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
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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