Trading Candlestick Patterns Ron William[1]

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Japanese Candlesticks

Ron William Technical Analyst Email: [email protected] investorsintelligence.com

Brief History • Market timing, charting, behavioural finance & quantitative analysis. • Methodology dates back to 1600s, originally used by Japanese rice farmers to monitor and forecast crop prices. • Famous trader named Homma (aware of supply/demand links), realised the markets were strongly influenced by emotions. • Introduced to the west in 1990 by Steve Nison, a leading expert in candlestick analysis.

Constructing the Candle Line Bullish Candle White Real Body H igh Clos e

Upper Shadow

Bearish Candle Black H Real Body igh

O pen

Real Body

O pen Low

Lower Shadow

Clos e Low

The Real Body is the essence of market psychology

Basic Candles Long Day

Doji

Spinning Top

High Wave

Strong buy/sell

Open and close are narrow/same

1. Small real body 2. Colour not imp.

1. Small real body 2. Colour not imp. 3. Long shadows

Market is tired

Prior trend weak

Midpoint used as support/resistance

Indicates confusion

Doji

Criteria:

Open and close are narrow or the same

Psychology: Market is “tired”

Doji Silver (Weekly Chart)

Doji hints market is “tired”

5 3 4

1

2

Doji in box range USD/ZAR

Series of doji within box range merely sets tone

(Daily Chart)

Single Line Hammer

Shooting Star

1. Lower Shadow 2X length of Real Body 2. RB at upper end, colour not important 3. No/very small upper shadow 4. Confirmed with a strong bullish day

1. Upper Shadow 2X length of Real Body 2. RB at lower end, colour not important 3. No/very small lower shadow 4. Confirmed with a strong bearish day

Hammering a base

Trouble overhead

Hammer GBP/USD

(Daily Chart)

Support

Shooting Star Risk?

Sell?

Preferred Sell

Wheat Selling on close implies risking the pattern high

(Weekly Chart)

Dual Line Dark Cloud Cover

Piercing Line

1. Large RB wraps around small RB 2. Opposite colours 3. Up/Down trend

1. Uptrend evident 2. Session opens > prior high 3. Bearish RB closes > 50% into bullish RB

1. Downtrend evident 2. Session opens < prior low 3. Bullish RB closes >50% into bearish RB

Arresting control

Sentiment reversal

Sentiment reversal

Engulfing

Bullish Engulfing Kuwait Stk Mkt (Weekly Chart)

Dark Cloud Cover Palladium (Weekly Chart) Midpoint Sell

Three Line Morning Star

Evening Star

3 White Soldiers

3 Black Crows

1. Downtrend evident 2. Bearish session is followed by indecision. 3. Bulls close > 50% into prior Bear RB

1. Uptrend evident 2. Bullish session is followed by indecision. 3. Bears close > 50% into prior Bull RB

1. Three bullish RB’s, all of similar size 2. Prior trend is down 3. Each session opens with recent RB & closes near high

1. Three bearish RB’s, all of similar size 2. Prior trend is up 3. Each session opens with recent RB & closes near lows

Upside reversal

Downside reversal

Uptrend

Downtrend

Western charting Optimises and confirms Price targets      

Support and Resistance Trend-lines Price Patterns Moving Averages Oscillators Elliott Wave

Moving Averages

Gold (Weekly Chart)

Piercing Line

High-wave

70-week average

Piercing Line

Hammer

Price Patterns Soybean (Daily Chart)

3 White Soldiers Shooting Star Shooting Star

3 White Soldiers Morning Star

3 White Soldiers (variant)

Bullish Engulfing

Confluence EUR/USD (Daily Chart)

61.8%

50% Measured Objective

38.2%

Relative Strength Index CRB (Weekly Chart)

Bollinger Bands Oil (Daily Chart)

Bearish Engulfing Hammer

Dark Cloud Cover

Dark Cloud Cover High-Wave

Hammer

Bullish Engulfing

Hammer

Elliott Wave (3)

Gold (Daily Chart)

(4)?

(1)

(2)

Corrective Wave (4)? Gold (Weekly Chart)

(3) Hanging Man

Dark Cloud Cover

Piercing Line

Hammer

(4)?

Trading Rules 

Wait for the session’s close to confirm



DO NOT use candles in isolation



Always consider Risk/Reward ratios before placing a trade with a candle signal



Candles DO NOT offer price targets



Remember the importance of stops

Human Emotion Drives the Market Candle Analysis Unrivaled in Gauging Market Psychology Presentation slides designed by Ron William

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