likely the result of temporary profit taking. The trend should continue to follow the direction of the upward gap.

Bearish Indicators

Abandoned Baby Bearish

Pattern: Reversal Trend: Bearish Reliability: High

How to Identify it

• First day is usually a long white day • Second day is a doji that gaps in the direction of the previous trend • The third day is a black day, gapping in the opposite direction, with no overlapping

shadows

What it Means In an uptrend, the market builds strength on a long white day and gaps open on

the second day. However, the second day trades within a small range and closes at or near its open. This scenario definitely shows an erosion of confidence in the current trend. Confirmation of the trend reversal is the black third day, which is given extra validation by the downward gap.

Advance Block Bearish

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Pattern: Reversal Trend: Bearish Reliability: Moderate

How to Identify it

• Three long white days occur, each with a higher close than the previous day • Each day opens within the body of the previous day and closes near the high of the

day • Each days body is significantly smaller than the previous days body • The second and third days should exhibit long upper shadows

What it Means In an uptrend three long days occur with consecutively higher closes. This pattern is similar to the Three White Soldiers pattern, however, in this case, each successive day is weaker than the one preceding it. This suggests that the previous rally is losing strength, and preparing for a reversal.

Belt Hold Bearish

Pattern: Reversal Trend: Bearish Reliability: Low

How to Identify it

• A black body occurs in an uptrend with no upper shadow

What it Means In an uptrend, a black body occurs with an open that is also the high for the day. This may cause many positions to be sold, perpetuating a bearish reversal.

Breakaway Bearish


How to Identify it

• The first day is a long white day • The second day is a white day that gaps above the first day

31• The third and fourth days continue to in the direction of the second with higher

consecutive closes • The fifth day is a long black day that closes into the gap between the first and

second days

What it Means An uptrend sees a bullish surge that eventually weakens. The result is a long black day that does not close the gap into the body of the first day. This suggests a short-term reversal.

Dark Cloud Cover Bearish


How to Identify it

• First day is a long white day • Second day is black with an open above the high of the previous day • Second day closes within but below the midpoint of the first day’s body

What it Means In an uptrend the market gaps open, but loses ground to fall below the midpoint of the previous day. The Dark Cloud Cover pattern suggests an opportunity for the shorts to capitalize on the next day’s open: a warning sign to bullish investors. The Dark Cloud Cover pattern is the opposite of the Piercing line pattern.

Deliberation Bearish


How to Identify it

• Two long white days occur, the second with a higher close than the first • A third white day is a spinning top or doji that gaps above the second day

What it Means In an uptrend three white days occur with consecutively higher closes. This pattern is a derivative of the Three White Soldiers pattern and is very similar to the Advance Block pattern. Even though an uptrend continues, the small third body suggests that the previous rally is losing strength and preparing for a reversal.

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Downside Gap Three Methods Bearish

Pattern: Continuation Trend: Bearish Reliability: Moderate

How to Identify it

• Two long black days occur with a gap between them • The third day is a white day that fills the gap between the first two days

What it Means A downtrend is followed by two long black days with a gap downward between them. The third day is a white day, but one that closes the gap between the first two. This should be seen as support for the downward trend.

Downside Tasuki Gap Bearish


How to Identify it

• The first two days are black days with an opening gap • The third day is a white day that opens within the body of the second day and closes

within the gap of the first two days

What it Means In a downtrend a black day occurs, followed by another black day that gaps down. A white day ensues, and is likely the result of investors temporarily taking advantage of the low buying price. The trend should continue to follow the direction of the downward gap.

Doji Star Bearish


33How to Identify it

• First day is a long white day • Second day is a doji that gaps in the direction of the previous trend • The shadows of the doji should not be long

What it Means In an uptrend, the market builds strength on a long white day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows erosion of confidence in the current trend. Confirmation of a trend reversal would be a lower open on the next trading day.

Hanging Man / Dragonfly Doji Bearish

Pattern: Reversal Trend: Bearish Reliability: Low/Moderate

How to Identify it


What it Means There is a sharp sell off after the market opens during an uptrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies the potential for further sell-offs. Since the certainty for a Hanging Man indicator is low, the trend reversal can be confirmed by a black candlestick or a large down gap on the next trading day accompanied by a lower close. If the open and the close are identical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hanging Man.

Engulfing Bearish


How to Identify it

• A long white day occurs • The second day is a black day that completely engulfs the real body of the first day

What it Means Occurring in an uptrend, the Engulfing depicts an opening at a new high,

followed by a high volume sell-off that closes at or below the previous day’s open. This signifies that the uptrend has been hurt and the bears may be gaining strength. The Engulfing indicator is also the first two days of the Three Outside patterns.

Evening Doji Star Bearish

34


How to Identify it

• First day is a long white day • Second day is a doji that gaps in the direction of the previous trend • The third day is a black day

What it Means In an uptrend, the market builds strength on a long white day and gaps open on

the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows an erosion of confidence in the current trend. Confirmation of the trend reversal is the black third day. The Evening Doji Star indicator is the fully realized bearish Doji Star pattern.

Evening Star Bearish


How to Identify it

• First day is a long white day • Second day is a small day that gaps in the direction of the previous trend • The third day is a black day

What it Means In an uptrend, the market builds strength on a long white day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows an erosion of confidence in the current trend. Confirmation of the trend reversal is the black third day.

Falling Three Methods Bearish

Pattern: Continuation Trend: Bearish Reliability: High

How to Identify it

• The first day is a long black day

35• The second, third, and fourth days have small real bodies and follow a brief

uptrend pattern, but stay within the range of the first day • The fifth day is a long black day that closes below the close of the first day

What it Means In a downtrend, a long black day occurs, following by three days of small real bodies that fall into a short uptrend. On the fifth day, the bears come in strong to close at a new low. This small uptrend, in between two long black days, is consistent with investors taking a break. The downward should continue.

Shooting Star / Gravestone Doji Bearish


How to Identify it

• Small real body at the lower end of the trading range • Prices gap open • Upper shadow usually at least three times as long as the real body • No (or almost no) lower shadow

What it Means The market gaps open above the previous day’s close in an uptrend. It rallies to a new high then loses strength and closes near its low: a bearish change of momentum. Confirmation of the trend reversal would by an opening below the body of the Shooting Star on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than a Shooting Star.

Hanging Man / Dragonfly Doji Bearish


How to Identify it


What it Means There is a sharp sell off after the market opens during an uptrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies the potential for further sell-offs. Since the certainty for a Hanging Man indicator is low, the trend reversal can be confirmed by a black candlestick or a large down gap on the next trading day accompanied by a lower close. If the open and the close are identical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hanging Man.

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Harami Bearish

Pattern: Reversal Trend: Bearish Reliability: Low

How to Identify it

• A long white day occurs • The second day is a black day that is completely engulfed by the real body of the

first day

What it Means After a long white day at the high end of an uptrend, a black candlestick opens lower than the previous day’s close. Trading is typically light and the day ends with a close lower than the open and within body of the first day; a signal that the current uptrend is losing strength. The Harami indicator should be confirmed with the next trading day’s candlestick following the reversal trend. The Harami pattern is also the first two days of the Three Inside patterns.

Harami Cross Bearish


How to Identify it

• A long white day occurs • The second day is a doji that is within the range of the previous day’s real body

What it Means After a long white day at the high end of an uptrend, the market opens lower

than the previous day’s close. Trading is typically light and the day ends with a close at the same price as the open and within body of the first day; an even stronger signal than the basic Harami pattern that the current uptrend is losing strength.

Identical Three Crows Bearish

37


How to Identify it

• Three black days occur, each with a close below the previous day • Each day opens at the close of the previous day

What it Means In an uptrend three long black days occur that open at the previous day’s close. This pattern is similar to the Three Black Crows pattern but typifies a more severe loss of buying power. A bearish trend is almost certain.

In Neck Bearish


How to Identify it

• The first day is a long black day • The second is a white day that opens below the low of the previous day and closes

barely above or equal to the close of the previous day

What it Means The In Neck pattern is a less severe relative of the On Neck pattern. A small

rally is built by the second day, but ends near the close of the previous black day. Although, as in the case of the On Neck pattern, the downtrend should prevail, it may take longer to evolve.

Kicking Bearish


How to Identify it

• The first day is a White Marubuzo day

38• The second day is a Black Marubuzo day that gaps downward

What it Means This pattern is a strong sign that the market is headed downward. With this indicator, the previous market direction is not as important as with other indicators.

Meeting Lines Bearish


How to Identify it

• The first day is a long white day, and has a body that is above the previous trend • The second day is a long black day, and has a body that is also above the previous

trend. • Both days have identical closes

What it Means In an uptrend two days open above the previous trend. Even though the second day opens high, it rallies to close at the close of the previous day. This typically means a benchmark has be defined by traders, and a reversal is likely. The bearish Meeting Lines pattern is similar to, but less reliable than the Dark Cloud Cover pattern.

On Neck Bearish


How to Identify it

• The first day is a long black day • The second is a white day (not long) that opens below the low of the previous day

and closes at the low of the previous day

What it Means The On Neck pattern is typical in a downtrend. The fact that a small rally is built by the second day, but ends at the low of the previous black day indicates that the bears should prevail.

Separating Lines Bearish

39

Pattern: Continuation Trend: Bearish Reliability: Low

How to Identify it

• The first day is a white day • The second day is a black day that has the same opening price as the first day

What it Means In downtrend a long white day occurs. The second day, however, picks up where the previous day’s trading left off and rallies to close lower. This suggests that the downtrend should remain intact.

Shooting Star / Gravestone Doji Bearish


How to Identify it

• Small real body at the upper end of the trading range • Prices gap open • Upper shadow usually at least three times as long as the real body • No (or almost no) lower shadow

What it Means The market gaps open above the previous day’s close in an uptrend. It rallies to

a new high then loses strength and closes near its low: a bearish change of momentum. Confirmation of the trend reversal would by an opening below the body of the Shooting Star on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than a Shooting Star.

Side-by-Side White Lines Bearish


How to Identify it

40• The first day is a black day • The second day is a white day that gaps down • The third day is a white day of about the same body length and close as the second

day

What it Means In a downtrend a black day is followed by two white that are gapped below the first day. This typically means the shorts are covering their positions, and no reversal is about to occur. The downtrend should remain intact for the near future.

Three Black Crows Bearish


How to Identify it

• Three black days occur, each with a close below the previous day • Each day opens within the body of the previous day • Each day closes near or at its lows

What it Means In an uptrend three long black days occur with consecutively lower closes. This pattern suggests that the market has been at a high price for too long, and investors are beginning to compensate for it.

Three Inside Down Bearish


How to Identify it

• A bearish Harami pattern occurs in the first two days • The third day is a black day with a lower close than the second day

What it Means This pattern is a more reliable addition to the standard Harami pattern. The third day is confirmation of the bearish trend reversal.

Three-Line Strike Bearish

41


How to Identify it

• Three long black days occur with consecutively lower closes • The fourth day opens lower, but closes above the open of the first day

What it Means The white day drives prices back to where they were at the start of the pattern. If the bearish trend was strong before the pattern, then it should continue.

Three Outside Down Bearish


How to Identify it

• A bearish Engulfing pattern occurs in the first two days • The third day is a black day with a lower close than the second day

What it Means This pattern is a more reliable addition to the standard Engulfing pattern. The third day is confirmation of the bearish trend reversal.

Thrusting Bearish


How to Identify it

• The first day is a long black day • The second is a white day that opens below the low of the previous day and closes

into the body of the previous day, but below the midpoint

What it Means The Thrusting pattern is a weaker relative of the On Neck and In Neck continuation patterns. A rally is built by the second day, and closes well into the body of the previous black day. However, since the second day’s close doesn’t even reach the midpoint of the first day’s body, the bulls will likely be discouraged and the downtrend will continue.

42

Tri Star Bearish


How to Identify it

• A doji occurs on three consecutive trading days • The second doji gaps above the first and third

What it Means In an long uptrend, the market shows signs of weakness as the real bodies have

grown progressively smaller. The trend culminates with the Tri Star, identifying that there is little strength left, and signaling a return of the bears.

Two Crows Bearish


How to Identify it

• The first day is a long white day • The second day is a black day that gaps above the first day • The third day is a black day that opens within the body of the second day and closes

within the body of the first day

What it Means In an uptrend the market closes lower after an opening gap upwards. This is

followed by another black day which fills the gap. The Two Crows pattern suggests the erosion of the uptrend, and foreshadows a trend reversal.

Upside Gap Two Crows Bearish


How to Identify it

43• The first day is a long white day continuing in an uptrend • The second day is black and gaps up • The third day is also black and engulfs the previous black day, but still closes above

the first day

What it Means In an uptrend the market falters, but still closes above the previous day’s close. The next day, it falters more but remains above the first day’s close. This is a signal that the market can no longer hold its position and is in for a bearish ride.

Bullish Patterns

Abandoned Baby

Belt Hold

Breakaway

Concealing Baby

Swallow

Engulfing

Hammer/

Dragonfly Doji

Harami

Harami Cross

Homing Pigeon

Inverted Hammer/ Gravestone Doji

Kicking

Ladder Bottom

Matching Low

Meeting Lines

Morning Doji Star

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Morning Star

Piercing Line

Stick Sandwich

Three Inside Up

Three Outside Up

Three Stars In The South

Tri Star

Unique Three River

Bottom

Doji Star

Mat Hold

Rising Three Methods

Separating Lines

Side By Side White

Lines

Three White Soldiers

Upside Gap Three Methods

Three Line Strike

Upside Tasuki Gap

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Bearish Patterns

Abandoned Baby

Advance Block

Belt Hold

Breakaway

Dark Cloud Cover

Deliberation

Engulfing

Evening Doji Star

Evening Star

Hanging Man/ Dragonfly Doji

Harami

Harami Cross

Identical Three Crows

Kicking

Meeting Lines

Shooting Star/ Gravestone Doji

Three Inside Down

Three Outside Down

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Tri Star

Two Crows Upside Gap Two Crows

Doji Star

Downside Gap Three Methods

Downside Tasuki Gap

Falling Three Methods

In Neck

On Neck

Separating Lines

Side By Side White Lines

Three Black Crows

Three Line Strike

Thrusting

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Introduction to Candlesticks Print

History

The Japanese began using technical analysis to trade rice in the 17th century. While this early version of technical analysis was different from the US version initiated by Charles Dow around 1900, many of the guiding principles were very similar:

• The "what" (price action) is more important than the "why" (news, earnings, and so on).

• All known information is reflected in the price.

• Buyers and sellers move markets based on expectations and emotions (fear and greed).

• Markets fluctuate.

• The actual price may not reflect the underlying value.

According to Steve Nison, candlestick charting first appeared sometime after 1850. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata. It is likely that his original ideas were modified and refined over many years of trading eventually resulting in the system of candlestick charting that we use today.

Formation

In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display. The hollow or filled portion of the candlestick is called "the body" (also referred to as "the real body"). The long thin lines above and below the body represent the high/low range and are called "shadows" (also referred to as "wicks" and "tails"). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. If the stock closes higher than

its opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price

48and the top of the body representing the closing price. If the stock closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.

Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.

Long versus Short Bodies

Generally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

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Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.

Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.

Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

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Long versus Short Shadows

The upper and lower shadows on candlesticks can provide valuable information about the trading session. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlestick with long shadows show that traded extended well past the open and close.

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, and bid prices higher. However, sellers later forced prices down from their highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.

Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little

51change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.

Doji

Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and future confirmation. The word "Doji" refers to both the singular and plural form.

Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.

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Different securities have different criteria for determining the robustness of a doji. A $20 stock could form a doji with a 1/8 point difference between open and close, while a $200 stock might form one with a 1 1/4 point difference. Determining the robustness of the doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the doji should have a very small body that appears as a thin line. Steven Nison notes that a doji that forms among other candlesticks with small real bodies would not be considered important. However, a doji that forms among candlesticks with long real bodies would be deemed significant.

Doji and Trend

The relevance of a doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.

53After an advance or long white candlestick, a doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a doji may be more significant after an uptrend or long white candlestick. Even after the doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick's open. After a long white candlestick and doji, traders should be on the alert for a potential evening doji star.

After a decline or long black candlestick, a doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick's open. After a long black candlestick and doji, traders should be on the alert for a potential morning doji star.

Long-legged Doji

Long-legged doji have long upper and lower shadows that are almost equal in length. These doji reflect a great amount of indecision in the market. Long-legged doji indicate that prices traded well above and below

54the session's opening level, but closed virtually even with the open. After a whole lot of yelling and screaming, the end result showed little change from the initial open.

Dragon Fly Doji

Dragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragon fly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragon fly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

Gravestone Doji

Gravestone doji form when the open, low and close are equal and the high creates a long upper shadow. The resulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow. Gravestone doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low.

As with the dragon fly doji and other candlesticks, the reversal implications of gravestone doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal. After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations.

Before turning to the single and multiple candlestick patterns, there are a few general guidelines to cover.

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Bulls vs. Bear

A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time. An analogy to this battle can be made between two football teams, which we can also call the Bulls and the Bears. The bottom (intra-session low) of the candlestick represents a touchdown for the Bears and the top (intra-session high) a touchdown for the Bulls. The closer the close is to the high, the closer the Bulls are to a touchdown. The closer the close is to the low, the closer the Bears are to a touchdown. While there are many variations, I have narrowed the field to 6 types of games (or candlesticks):

1. Long white candlesticks indicate that the Bulls controlled the ball (trading) for most of the game.

2. Long black candlesticks indicate that the Bears controlled the ball (trading) for most of the game.

3. Small candlesticks indicate that neither team could move the ball and prices finished about where they started.

4. A long lower shadow indicates that the Bears controlled the ball for part of the game, but lost control by the end and the Bulls made an impressive comeback.

5. A long upper shadow indicates that the Bulls controlled the ball for part of the game, but lost control by the end and the Bears made an impressive comeback.

6. A long upper and lower shadow indicates that the both the Bears and the Bulls had their moments during the game, but neither could put the other away, resulting in a standoff.

What Candlesticks Don't Tell You

Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.

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With a long white candlestick, the assumption is that prices advanced most of the session. However, based on the high/low sequence, the session could have been more volatile. The example above depicts two possible high/low sequences that would form the same candlestick. The first sequence shows two small moves and one large move: a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close. The second sequence shows three rather sharp moves: a sharp advance off the open to form the high, a sharp decline to form the low, and a sharp advance to form the close. The first sequence portrays strong, sustained buying pressure, and would be considered more bullish. The second sequence reflects more volatility and some selling pressure. These are just two examples, and there are hundreds of potential combinations that could result in the same candlestick. Candlesticks still offer valuable information on the relative positions of the open, high, low and close. However, the trading activity that forms a particular candlestick can vary.

Prior Trend

In his book, Candlestick Charting Explained, Greg Morris notes that for a pattern to qualify as a reversal pattern, there should be a prior trend to reverse. Bullish reversals require a preceding downtrend and bearish reversals require a prior uptrend. The direction of the trend can be determined using trend lines, moving averages, peak/trough analysis or other aspects of technical analysis. A downtrend might exist as long as the security was trading below its down trend line, below its previous reaction high or below a specific moving average. The length and duration will depend on individual preferences. However, because candlesticks are short-term in nature, it is usually best to consider the last 1-4 weeks of price action.

Candlestick Positioning

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Star Position

A candlestick that gaps away from the previous candlestick is said to be in star position. The first candlestick usually has a large real body, but not always, and the second candlestick in star position has a small real body. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action. The two candlesticks can be any combination of white and black. Doji, hammers, shooting stars and spinning tops have small real bodies, and can form in the star position. Later we will examine 2- and 3-candlestick patterns that utilize the star position.

Harami Position

A candlestick that forms within the real body of the previous candlestick is in Harami position. Harami means pregnant in Japanese and the second candlestick is nestled inside the first. The first candlestick usually has a large real body and the second a smaller real body than the first. The shadows (high/low) of the second candlestick do not have to be contained within the first, though it's preferable if they are. Doji

58and spinning tops have small real bodies, and can form in the harami position as well. Later we will examine candlestick patterns that utilize the harami position.

Long Shadow Reversals

There are two pairs of single candlestick reversal patterns made up of a small real body, one long shadow and one short or non-existent shadow. Generally, the long shadow should be at least twice the length of the real body, which can be either black or white. The location of the long shadow and preceding price action determine the classification.

The first pair, Hammer and Hanging Man, consists of identical candlesticks with small bodies and long lower shadows. The second pair, Shooting Star and Inverted Hammer, also contains identical candlesticks, except, in this case, they have small bodies and long upper shadows. Only preceding price action and further confirmation determine the bullish or bearish nature of these candlesticks. The Hammer and Inverted Hammer form after a decline and are bullish reversal patterns, while the Shooting Star and Hanging Man form after an advance and are bearish reversal patterns.

Hammer and Hanging Man

The Hammer and Hanging Man look exactly alike, but have different implications based on the preceding price action. Both have small real bodies (black or white), long lower shadows and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.

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The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding volume, is needed before acting. Such confirmation could come from a gap up or long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal.

The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

Inverted Hammer and Shooting Star

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The Inverted Hammer and Shooting Star look exactly alike, but have different implications based on previous price action. Both candlesticks have small real bodies (black or white), long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals, but require confirmation before action.

The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A Shooting Star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively long and at least 2 times the length of the body. Bearish confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume.

The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying

61pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

Blending Candlesticks

Candlestick patterns are made up of one or more candlesticks and these can be blended together to form one candlestick. This blended candlestick captures the essence of the pattern and can be formed using the following:

• The open of first candlestick

• The close of the last candlestick

• The high and low of the pattern

By using the open of the first candlestick, close of the second candlestick, and high/low of the pattern, a Bullish Engulfing Pattern or Piercing Pattern blends into a Hammer. The long lower shadow of the Hammer signals a potential bullish reversal. As with the Hammer, both the Bullish Engulfing Pattern and the Piercing Pattern require bullish confirmation.

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Blending the candlesticks of a Bearish Engulfing Pattern or Dark Cloud Cover Pattern creates a Shooting Star. The long upper shadow of the Shooting Star indicates a potential bearish reversal. As with the Shooting Star, Bearish Engulfing and Dark Cloud Cover Patterns require bearish confirmation.

More than two candlesticks can be blended using the same guidelines: open from the first, close from the last and high/low of the pattern. Blending Three White Soldiers creates a long white candlestick and blending Three Black Crows creates a long black candlestick.

For a comprehensive list of chart patterns, see the StockCharts Candlestick Dictionary.

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Candlestick Pattern Dictionary Print

Abandoned Baby

A rare reversal pattern characterized by a gap followed by a Doji, which is then followed by another gap in the opposite direction. The shadows on the Doji must completely gap below or above the shadows of the first and third day.

Dark Cloud Cover

A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day.

Doji

Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level.

Downside Tasuki Gap

A continuation pattern with a long black body followed by another black body that has gapped below the first one. The third day is white and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.

Dragonfly Doji

A Doji line where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points.

Engulfing Pattern

A reversal pattern that can be bearish or bullish depending upon whether it appears at the end of an uptrend

64(bearish engulfing pattern) or downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body.

Evening Doji Star

A three day bearish reversal pattern similar to the Evening Star. The uptrend continues with a large white body. The next day opens higher, trades in a small range, then closes at its open (Doji). The next day closes below the midpoint of the body of the first day.

Evening Star

A bearish reversal pattern that continues an uptrend with a long white body day followed by a gapped up small body day, then a down close with the close below the midpoint of the first day.

Falling Three Methods

A bearish continuation pattern. A long black body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new low.

Gravestone Doji

A doji line that develops when the Doji is at, or very near, the low of the day.

Hammer

Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, then it is called a Hanging Man.

Hanging Man

Hanging Man candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during a decline, then it is called a Hammer.

65Harami

A two day pattern that has a small body day completely contained within the range of the previous body, and is the opposite color.

Harami Cross

A two day pattern similar to the Harami. The difference is that the last day is a Doji.

Inverted Hammer

A one day bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop.

Long Day

A long day represents a large price move from open to close, where the length of the candle body is long.

Long-Legged Doji

This candlestick has long upper and lower shadows with the Doji in the middle of the day's trading range, clearly reflecting the indecision of traders.

Long Shadows

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session and bid prices higher. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower.

Marubozo

A candlestick with no shadow extending from the body at either the open, the close or at both. The name means close-cropped or close-cut in Japanese, though other interpretations refer to it as Bald or Shaven Head.

66Morning Doji Star

A three day bullish reversal pattern that is very similar to the Morning Star. The first day is in a downtrend with a long black body. The next day opens lower with a Doji that has a small trading range. The last day closes above the midpoint of the first day.

Morning Star

A three day bullish reversal pattern consisting of three candlesticks - a long-bodied black candle extending the current downtrend, a short middle candle that gapped down on the open, and a long-bodied white candle that gapped up on the open and closed above the midpoint of the body of the first day.

Piercing Line

A bullish two day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day.

Rising Three Methods

A bullish continuation pattern. A long white body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new high.

Shooting Star

A single day pattern that can appear in an uptrend. It opens higher, trades much higher, then closes near its open. It looks just like the Inverted Hammer except that it is bearish.

Short Day

A short day represents a small price move from open to close, where the length of the candle body is short.

Spinning Top

Candlestick lines that have small bodies with upper and lower shadows that exceed the length of the body. Spinning tops signal indecision.

67Stars

A candlestick that gaps away from the previous candlestick is said to be in star position. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action.

Stick Sandwich

A bullish reversal pattern with two black bodies surrounding a white body. The closing prices of the two black bodies must be equal. A support prices is apparent and the opportunity for prices to reverse is quite good.

Three Black Crows

A bearish reversal pattern consisting of three consecutive black bodies where each day closes near below the previous low, and opens within the body of the previous day.

Three White Soldiers

A bullish reversal pattern consisting of three consecutive white bodies, each with a higher close. Each should open within the previous body and the close should be near the high of the day.

Upside Gap Two Crows

A three day bearish pattern that only happens in an uptrend. The first day is a long white body, followed by a gapped open with the small black body remaining gapped above the first day. The third day is also a black day whose body is larger than the second day and engulfs it. The close of the last day is still above the first long white day.

Upside Tasuki Gap

A continuation pattern with a long white body followed by another white body that has gapped above the first one. The third day is black and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.

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Candlesticks and Support Print

Single candlesticks and candlestick patterns can be used to confirm or mark support levels. Such a support level could be new after an extended decline or confirm a previous support level within a trading range. In a trading range, candlesticks can help choose entry points for buying near support and selling near resistance. The list below contains some, but not all, of the candlesticks and candlestick patterns that can be used to together with support levels. The bullish reversal patterns are marked (R).

• Bullish Engulfing (R)

Engulfing Pattern A reversal pattern that can be bearish or bullish depending upon whether it is in an uptrend or downtrend. The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body.

• Bullish Harami (R)

Harami A two day pattern that has a small body day completely contained within the range of the previous body, and is the opposite color.

• Doji (Normal, Long Legged, Dragon Fly)

Doji A candlestick with a body so small that the open and close prices are equal. A Doji occurs when the open and close for that day are the same, or very close to being the same.

Long-Legged Doji This candlestick has long upper and lower shadows with the Doji in the middle of the day's trading range, clearly reflecting the indecision of traders.

Dragonfly Doji A Doji line where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points.

• Hammer (R)

Hammer Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, then it is called a Hanging Man.

• Inverted Hammer (R)

Inverted Hammer A one day bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop.

69• Long White candlestick or White Marubozu

Marubozu A candlestick with no shadow extending from the body at either the open, the close or at both. The name means close-cropped or close-cut in Japanese, though other interpretations refer to it as Bald or Shaven Head.

• Morning Star or Bullish Abandoned Baby (R)

Morning Star A three day bullish reversal pattern consisting of three candlesticks - a long-bodied black candle extending the current downtrend, a short middle candle that gapped down on the open, and a long-bodied white candle that gapped up on the open and closed above the midpoint of the body of the first day.

• Piercing Pattern (R)

Piercing Line A bullish two day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day.

• Spinning Top

Spinning Top Candlestick lines that have small bodies with upper and lower shadows that exceed the length of the body. Spinning tops signal indecision.

• Three White Soldiers (R)

Three White Soldiers A bullish reversal pattern consisting of three consecutive white bodies, each with a higher close. Each should open within the previous body and the close should be near the high of the day.

Bullish reversal candlesticks and patterns suggest that early selling pressure was overcome and buying pressure emerged for a strong finish. Such bullish price action indicates strong demand and that support may be found.

The inverted hammer, long white candlestick and marubozu show increased buying pressure rather than an actual price reversal. With its long upper shadow, an inverted hammer signifies intra-session buying interest that faded by the finish. Even though the security finished well below its high, the ability of buyers to push prices higher during the session is bullish. The long white candlestick and white marubozu signify sustained buying pressure in which prices advanced sharply from open to close. Signs of increased buying pressure bode well for support.

The doji and spinning top denote indecision and are generally considered neutral. These non-reversal patterns indicate a decrease in selling pressure, but not necessarily a revival of buying pressure. After a decline, the appearance of a doji or spinning top denotes a sudden letup in selling pressure. A stand-off has developed between buyers and sellers, and a support level may form.

Note: All of the patterns above will be covered in this candlestick series in the next few weeks.

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Electronic Data Systems (EDS) traded in a range bound by 58 and 75 for about 4 months at the beginning of 2000. Support at 58 was first established in early January and resistance at 75 in late January. The stock declined to its previous support level in early March, formed a long legged doji and later a spinning top (red circle). Notice that the doji formed immediately after a long black Marubozu (long black candlestick without upper or lower shadows). This doji marked a sudden decrease in relative selling pressure and support held. Support was tested again in April and this test was also marked by a long legged doji (blue arrow).

Broadcom (BRCM) formed a bullish engulfing pattern to mark a new support level just below 210 (green oval) in late July 2000. A few days later a long white candlestick formed and engulfed the previous 4 candlesticks. The combination of the bullish engulfing and long white candlestick served to reinforce the validity of support around 208. The stock has since tested support around 208 once in early September and twice in October. A piercing pattern (red arrow) formed in early October and a large hammer in late October.

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Medtronic (MDT) established support around 46 in late February with a spinning top (red arrow) and early March with a harami. The stock declined sharply in April and formed a hammer to confirm support at 46 (green arrow). After a reaction rally to resistance around 57, the stock again declined sharply and again found support around 46 (blue arrow). The black candlestick with the long lower shadow marked support, but the body was too big to qualify as a hammer.

SITE DA NELOGICA

O Padrão Piercing Candles estão entre as ferramentas de preços mais ágeis em gerar sinais importantes, tanto de reversão quanto de continuação de movimento. Quando prestamos atenção ao contexto no qual um determinado candle surge e combinamos suas informações com outras técnicas ocidentais os resultados são muito bons.

Neste artigo vamos conhecer um padrão de reversão chamado piercing. Trata-se de um padrão altista que surge com alguma frequência e possui características importantes que devemos conhecer para medir (pelo menos subjetivamente) sua confiabilidade. Como convenção neste artigo usaremos o período diário para explicar o padrão, mas ele é perfeitamente válido para intervalos de tempo maiores e também intraday.

Identificando o Padrão O padrão piercing surge em um movimento baixista, necessitando de dois candles para sua formação:

1. O primeiro é um candle de queda, normalmente com um corpo de tamanho grande em relação a suas sombras. 2. O segundo é um candle de alta cujo valor de abertura é inferior ao fechamento do dia anterior (idealmente menor que a

mínima). Apesar da abertura ruim para os compradores, durante o dia existe uma recuperação que resulta em um fechamento que avança bastante para "dentro" do corpo do candle do primeiro dia.

A figura abaixo ilustra o piercing.

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Fatores de Reforço Existem alguns itens que intensificam a força do padrão:

1. Quanto maior o grau de avanço melhor. Um piercing no qual o candle de alta passa de 80% do corpo do candle de queda é mais relevante do que outro em que essa penetração é de 50%. Se esse avanço for de 100% ou mais estaremos diante de um engolfo de alta.

2. Se o segundo dia abre sob ou próximo de um suporte e o candle de alta faz com que o suporte não seja perdido. Isso mostra que os vendedores não tiveram força de vencer a pressão de compra daquela região e reforça a indicação de reversão do padrão.

3. Volume considerável no segundo dia.

Esses fatores são importantes, mas os dois últimos não são fundamentais. Existe, contudo, menos liberdade em relação ao primeiro (grau de avanço), sendo realmente desejável que essa penetração seja significativa. Se não houver um avanço de pelo menos 50% o padrão passa a ser classificado como um dos variantes (mais fracas) do piercing chamados de on-neck, in-neck e thrusting. Não vamos abordar esses padrões neste artigo. Observe o gráfico da Embratel abaixo (EBTP4):

O mercado vem em queda com uma sucessão de candles baixistas (pretos na figura) e no dia 20 de fevereiro, para satisfação dos vendedores, o mercado abre abaixo da mínima do pregão anterior. No entanto, ao longo do dia os preços iniciam uma recuperação que leva a um fechamento bem acima, penetrando fortemente no último candle de queda. Está formado o piercing, o qual foi o ponto de reversão para um bello rally na EBTP4. Lembre-se sempre de observar os candles no contexto em que surgem. O piercing, por exemplo, só possui validade após um movimento de queda. Os candles são uma linguagem de preços rica que pode contribuir bastante em suas estratégias. O piercing como outros padrões de candles possui o seu padrão oposto baixista, o dark- cloud (nuvem escura) que será tema de outro artigo.

O Padrão Shooting Star Análise técnica trata de probabilidades. O analista desenvolve uma estratégia com base em um certo número de ferramentas que são aplicadas aos gráficos, quando 2 ou mais dessas técnicas indicam a mesma direção as chances de sucesso aumentam. A maioria dos analistas que utilizam candles acaba sempre prestando atenção dobrada quando o padrão Shooting Star aparece, especialmente se ele surgir em conjunto com um sinal de topo da análise técnica ocidental.

Características do Padrão A Shooting Star é um padrão de candle de 1 barra, ou seja, não é um dos chamados padrões compostos, os quais desenvolvem-se ao longo de 2, 3 ou até mais barras. A Shooting Star, ou estrela cadente, recebe esse nome porque ela lembra a estrela no

73horizonte com a cauda para cima. Ela é formada por um pequeno corpo localizado na parte inferior do candle com uma grande sombra na parte superior. Não existe regra definida para o tamanho da sombra, mas espera-se que seja de pelo menos 2 vezes o tamanho do corpo. Como outros padrões do tipo estrela, a cor do corpo não é um fator muito importante, por isso está representado em cinza na figura abaixo:

Como a maioria das formaçoes de candles, a Shooting é válida em qualquer tempo gráfico desde uma periodicidade Intraday até mensal, semanal, etc. Sendo um padrão que sinaliza topos (ou seja uma possível queda) ela deve surgir necessariamente após

um movimento de alta. Assim, resumindo as característiscas do padrão:

• Deve necessariamente vir após um movimento altista. • O corpo deve ser pequeno e na parte inferior, contrastando com uma grande sombra na parte superior. • É válida em qualquer tempo gráfico. Uma observação a ser feita, no entanto, é que em intervalos muito curtos como 5

minutos a efetividade tende a ser um pouco menor.

Utilização e Confluência No gráfico abaixo do índice Bovespa (IBOVESPA) está destacada uma Shooting Star:

O mercado reage após chegar na região dos 20 mil pontos. O movimento de alta estabelecido começa a ser posto em dúvida com o surgimento da Shooting Star, indicando através de sua sombra que o mercado tentou, mas rejeitou novamente o nível de preços de aproximadamente 23.370, confirmando a última resistência alcançada. Esse, inclusive, é um ponto importante. O máximo da Shooting estabelece uma nova resistência e quando o padrão se forma perto de uma resistência já conhecida (como no exemplo mostrado) a técnica de candles oriental está sendo confirmada por uma técnica da escola gráfica clássica, gerando uma confluência de sinais que aumentam em muito as probabilidades de uma reversão. Na figura abaixo um novo exemplo com a Telemar (TNLP4) próximo a uma Banda de Bollinger. Note que a Shooting possui uma pequena sombra inferior, por ser bastante reduzida em relação ao restante do candle ela não invalida o padrão.

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Procure sempre observar se a formação surge junto com resistências, linhas de tendência de baixa, limites de envelopes, bandas de bollinger e também em conjunto com osciladores em estado de sobrecompra como IFR, Estocástico, etc. Essas coincidências aumentam muito a confiabilidade. O artigo que trata de trades com canais mostra uma Shooting Star confirmando o limite superior do canal, os exemplos existem em grande quantidade e o mercado vai continuar criando novos continuamente. Siga sempre trabalhando, pesquisando e aperfeiçoando sua metodologia. Se você gosta de candles preste atenção nos interessantes sinais de reversão gerados pelas figuras, em especial, quando as técnicas ocidentais e orientais indicam a mesma direção.

O Padrão Engolfo Os padrões de engolfo de alta e de baixa são padrões de reversão de tendência que possuem uma confiabilidade significativa. Estão entre os padrões de candles mais "famosos". Como reconhecer um engolfo? Vamos lá, as características do engolfo de alta são:

• Surge em uma tendência de baixa. • O primeiro dia do padrão é formado por um candle de baixa. • No segundo dia surge um candle de alta cuja abertura está abaixo da abertura do dia anterior e o fechamento acima do

fechamento do dia anterior. O que acontece é que o corpo do segundo candle envolve (engolfa) o corpo do primeiro.

O engolfo de baixa é similar com as diferenças esperadas:

• Surge em uma tendência de alta. • O primeiro dia é um candle de alta. • O corpo do segundo dia (de baixa) engolfa o do primeiro dia.

O Martelo (Hammer): Construindo o Padrão Os padröes de candles são muito bons em dar sinais rápidos sobre o movimento do mercado. Neste artigo vamos conhecer a fundo o padrão martelo e, em seguida, ver como podemos utilizá-lo em nossos trades.

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O Martelo O martelo é um dos padrões mais confiáveis de reversão, entretanto, para usá-lo de maneira efetiva é preciso conhecer suas características. Vamos a elas:

• O martelo possui uma longa sombra inferior e o corpo situado na parte superior do padrão. O tamanho da sombra deve ser pelo menos duas vezes o tamanho do corpo.

• Para ser um martelo deve surgir após uma baixa. Se a figura aparecer após uma alta ela provavelmente será um outro padrão chamado o enforcado. Este padrão é idêntico ao martelo, mas indica reversão para baixa e possui suas próprias particularidades. Será tema de outro artigo.

• O pequeno corpo do martelo pode ser de qualquer cor, ou seja, o candle pode ser de alta ou de baixa. • Se houver sombra superior ela deve ser muito pequena, o ideal é que seja inexistente.

O Martelo (Hammer): Realizando Trades Identificar um padrão de candle, como vimos no artigo introdutório sobre o martelo, é o primeiro passo. Contudo, saber como lucrar usando o padrão é tão fundamental como reconhecê-lo.

Neste artigo vamos ver, de forma direta, algumas regras que podemos utilizar para fazer trades com martelos.

Princípio 1: O Fundo do Martelo é Região de Suporte O mercado está confuso e você não sabe exatamente a região de suporte? Se existe um martelo por perto existem chances gigantescas de que suas dúvidas tenham acabado. O fundo de um martelo (seu valor mínimo), normalmente, identifica um ótimo suporte.

Padrões de Continuação: Rising and Falling Three Methods Embora sejam conhecidos pelo seu poder de sinalizar reversões, nem só de viradas de tendência vivem os candles. Existem sim padrões de continuação e eles podem ajudar bastante. Neste artigo vamos analisar um padrão de continuação de tendência altista chamado rising three methods, como não poderia deixar de ser, vamos dar uma olhada também em seu análogo baixista o falling three methods.

Identificando o Padrão O rising three methods surge em uma tendência de alta, é formado por:

• Um candle branco longo • Na sequência surge um grupo de candles de corpo pequeno. Esses candles fazem uma configuração de queda ou de

movimento lateral. • O ideal do padrão é que o grupo de candles seja composto por três. Mas, dois ou mais do que três não invalidam o padrão

desde que as outras "regras" sejam cumpridas. • Os corpos dos candles pequenos devem estar dentro do espaço entre a máxima e mínima do candle longo inicial.

Note que no intervalo de máximo e mínimo estão incluídas as sombras do candle longo. • As cor dos corpos dos candles pequenos pode ser branca ou preta. É preferível que seja preta, mas o contrário não

invalida o padrão. • O último dia do padrão deve ser uma figura de alta forte com um fechamento acima do fechamento do primeiro dia do

padrão.

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