Candlestick Patterns
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Powerful Candlestick Patterns for a Bear Market
2008 has proved to be a dismal year, at least from an economic perspective. The equities markets have clearly been bearish in tone. Indicators being issued by the government reflect an economy that is deteriorating and moving into a recession. When bear markets like this appear, certain candlestick patterns become an extremely useful tool for investors.Candlestick charts offer all the information of a bar chart, but enhance the data in a pictorial display, allowing the investor an improved ability to recognize trends and the likelihood of the continuation or reversal of these movements. Certain candlestick patterns are ideal in our current market. (See Bear Market Candlestick Patterns)
Top 10 Candlestick Patterns
There are hundreds, if not thousands, of candlestick patterns that have been identified and used by investors to enhance trading performance. Candlestick indicators are best used in conjunction with other analytical tools in order to produce optimum performance. 10 candlestick patterns which should be considered by all traders for their investment activities are the following: (See all top 10 candlestick patterns)
Was Crude Oil Propelled by Japanese Candlesticks?
As short as a decade ago, proven oil prices were trading at roughly $13 a barrel. Since that time, prices have almost reached $150 a barrel. Had an individual purchased a futures contract at $15 a barrel and increased his position, conservatively, by one contract every time the price of oil increased $10 a barrel, liquidating his investment when prices hit $130, he would have accumulated $815,000 in accumulated profits. Had that individual properly used candlestick patterns during this period, the accumulated profits would have been a multiple several times greater.(More on crude oil and Japanese Candlesticks)
Are Candlesticks a Hidden Weapon when Trading Forex?
The use of Japanese candlesticks for trading stocks and commodities is quite common. In the foreign exchange market, however, many investors wrongly believe that as this market is, in essence, a 24 hour interbank trading market, one cannot truly determine opening and closing prices in order to produce candlestick charts. As such, candlesticks can actually become a hidden advantage for an investor with the proper perspective.(More on candlestick patterns and forex)
Jump Start Your Profits as a Beginning Trader with Candlesticks
Whenever attempting any new endeavor, it is always best to start simply by using time proven methods. For anyone considering investment trading, there are no better documented techniques than those represented by candlestick chart formations. (More on jumpstarting your profits)
Japanese Candlestick Patterns – What are the patterns telling us?
Origins
A candlestick chart is a form of hybrid bar/line graph primarily used to show equity price movements over time. This chart form was originally devised by a legendary Japanese rice trader named Homma Munehisa in the early 18th century. Homma used his charts to develop insights into market psychology, which in turn allowed him to amass a considerable fortune in the rice market and eventually rise to the rank of Samurai. Today candlestick charts are used extensively by currency, equity, and options traders engaged in technical analysis.
The Basics
A candlestick line consists of a body, which is a black or white rectangle, and optional upper and lower shadow lines, called the wick. The body indicates the opening and closing prices of a stock. If the opening price was lower than the closing price (the stock went up), the body is white. If the stock went down, the body is black. The wick indicates the highest and lowest prices during the day’s trading (the intra-day high and low).
A candlestick chart thus conveys five pieces of information for each day’s trading and is considerably more informative than a simple line or bar graph of closing prices. Candlesticks do not necessarily have both a body and a wick. If prices were completely flat for the day, the candlestick will have neither and appear simply as a horizontal line.
Basic Patterns
The shape of individual candlesticks is considered by proponents of technical analysis to convey insights into the market trends. There are over a dozen named individual candlestick shapes, each of which has different implications for the next day’s trading. For example, a “Marubozu White” candlestick, a white body with no wick indicating that the opening and closing prices were also the day’s low and high, implies a strong bullish trend. More ominously, a “Gravestone Doji” candlestick, a long wick with a horizontal line at the bottom indicating that the price opened and closed at the day’s low, is the harbinger of a market top, suggesting that it is time to sell.
Complex Patterns
More complex patterns can be observed by comparing the candlesticks for two or more adjacent trading days. For example, a “Bullish Engulfing Pattern” consists of a short black bodied candlestick (indicating a moderate decline) followed by a taller white candlestick, where the body starts below and ends above that of the black candlestick. In financial terms, prices on the second day open lower than the first day’s close and end higher than the first days open. As the name suggests, a “Bullish Engulfing Pattern” is a strongly bullish signal which suggests that it is time to buy.
Does It Work?
Colorful nomenclature such as ‘Gravestone Doji’ and ‘Bullish Engulfing Pattern’ might lead us to consider that Japanese Candlestick Analysis is more superstition than science. Believers in the Efficient Market Hypothesis would certainly dismiss candlesticks of all nationalities and in fact all other forms of technical analysis. However, this would be a mistake. Advances in Behavioral Economics have created renewed interest technical analysis techniques, such as candlestick analysis.
The great insight of Behavioral Economics is that markets are made up of people who do not necessarily act in the way that traditional economic models suggest they should. In other words, at least in the short term, markets are driven by human psychology. This being the case, it is not unreasonable to suggest that the movement of prices yesterday and today will influence the way prices move tomorrow, which is the underlying logic behind candlestick analysis.
It is important to note that this reasoning applies strictly in the short term. In the long term, economic fundamentals swamp trader psychology. However, as a short term trading strategy, candlestick analysis and other technical analysis methods do have some academic backing.
Interestingly, the more traders buy into candlestick analysis, the more powerful a technique it becomes. For example, if a significant portion of traders involved the gold market observe a ‘Gravestone Doji’ in gold prices (indicating a market top) and act accordingly, it becomes very likely that gold prices will decline the next day. In effect, the ‘Gravestone Doji’ will be something of a self fulfilling prophecy. For this reason, the mere fact that Japanese Candlestick Analysis is a widely used technique is evidence that it is a potentially lucrative trading system.
Candlestick Patterns - The Tables Are About
To Turn In Your Favor
If your interested in creating a huge and immediate cash flow, then pay close attention because what I have to say is important. Lets talk about how you can use candlestick patterns and the VIX to maximize your overall rate of return.
My name is Mark Deaton and I have been trading for about 10 years. Like many others when I first started trading I couldn't seem to get ahead. ( I almost gave up after my first 6 months.)
I was pretty good at making a few bucks here and there, but that's not what I was interested in doing. I wanted to not only make a living, I wanted to be the best!
I had dreams of working from home and ending my rat race life style. I was sick and tired of getting up early every morning and going to "work" for someone else.
So I studied, read, studied some more. I tried every new indicator, and I bought every course money could buy. I even bought (I cant say the name, but it ends in ..tools.) YES I bought every ______..tools course I could lay my hands on.
I spent exactly $46,520.34 on educational material my first 2 years trading.
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Candlestick Stock Charts -
Your Blueprints for Success
I designed a simple trading system around 4 principles utilizing candlestick charting:
Peaks and Valleys (A little Elliott wave theory.)
Volatility
Average true range
Candlestick Patterns
First Take a look at this...
You see a candlestick pattern offers the savvy investor so much more information than a bar chart or any other chart form.
Not only do you get a high, low, open and close, but you get that information relative to the previous candlestick and indicated by color within the candlestick pattern.
AND you also get a full or hallow candlestick indicating a bearish or bullish candlestick pattern.
So to summarize:
- High, low, open and close
- Today's open relative to today's close
- Today's close relative to yesterdays close
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Remember: investment in stocks, options, forex etc. involve risk. You can lose your money,
so be very careful and don't play with money you cannot afford to lose!
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