UNDERSTANDING JAPANESE CANDLESTICKS | WHAT FOREX BROKERS DON'T WANT YOU TO KNOW | TYLLIONAIRE
UNDERSTANDING JAPANESE CANDLESTICKS | WHAT FOREX BROKERS DON'T WANT YOU TO KNOW | TYLLIONAIRE - hello once again my friends today we'll
be discussing the oldest form of
technical analysis in the world Japanese
candlesticks
[Music]
Monalisa homer is credited with
developing japanese candlesticks in 17th
century Japan he's said to have studied
and analyzed the price patterns weather
conditions and trade a psychology of the
preceding 10 years before starting to
trade and he said to have made over 100
successful trades on the trot he retired
a rich man and went on to write the
world's first two books on technical
analysis the ancients have long taught
us that by studying the past we can
learn about the future and Homer put
this wisdom into practice he then went
even further by passing his knowledge
and experience down to us the principle
UNDERSTANDING JAPANESE CANDLESTICKS | WHAT FOREX BROKERS DON'T WANT YOU TO KNOW | TYLLIONAIRE
s
of trading developed by Homer who we
could call the world's first market guru
go by the name of Japanese candlesticks
this is also the name of the type of
chart used to record price Japanese
candlestick charting and analysis were
introduced to the West in 1985 and the
charting method quickly became popular
but before going any further I'd like to
quickly run through the basic elements
of Japanese candlesticks the candlestick
is basically a rectangle with the open
price and the closed price at either end
the high price and low price are
attached to the rectangle with vertical
lines the rectangle is called the
candlestick body or sometimes real body
and the vertical lines are known as the
shadows wicks or hairs if closed is
greater than open it means that price
has risen over the period and the
candlestick has a white body if clo
sed
is lower than open
it tells us that prices fallen over the
period and the candlestick is black this
color change makes the candlestick chart
more immediate and easier to interpret
than the traditional Western bar chart
sometimes the candlestick does not have
any shadows these are known as marbot su
candlesticks we shall be discussing the
implications of different types of
Candlestick throughout this film many
people feel that candlesticks are more
aesthetically pleasing and of course the
West has had an enduring fascination for
all things Eastern the very names of the
patterns for example the Morningstar
dark cloud cover and the dragonfly doji
are evocative and have a sort of
mystical romance and from an economic
point of view the fact that the Japanese
nation became an economic superpower not
once but twice
in the 20th century suggests
there's a
lot to be learned from the Japanese way
of looking at things as we mentioned in
chart analysis one although Japanese
candlesticks and bars were developed in
complete isolation from each other both
charting methods use the same four key
prices as the basis of their
construction these key prices are of
course the high low open and close
the similarities do not end there and
we'll be discussing a number as we
consider some of the simple and not so
simple combinations of Japanese
candlesticks you'll often come across
the terms long and short candlesticks
these terms have nothing to do with
going long or short they are in fact
more simply connected to the length of
the candlestick it begs the question how
long is a long candlestick if that
s
ounds like a bit of a conundrum don't
be alarmed as is so often the case the
answer here is it's all relative
generally speaking the length of the
candlestick is the difference between
the high and low the length of the
candlestick we're interested in is
compared to the length of the average
handle see some writers suggest
averaging the length of the candlestick
either for the last 5 or 10 periods
others go further and advise using
rumors to write a new indicator which
gives the SMA of candle length over a
natural cycle for example for daily
candlesticks you could average over 22
days which is the trading month or 65
days which is a quarter
[Music]
personally I let my eye be the judge and
if a candlestick looks longer than the
average its long and if it looks
shorter
than the average its short if you'd like
further information about averaging out
candle lengths just drop me a line at FX
c @ FX club comm and I'll happily oblige
of course you need to take care when
working with intraday candles please
bear in mind that the opening and
closing of the major exchanges around
the world this store candlestick length
and make any comparative analysis
assadís you must always take the time of
day and the currency pair that you're
working on into account but the main
features of Japanese candlesticks the
information that they carry and the
signals they give off hold us true for
intraday charts as they do for daily
charts and beyond a very effective trade
system for intraday trading
incorporating Japanese candles
ticks was
created by Vi Safin who describes it in
detail in his book 5 marks for success
it's available on www.globalei.com
[Music]
when we look at a candle the two most
obvious prices are the open and the
close this is not accidental Japanese
candlestick analysis says that these are
the two most emotional times of the
trading day the times most governed by
fear and greed if you have an interest
in the stock market you'll have most
probably heard of the January barometer
this tells us that how the S&P; 500 does
in the first few weeks gives us a
reliable indication of the direction of
the market for the year as a whole when
Japanese candlesticks were being
developed Japan had a very martial
culture it was natural for them to see
the trading day as a battlegrou
nd
between the forces of buyers and sellers
and the opening positions and shots in
any battle can be of vital significance
likewise that the end of the trading day
pressure forces the hand of many traders
they might be thinking of targets that
must be met or the danger of missing
opportunities now these considerations
hold true for the majority of exchanges
but of course on Forex we've got 24-hour
trading the world spins round exchanges
start trading and others stop for the
day
openings merge into closings which in
turn merge into fresh openings it's all
very zen it's difficult to know where
the beginnings and the ends are the only
things we can say for sure on a forex
market are that we must take all four
key prices into consideration and we can
only be certain of a candlesticks length
and color only after it has been formed
let's get on to the candlesticks
th
emselves we'll start by taking a look
at the doji
this means unskillful 'i made unskillful
e because they don't have a body merely
a horizontal line we get doji when the
open price and the close price are equal
this is usually taken as a sign that the
Bulls and the Bears are well matched and
then meeting resulted in a draw in this
period doji signal indecision price is
closed where they opened honors even
let's take a closer look at the
conditions that form the doji let's say
that price grows after the open what we
see forming here is known as a more
about suit which means shaven because it
doesn't have any shadows the ball seemed
to be gaining the upper hand but then
the Bears counter-attack price falls and
the candlestick body turns black what we
can see now i
s called the inverted
hammer or the shooting star but finally
the Bears counter-attack fades prices
rise once more and at the end of the
period price closes at the same or
almost the same level at which it opened
voila the doji this type is known as the
long-legged doji or the rickshaw man
[Music]
skilled traders understand the doji to
mean caution it signals uncertainty it's
time to consider closing any open
positions that doji is especially
significant see if you believe you're at
the top or the bottom of the market the
rickshaws man's crossbar is always
roughly central the candle should be
long
remember the rickshaw man merely means
indecision and the trend could reverse
could go into arranged or who knows if
you get a doji at the top of the market
that l
ooks like the top half of the
rickshaw you've got a stronger signal of
indecision this doji is the consequence
of the draw - but it forms when the only
price push of the period was bullish as
this doji is found on an uptrend it
means that for a number of days in
succession the Bulls had the upper hand
only this time they attacked but the
ground they gained in their charge was
cancelled out by a bearish counter move
the stogie is known as the gravestone it
was named in the days when traders could
only make money on a rise in prices and
it buried all hope for future profits at
the bottom of the market we can find
inverted gravestones they go by the name
of the dragonfly a symbol of the promise
of summer and easy living the dragonfly
signals the reverse of a downtre
nd
prices may well take flight up and away
in a beautiful flash of jewel-like color
the signal gains force if more than one
doji occurs on strong support levels or
channel lines resistance levels or trend
lines but my friends fools rush in and
it's not a bad idea to wait for further
confirmation in this case we
get a couple of hammers more of hammers
later and a strong move up and it's time
to get stuck in and make some money the
beauty of Japanese candlesticks is that
one single candle has the potential to
predict future price action for days or
even weeks ahead we can look for
perfection all our lives but all we will
ever get is an amazing variety of
imperfections it's ver
y easy to say that
the closing price will be equal to the
opening price but it's easier said than
seen I'd rather have a flawed diamonds
than the perfect pebble and we have to
accept reality warts and all
so be ready for deviations from the doji
ideal I accept the candlestick with a
body 10% of its height from high to low
for example this one or this one and
there's another the color of the body is
of little account with these deviant
doji's just remember the saying fools
rush in applies to all doji ideal and
deviant always look for confirmation of
the signal
[Music]
we'll look at some other deviants of
rickshaw man the dragonfly and the
gravestone in a bit but first a word of
caution people often wrongly assume that
the word reversal implies that the old
trend is co
ming to a rapid end and price
will immediately charge off in the
opposite direction
forming a new trend but of course it
ain't necessarily so in fact that
happens pretty rarely our traders are
standing at the crossroads reversal
signals point to indecision and you can
never be too sure which way price will
move next the first thing to remember is
that a complete trend turnaround
usually occurs gradually step by step as
the psychological state of the market
changes a reversal signal tells us
there's a question mark over the future
direction of price but which way will it
move that is the question let's take a
look at some reversals at the top of an
uptrend here the uptrend ends and prices
drift for a while before a downtrend
begins and here we see that after
stalling in a range for a while the
prior uptrend resumes and here the
uptrend sharply reverses into a
downtrend
all the s
ignal can tell us for certain
is that the trend is under stress and we
should close our positions on the trend
and take our profits
here are the other deviant dojis I
mentioned earlier they are also reversal
signals of course if the doji crossbar
is in the top third of a long
candlestick that is at the bottom of the
market is a signal to the end of the
bear trend it's a deviant dragonfly
conversely if the crossbar is in the
lower third of a long candlestick at the
top of the market you've got a deviant
gravestone on your hands and the bullish
trend is under stress
[Music]
but the bottom line with all reversal
signals doji included is that you should
always seek confirmation from other
signals before opening a new position if
a bearish doji is at the top of a
bullish market we know tha
t this means
indecision steady it's too early to
short on this signal close your lungs
square positions take your profit the
same signal would however be a good
basis to go sure on a bear market
especially if the doji was retesting a
resistance level or the trendline the
majority of Japanese candlestick signals
are reversals and here are two more the
hammer and the hanging man
these are one candlestick patterns -
they have long lower shadows and small
bodies which are in the upper third of
the price range surprisingly it doesn't
matter whether the candles are black or
white when you find one on a downtrend
it's signaling that the trends life is
near to an end and the candlestick is
called a hammer a similar candle on an
uptrend signals the end of that trend
and once again a reversal signal firm
uptrend has a sinister name it's called
the hanging man and
indeed it promises
anything but good for the life of said
trend the hammer and the hanging man
have three identifying features one the
body is in the upper third of the price
range to the lower shadow is twice the
length of the body and three the candle
doesn't have an official Oh or the
shadow is very short you'll have noticed
that hammers and hanging men are very
similar to doji the main difference is
that the hammer and the hanging man have
bodies albeit small bodies they are
bodies nevertheless what we want are
long lower shadows short upper shadows
and small bodies though the bodies can
either be black or white a white hammer
body tells us that during the p
eriod
prices fell but then a revival began
with price closing near the high it says
that the bull enthusiasm is
strengthening a black hanging man says
that the closing price could not return
to the opening price level the long
lower shadow illustrates the Bulls
nervousness altogether it points to the
strengthening of the Bears
mark my words now it's especially
important to wait for further bearish
confirmation when you have a hanging man
on your hands just imagine the situation
the market is crackling with bullish
energy the next period opens at the
previous high or near to it then price
falls dramatically then it rises again
and closes somewhere in the top third of
the period range
there's your hanging man the candlestick
alone is insufficient to make it a
reversal signa
l nevertheless we can take
it as a wake-up call if the next candle
opens below the hanging man's body those
who had bought within the body of the
hanging man would be left exposed and in
danger of finding themselves in a far
worse position a gap is the traditional
confirmation of the hanging man's
reversal signal and the wider the gap
the more emphatic the confirmation of
course we know that price gaps are less
frequent on the forex market than they
are on the commodities and equities
markets and for Forex an alternative
various conformation is that the
candlestick following the hanging man is
black with price maxing and closing
lower than the hanging man's Max and
clothes another confirmation is when a
gravestone follows immediately on from
our virtual execution an apt ending no
doubt but also a final death knell for
the trend
if a white candlestick follows on from
the hanging man then basically what
happens next is anyone's guess the
sig
nal is failed and you can only wait
for fresh signals which could as easily
be bullish as bearish the hammer should
also be confirmed with bullish
confirmation this time of course so what
you're waiting for is a white
candlestick or maybe a dragonfly to
confirm the signal however their hammer
has more potency than the hanging man so
if a black candlestick follows the
hammer but is a higher low than the
hammer low we can accept the low of the
hammer as the probable low for the whole
bearish movement nevertheless I wouldn't
act on a hammer until I got one of those
further bullish confirmations Japanese
candlesticks like other forms of chart
analy
sis are observation based rather
than rule base the hammer and the
hanging man don't have to be perfectly
proportioned just remember the longer
the lower shadow is the more potent the
signal
[Music]
the next candlestick tells us that an
uptrend will likely end it's called a
shooting star it looks a bit like one
and it ranks as one of the weaker
signals the shooting stars body is small
and situated in the lower third of the
candlesticks price range the upper
shadow is long the shooting star can
either be black or white the star is
witness to the fact that the period
opened near its low then price rapidly
rose and then fell with price closing
near the open when you see a shooting
star
you can make a wish for your
heart's desire but listen up the
shooting star needs confirmation the
ideal shooting star body gaps in
relation to the previous candle but it's
not always necessary especially on Forex
where gaps are rare birds here I'd
advise you to look for shooting stars on
weekly or monthly charts like other
reversal signals the shooting star has
more weight on longer time horizons once
you've found it look for confirmation on
daily or intraday charts
after a weekly shooting star has been
formed you may well notice that a
different reversal pattern has turned up
on the daily chart for the same period
pay particular attention to a shootin
g
star after a burst of large and
aggressive white candles that is at the
top of a short-term trend and as ever my
recommendation at this point is to take
your profit because the trees card
reached the skies and everything that
blossoms will inevitably wither and die
you can see something similar to a
shooting star at the bottom of the
market and it's called an inverted
hammer it is the same small body in the
lower third of the range but of course
it's a bullish not a bearish signal it
signals the end of the bear trend it
follows the inverted hammer also needs
further confirmation
[Music]
one confirmation signal is when the
price for the next period opens higher
than the top of the inverted hammers
body the bigger the gap is stronger the
confirmation a long white candle is
anot
her confirmation signal to be extra
certain you can confirm using technical
indicators and support and resistance
analysis although these one candle
reversal signals have different names
they share a number of common features
first off they have a wide price range
and - they all have long shadows
candlesticks like this we have a small
body and long shadows are called high
wave Japanese analysts say that
candlesticks with very long shadows have
lost their way a group of high waves is
a strong signal of the trend reversal
here's what a group can look like see
how the shadows are leaning on the
support level price cannot punch through
it at all and promptly rebounds off it
these so-called lost candlesticks can
tell us a thing or two about the way to
go
let's move on to reversal signals
generated by combinations of
candlesticks the first combo I'd like to
take a look at is the Engel thing
pattern it's a significant reversal
signal and is formed by two candlesticks
the engulfi
ng pattern has three basic
elements one there needs to be a decent
uptrend or downtrend to the engulfing
pattern is formed by two candles with
the body of the second completely
engulfed in that of the first the
shadows may also be engulfed but this is
not necessary the body should be
different colors
the only exception here is if the first
candlestick is a doji so if at the end
of a marked downtrend we get a black
handle stick which is in turn engulfed
by a long white body than there is our
engulfing pattern reversal signal
similarly at the top of an uptrend a
white handle stick and Gulf by a large
black gives us a bearish engulfing
pattern the reversal day is the Western
counterpart of the end dulling pattern
we've talked about it in chart analysis
too in a reversal day a new maximum is
set on the uptrend and price closes
below the low of the previous day
however
the engulfing pattern also gives
a signal when there isn't a reversal day
which can give an edge to the trader who
is using handles the engulfing pattern
is more significance if the first candle
has a very small body and the second is
very long this tells us that the balance
of power is shifting more emphatically
the pattern is also more significant
when it appears after a very lengthy or
dramatic price move the former suggests
that all potential buyers went long
sometime back and there won't be the
volume necessary to continue the price
push upwards whilst a downturn after
dramatic price wise forces a lot of
positions to be closed to take profit
adding to the downward push if the
second candlestick of an engulfing
pattern sees an increased volume then
this suggests that the prior trend is
overextended and it increases the
significance of the Engel thing finally
if the second candle engulfs more than
one candle it increases its importance
to
[Music]
next up is dark
cloud cover it's also
made up of two candles you can find it
at the end of an uptrend or near the
upper channel line of a trading range
dark cloud cover signals a bearish
reversal and here it is the first candle
has a long white body and price opens
the next period at a new high
I mean it's higher than the previous
candles high however price cannot
maintain this momentum and closes
significantly lower most analysts agree
that price should close below the
previous candlesticks midpoint to
qualify as a potential reversal signal
the lower the second candlestick closes
in relation to
the first the more likely
a reversal will be the named dark cloud
cover could well be connected with the
fact that the chart as a stormy horizon
and difficult times could well be ahead
dark cloud cover signal is given more
urgency when number one the closer the
black candles closing prices to the
previous white candles opening price to
if both candles are shaven that is
without any shadows and the black opens
at the close of the white and closes at
the whites open or thirdly the second
candlestick opens above an important
resistance level and then the price
falls this tells us that the Bulls
cannot control the market they could not
maintain the initiative and were
repulsed to former levels
dark cloud cover as its precise
antithesis at the bottom of the market
it too is a good reversal signal a
bullish one this time of course and it
goes by the name of the pierci
ng line
again we have two candles the first a
long black and the second a long white
the white candle opens below the low of
the previous black candle then price
rises forming a white body which closes
above the midpoints at the previous
black candle body once again the white
body only partially covers the previous
black body the more it covers the
greater the chance of the reversal
however if our pattern is followed by a
long black that closes below the low set
by the bullish piercing line or if the
following long black engulfs the white
then a continuation of the downtrend is
a distinct possibility it's useful to
understand what's happening behind the
piercing line the downtrend that the
piercing line is formed on is of course
a series of bearish black candles which
confirm the current dominance of the
Bears
when the open price for the period gaps
below t
he previous low it can inspire
the Bears to strengthen their short
positions however price then begins to
grow and closes a fair distance of both
the previous day's close and the Bears
strengthening tactics have resulted in
significant losses because they sold at
the absolute minimum price now the Bears
are forced to cut their losses and to
try and rescue any profit they can from
the short positions they opened earlier
in other words they are forced to buy
you can gauge the significance of
piercing line using the same determining
factors as the dark cloud cover but for
the bottom of the market rather than the
top take a look at the her ami pattern
is basically a back to fr
ont and golfing
Pam her army means pregnant in Japanese
what you have here is a long candlestick
which I suppose is meant to be the
mother followed by a smaller candlestick
playing the role of a child at the top
of the market the mother is a long white
candle with a bearish baby and at the
bottom we find a long black followed by
a short white in both cases the real
body of the mother should completely
engulf the real body of the baby there
are no hard and fast rules for the
relative sizes of mother and baby but
bear in mind that the smaller the baby
is in relation to the month the more
potent the signal probably is and I
always like to remember that a small
real body with long shadows means
indecision on the market and to me
indecision means beware changes in the
air the her army is not the most
reliable of reversal patterns but it's a
useful warning to tig
hten now stops and
be on the lookout for more signs that
the current trend is on the wane
when the short candle in the her army is
a doji we call the pattern a haram
across the trader that ignores a
particularly long white candle stick
followed by a doji is taking an
unnecessary and foolhardy risk when you
spot her army cross look after number
one and square your positions although
it can be seen at the bottom of the
market is a long black body followed by
a doji is generally accepted as being
more pretentious at the top let's move
on to some poetically named patterns the
morning star has always symbolized a new
dawn it announces the sunrise and brings
the promise of a brighter day in
Japanese candlesticks the morning star
is a good reversal signal f
ound on a
bearish market it's a three candlestick
signal the first period sees a
candlestick with a long black body this
is followed by a short handle which can
either be black or white and which opens
lower than the previous periods clothes
the second candle is the star then we
get a white candlestick which covers a
significant proportion of the first
candlesticks body by closing above the
first candles midpoint you may well be
able to explain the story behind the
pattern yourself by now the long black
body means that the price is falling the
Bears are feeling good the small real
body of the next period tells us that
the downward thrusting priced has become
destabilized leading to uncertainty and
indecision a sudden burst of volume
accompanying the second
ándale con
firms the power of the star
the third candlestick a long white body
illustrates that the Bulls have gained
the initiative and launched their
counter-attack the perfect morning star
has gaps before and after the middle
candlestick but in truth you will rarely
come across the second gap in my opinion
the absence of this second gap does
little to reduce the significance of
this reversal pattern one way of reading
a multi candlestick pattern is through
blending the idea is that you can make
one candlestick out of a number by
taking the open close high and low from
the group so
if this morning staff we
take the open and the high from the
first handle below from the staff and
the close from the final candle this
gives us a dragonfly or at least a
hammer with a small body over three time
periods in other words it's a good
reversal signal
the Morningstar has its opposite number
at the top of the market where it's
known as the evening star the first sign
of the coming night as a bearish
reversal signal the evening star must
appear on the uptrend to be a signal
once again the evening star is a three
candlestick pattern first off we get a
long white real body
followed by the
star the third candle a long black body
delineates the top and completes the
pattern the long black body closes below
the midpoint of the long white confirms
the top formation and finishes the
entire pattern the main gauge of the
potency of this pattern is the degree
that the long black covers the long
white real body
although the evening star is primarily a
reversal signal of an uptrend it also
gives us valuable information when price
nears the upper boundary of a trading
range let's list the factors that
increase the likelihood that the morning
and the evening staff will live up to
their promises
[Music]
one the presence of gaps before and
after the st
ar body to the degree at
which the third candlestick body
overlaps the first and three small
trading volumes for the first
candlestick and large trading volumes on
the third testify to a weakening of the
prior trend and a consequential
strengthening of the reversal
[Music]
douji can be stars as well all they need
to do is the gap above from a previous
candlestick body on an uptrend
what's a gap below the previous
candlestick body on a downtrend
these evening and morning doji stars are
Harding as a reversal tooth they only
need a long black for the evening doji
or a long white for the morning doji to
confirm the signal
these are morning and evening stars with
an added punch with the doji be enough
extra special ingredients a doji star on
an uptrend gives us a good guide to
the
top of a movement don't forget that if
the doji star is followed by a gap with
a white candle above and the doji ceases
to be a bearish signal a mirror image of
this situation occurs on the bottom of
the market the pattern deserves your
extra special attention if the star
forms on an uptrend with a total gap
upwards what I mean by a total gap is
that nothing not even the shadows
overlap and the star is followed with a
similar total gap downwards by a black
candle what we have here is one of the
strongest reversal signals around it
goes by the evocative name of the
abandoned baby there the poor little
thing is high and dry completely alone
the only consolation for our
more
sensitive viewers is the abandoned baby
is a very rare pattern indeed
[Music]
once again we get a mirror image at the
bottom of the market this is an
abandoned baby too but this time it's
bullish it is also an extremely rare
pattern the abandoned baby is similar to
the Western island tops and bottoms with
the star playing the role of the island
on the currency market we will only see
such babies on the longer period charts
however on the stock markets you can
find them on our lis candlesticks the
next pattern is called the tweezers it's
made up of two candles that are either
next to or near each other and which
have identical highs at the top of the
markets or identical lows at the bottom
of the markets the tweezers are normally
formed by the shadows and the
candlestick real bodies can be at any
type from a doji to a shaven top or
bottom
generall
y tweezers are not considered to
be a strong reversal signal but their
importance grows if they occur at the
end of a very long trend or as part of a
larger reversal panel
on daily and intraday charts you should
focus on tweezers which are close to
support or resistance levels tweezers
that consists of doji or other candles
with long shadows are especially worthy
of our attention so on an uptrend were
looking for tweezers made up of doji
gravestones and shooting stars with the
second candle opening near the periods
minimum rising up to the previous
periods high and then falling back again
as if exhausted to around the opening
price the longer those of the shadows
are the more weight we should give the
tweezers on a downtrend will be looking
out the dragonfly's h
ammers and any doji
with long lower shadows tweezers that
have candlesticks between their arms are
also of higher significance and if there
are a lot of candlesticks between the
arms you've got what Western technicals
described as double tops or double
bottoms which confirm levels of support
and resistance just cast your minds back
to our films on chart analysis
[Music]
basically tweezers are useful when
they're used in conjunction with other
signals they're good confirmation
[Music]
however tweezers that you find on weekly
and monthly charts can be taken as a
reversal signal in their own right they
have no need of confirmation and they
provide us w
ith new levels of support
and resistance the Western triple top
and triple bottom have their
counterparts in Japanese candlesticks
too in Japanese candlesticks triple tops
is known as three mountains it is seen
as an important reversal pan and is
formed when crises repulsed three times
by a resistance level the third mountain
needs to be graced by a bearish pattern
or candle for example a doji or dark
cloud cover if the middle mountain is
the highest then this pattern has the
special name of three buddhas in the
west this same pan was named the more
prosaic head-and-shoulders although it
had been identified and exploited in
Japan for more than a hundred years
before
[Music]
at the bottom of the market we find the
three rivers we get this pattern when
price tests the same minimum level three
times the reversal pattern is said to be
confirmed when pri
ce breaks through the
level of the to intermediate Peaks
between the three river valleys a three
buddha pattern found at the bottom of
the market would be known as the
inverted Head & Shoulders in the West
our final reversal patterns of today are
very reliable three candlestick patterns
three black crows tells us that an
uptrend is near to an end these three
long black candle sticks need to close
at or very near to their lows
therefore they should have no or almost
no lower shadows traditionally the
second and third crow should open within
the body of the previous crow and each
crow should close beneath the previous
ones low but on the forex market we can
accept the pattern when the second and
third crow opens at the previous candles
close this pattern is stronger if the
first candle closes below the previous
white candlesticks body at the end of a
downtrend we find three white soldiers
leading a bullish attack these are three
long white candle sticks each with a
higher
close than the previous soldier
once again price should close at or near
to each soldier's high giving each
soldier either no or very small of
pasados
windows are a different aspect of
Japanese candlesticks and usually serve
as continuation signals
Windows is the term that the Japanese
give to what the West called price gaps
the window is a price gap between the
shadows of two concurrent candles this
is a window on an uptrend with the gap
between the first candles upper shadow
and the seconds lower shadow and this is
a window on a downtrend price moves in
direction of the window so when it gaps
up price will continue to rise in all
likelihood and when price gaps down it
should continue to fall windows also
provide us with fresh levels of support
and resistance for example the window on
the uptrend is a continuation signal and
price continues t
o rise the correction
of this uptrend should find its support
at the level of the window if the
falling price continues closes the
window and bearish pressure continues
the previous uptrend is considered over
on a downtrend a window signals further
price Falls any correction should end at
resistance of window level if the window
is closed and prices continue to climb
the previous downtrend is over Japanese
candlestick analysis teaches us to
expect price to retest these windows
levels of support and resistance and
when there is a correction on an uptrend
for example we should use window level
as a buy zone
of course if prices continue to fall and
close the window
we should square all long positions and
consider going short for windows on a
downtrend
our strategy should be the reverse
always remember that chart analysis is
subjective in nature and that successful
technique comes through application and
experience there are no hard and fast
rules here there are only general
principles which we can apply and
interpret as I said in our first film on
chart analysis never underestimate the
market when you are on the market you
have to look after yourself the market
won't look after you and it doesn't take
any prisoners do yourself a favor don't
leave yourself exposed set your
stop-loss orders prepare yourself well
make a plan and stick to it well that's
just about it for today I hope you found
this film useful and
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that you now have
an understanding of the basics of
Japanese candlesticks candlesticks are a
useful weapon in the traders arsenal and
should open up fresh opportunities for
you on the market take a look through
room is's vast historical data banks see
how the candlesticks warmed the alert
trader of changes ahead the principles
of Japanese candlesticks have been honed
through the years use them wisely and
you will reap your just desserts thank
you very much for your time and
attention if you have any questions you
can contact me at
www.carandtruckremotes.com
