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Showing posts with label candlestick. Show all posts
Showing posts with label candlestick. Show all posts
Saturday, August 9, 2008
Triple Top&Triple Bottom
Targets are measured in a similar fashion to Double Tops and Double Bottoms and they are traded in the same manner.
For a triple top, volume is high on the first peak and low on the third. There is an increase in volume on the second trough and a sharp increase at the breakout.
A triple bottom requires high volume on the first trough reducing to low volume on the third. Volume increases on the second peak and again on the breakout.
Trading Signals
Targets are measured in a similar fashion to Double Tops and Double Bottoms and they are traded in the same manner.
For a triple top, volume is high on the first peak and low on the third. There is an increase in volume on the second trough and a sharp increase at the breakout.
A triple bottom requires high volume on the first trough reducing to low volume on the third. Volume increases on the second peak and again on the breakout.
Trading Signals
Triple Top:
Go short on a break below the support line.Place a stop-loss just above the last peak.
Price often rallies back to the support line which then acts as a resistance level. Go short on a reversal signal and place a stop-loss just above the resistance level.
Triple Bottom:
Go long on a break above the resistance line.
Place a stop-loss just below the last trough.
Price often corrects back to the resistance line which then acts as a support level. Go short on a reversal signal and place a stop-loss just below the support level.
Go long on a break above the resistance line.
Place a stop-loss just below the last trough.
Price often corrects back to the resistance line which then acts as a support level. Go short on a reversal signal and place a stop-loss just below the support level.
A head and shoulders pattern consists of a peak followed by a higher peak and then a lower peak with a break below the neckline. The neckline is drawn through the lowest points of the two intervening troughs and may slope upward or downward. A downward sloping neckline is more reliable as a signal.
The extent of the breakout move can be estimated by measuring from the top of the middle peak down to the neckline. This target is then projected downwards from the point of breakout.
Volume Confirmation
· High volume on the first peak,
· Moderate volume on the middle peak,
· Low volume on the third peak, and
· A sharp increase in volume on the break below the neckline.
Volume Confirmation
· High volume on the first peak,
· Moderate volume on the middle peak,
· Low volume on the third peak, and
· A sharp increase in volume on the break below the neckline.
Go short at breakout below the neckline.
Place a stop-loss just above the last peak.
After the breakout, price often rallies back to the neckline which then acts as a resistance level. Go short on a reversal signal and place a stop-loss one tick above the resistance level.
Never trust a head and shoulders pattern where the neckline is clearly ascending (the second trough being higher than the first). Also, the more level the neckline, the more reliable the pattern.
Place a stop-loss just above the last peak.
After the breakout, price often rallies back to the neckline which then acts as a resistance level. Go short on a reversal signal and place a stop-loss one tick above the resistance level.
Never trust a head and shoulders pattern where the neckline is clearly ascending (the second trough being higher than the first). Also, the more level the neckline, the more reliable the pattern.
With inverted head and shoulders the neckline is drawn through the highest points of the two intervening peaks. A downward sloping neckline signals continuing weakness and is less reliable as a reversal signal.
The extent of the breakout move can be estimated by measuring from the top of the middle trough up to the neckline. This target is then projected upwards from the point of breakout.
Volume Confirmation
· High volume on the first trough,
· Moderate volume on the second trough,
· High volume on the second peak,
· Low volume on the third trough, and
· A sharp increase in volume at the breakout.
Trading Signals
Go long at breakout above the neckline.
Place a stop-loss one tick below the last trough.
There is frequently a correction back to the neckline, which then acts as a support level. Go long on a reversal signal and place a stop-loss one tick below the support level.
Never trust an inverted head and shoulders pattern where the neckline is clearly descending (the second peak being lower than the first). The more level the neckline, the more reliable the pattern.
Double Tops
Double tops are identified by two peaks of similar height, followed by a break below the level of the intervening trough. They are treacherous to trade, partly because of their similarity to triple tops and trading ranges.
The target for a breakout move is measured ver
The target for a breakout move is measured vertically from the highest peak to the support line drawn through the intervening trough. This is then projected downwards from the breakout point.
Double tops are identified by two peaks of similar height, followed by a break below the level of the intervening trough. They are treacherous to trade, partly because of their similarity to triple tops and trading ranges.
The target for a breakout move is measured ver
The target for a breakout move is measured vertically from the highest peak to the support line drawn through the intervening trough. This is then projected downwards from the breakout point.
Volume confirmation
Reduced volume on the second peak followed by increased volume on the break below the support line.
Reduced volume on the second peak followed by increased volume on the break below the support line.
Trading Signals
Go short on a break below the support line.
Place a stop-loss just above the last peak.
Price often rallies back to the support line which then acts as a resistance level. Go short on a reversal signal and place a stop-loss just above the resistance level.
Double Bottom
Double bottoms are also treacherous to trade, in part because of the similarity to triple bottoms and trading ranges.
The target is measured from the lowest trough to the level of the intervening peak. It is then projected up from the break out above the resistance line.
Volume Confirmation
Reduced volume on the second trough followed by increased volume on the break above the resistance line.
Trading Signals
Go long on a break above the resistance line.
Place a stop-loss just below the last trough.
Price often corrects back to the resistance line which then acts as a support level. Go short on a reversal signal and place a stop-loss just below the support level.
Bearish Engulfing Pattern
The Bearish Engulfing Pattern is directly opposite to the bullish pattern. It is created at the end of an up-trending market. The black real body completely engulfs the previous day's white body. This shows that the bears are now overwhelming the bulls. 
Hammer and Hanging-man
candlesticks with long lower shadows and small real bodies. The bodies are at the top of the trading session. This pattern at the bottom of the down-trend is called a Hammer. It is hammering out a base. The Japanese word is takuri, meaning "trying to gauge the depth".
The Dark Cloud Cover
A two-day bearish pattern found at the end of an upturn or at the top of a congested trading area. The first day of the pattern is a strong white real body. The second day's price opens higher than any of the previous day's trading range.
The Evening Star
A two-day bearish pattern found at the end of an upturn or at the top of a congested trading area. The first day of the pattern is a strong white real body. The second day's price opens higher than any of the previous day's trading range.
The Evening Star
The exact opposite of the morning star. The evening star, the planet Venus, occurs just before the darkness sets in. The evening star is found at the end of the uptrend.
The Bullish Engulfing Pattern
is formed at the end of a downtrend. A white body is formed that opens lower and closes higher than the black candle open and close from the previous day. This complete engulfing of the previous day's body represents overwhelming buying pressure dissipating the selling pressure. 
A Shooting Star sends a warning that the top is near. It got its name by looking like a shooting star. The Shooting Star Formation, at the bottom of a trend, is a bullish signal. It is known as an inverted hammer. It is important to wait for the bullish verification. Now that we have seen some of the basic signals, let's take a look at the added power of some of the other formations.
The Morning Star is a bottom reversal signal. Like the morning star, the planet Mercury, it foretells the sunrise, or the rising prices. The pattern consists of a three day signal.
A Doji is formed when the open and the close are the same or very close. The Japanese interpretation is that the bulls and the bears are conflicting. The appearance of a Doji should alert the investor of major indecision.
An open and close in the middle of the candlestick signal indecision. Long-legged dojis, when they occur after small candlesticks, indicate a surge in volatility and warn of a potential trend change. 4 Price dojis, where the high and low are equal, are normally only seen on thinly traded stocks.
The Gravestone Doji is formed when the open and the close occur at the low of the day. It is found occasionally at market bottoms, but it's forte is calling market tops. The name, Gravestone Doji, is derived by the formation of the signal looking like a gravestone.
The Long-legged Doji has one or two very long shadows. Long-legged Doji's are often signs of market tops. If the open and the close are in the center of the session's trading range, the signal is referred to as a Rickshaw Man. . The Japanese believe these signals to mean that the trend has "lost it's sense of direction." Doji Star
Bearish Doji Star1st day is a long white day. 2nd day is a doji day that gaps above the 1st day. The doji shadows shouldn't be excessively long
PsychologyThe uptrend is in full force with a strong 1st day. All confidence built up by the bulls from the 1st day is destroyed when the 2nd day's gap up closes near its open. Profit takers will quickly appear if the next day opens lower
Bullish Doji Star1st day is a long black day. 2nd day is a doji day that gaps below the 1st day. The doji shadows shouldn't be excessively long.PsychologyThe downtrend is in full force with a strong 1st day. All confidence built up by the bears from the 1st day is destroyed when the 2nd day's gap down closes near it's open. Short covering will quickly appear if the next day opens higher.
There are several Candlestick patterns that need to be committed to memory. The Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All have credible probabilities of indicating correct future direction of a price move. The following dozen signals illustrate the major signals.
The definition of "major" has two functions. Major in the sense that they occur in price movements often enough to be beneficial in producing a ready supply of profitable trades as well as clearly indicating price reversals with strength enough to warrant placing trades.Utilizing just the major Japanese Candlesticks trading signals will provide more than enough trade situations for most investors.
They are the signals that investors should contribute most of their time and effort. However, this does not mean that the remaining patterns should not be considered. Those signals are extremely effective for producing profits. Reality demonstrates that some of them occur very rarely. Other formations, although they reveal high potential reversals, may not be considered as strong a signal as the major signals.
Candlesticks contain the same data as a normal bar chart but highlight the relationship between opening and closing prices. The narrow stick represents the range of prices traded during the period (high to low) while the broad mid-section represents the opening and closing prices for the period.
If the close is higher than the open - the candlestick mid-section is hollow or shaded whi te
If the open ite higher than the close - the candlestick mid-section is filled in or shaded black.
If the close is higher than the open - the candlestick mid-section is hollow or shaded whi te
If the open ite higher than the close - the candlestick mid-section is filled in or shaded black.
The advantage of candlesticks is the ability to highlight trend weakness and reversal signals that may not be apparent on a normal bar chart.
Candlestick
Many have heard of candlestick charting but really don't understand the benefits candlestick charting can provide the trader. many traders still haven't taken the proper steps to incorporate candlestick charting into their trading.
Candlesticks are nothing new. Their signals have been around for hundreds of years as they where used by Japanese commodity traders centuries ago. They don't involve complicated formulas or extensive calculating processes to master the system. Candlestick charting is so simple in fact that I believe the simplicity is the reason most traders give candlestick trading nothing more than a passing glimpse. Most technical analysis strategies today are so complicated that it has all but taken the price patterns out of the equation. Well, price patterns are the root of technical analysis and determining the psychology behind them. Candlesticks do this without the need for fancy indicators or complicated systems
Candlestick charting was developed by Japanese rice traders over four centuries ago and could quite possibly be the oldest form of technical analysis. Since technical analysis is not only predicting probable price moves but also assessing market psychology, candlestick charting is probably the best tool to give the trader these answers in the shortest amount of time. Once a trader becomes familiar with candlestick charting, he or she can get a quick and highly visual signal because of the story candlesticks tell. Strict adherers to candlestick methodology take positions based on very short term patterns given by candlestick tradition. While candlestick charting is relatively unknown, and therefore unpracticed by the common investor, their use among active traders is growing. The greatest benefit candlestick charts provide the technical analyst is the ease of use and interpretation. The same price action, quickly seen using candlestick charts, may go unnoticed while scrolling through bar charts.
While analysis of chart patterns takes experience and some practice, so too will candlesticks. However, after learning the basic signals, candlesticks can provide the novice trader a shorter learning curve and also shorten the learning curve to chart reading in general.
While analysis of chart patterns takes experience and some practice, so too will candlesticks. However, after learning the basic signals, candlesticks can provide the novice trader a shorter learning curve and also shorten the learning curve to chart reading in general.
Candlestick charts use the same price data as bar charts (open, high, low, close). However, candlestick charts are drawn in a much more visually identifiable way typically resembling a candle with wicks on both ends. The high and low are described as shadows and plotted as a single line.
The box is the candlestick body and this is also the difference between open and close price. If the box/body is filled then it means the close price was lower than the open price. When the body is empty then this means the close price is higher than open price (thus it was an up-day). The thin lines on top and in the bottom of the candlestick represent the high and low prices during that period. These thin lines are called shadows.
Most traders who truly investigate candlestick trading and put forth an honest effort into learning the bullish and bearish signals candlestick charting provide will really see a difference in their trading success. Candlestick signals provide extremely accurate results. Whether in stocks, commodities or any other chartable investment vehicle, the results are impressive.Buy low and sell high is the mantra on Wall St. but most traders fail at this goal because they don't know how to find the low. Buy low and sell lower is what many investors have found to be the case in their trading. But it doesn't have to be that way! Once mastered, candlestick charting will provide the trader the ability to find stocks that are at a bottom or very near to it.Japanese candlestick charting doesn't take months to master. With practice the patterns can be memorized in a few short weeks and the trader will begin to see these patterns reveal themselves on the charts soon afterward. The most enjoyable aspect of candlestick trading is the patterns begin to stick out like a sore thumb on a stock chart and the trader no longer has to spend as much time analyzing a single stock. The time spent on a single chart is much less so more charts can be studied in a shorter amount of time.
The major signals in candlestick theory are reversal signals. Some of these signals are considered so strong by serious candlestick practitioners they will enter a trade based on its signal alone, without the need for conformation. Since I rarely see the price of a stock "turn on a dime", I usually keep an eye on the stock and enter a trade when the price retests support or resistance.
While I've incorporated candlestick charting into my trading strategies for quite some time, I have learned that there are a few technical criteria that will enhance the candlestick reversal signal. Some of these criteria include:
• Heavy volume on the reversal day – I look for volume to be greater than one and a half times normal volume.
• Greater than average price movement on the reversal day –look for the price to exceed its normal daily price range and appear longer on the chart than most daily candles.
• Stock price that is heavily overbought or oversold –look for the price to accelerate away, but in the same direction as the current trend.
• Signal forms on technical support –look for the reversal signal to reveal itself on a trend line, moving average or horizontal support.
While candlestick charting is enjoying a following that has grown in recent years, it should be viewed as just another tool the trader uses to profit in the market, not as a foolproof method of entering or exiting a stock. The signals tell a story of the psychology of the market. Sometimes the signals are only valid for a short period of time, but at key levels of support and resistance the reversal signals given by candlestick patterns can tip the trader off to a healthy price move.
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