Candlestick Charts Provide Profitable Swing Trades

Candlestick Charts Provide Profitable Swing Trades
Swing Trading, a relatively new trading technique. The advent of computers over the past seven to ten years has opened the opportunity for investors to trade stocks and other investments from their home or office. The vast improvement in charting services on the Internet now provides a method for individuals to take advantage of the quick fluctuations in stock prices. Swing trading provides investors a huge opportunity to make profits. As the market sentiments evolve, long term investing becomes less of a dominant form of investing. Swing trading has many advantages over long term investing, especially when implementing with a timing technique such as candlestick trading. Candlestick analysis has "common sense" built into its signals. Understanding the investor sentiment prepares the candlestick investor to maximize profits in short term swing trading. To get into a trade at the optimal point, anticipating when a trend is about to reverse, is crucial. Understanding how the common investor thinks and reacts permits fast profits to be made by swing trading. When most trends reverse, they do so with vigor. The initial day or two of a trend reversal can produce magnificent profits. Swing trading is centered upon taking advantage of that initial move. If the trader has the tools to find and exploit these moves, swing trading becomes a profitable and comfortable form of extracting profits from the market. Our contention is that the candlestick signals ARE the tools needed. Swing trading requires the alignment and concentration of events to maximize profits. Long-term investing does not require the stringent perusal of profit parameters. How often have you heard somebody rationalize about a setback in their position, "Oh well, Im in it for the long term." This statement is often uttered instead of taking a progressive
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stance towards one's investment goals. Swing trading represents the exact opposite. An investor trying to maximize profits from a two to ten day holding period has to have analyzed all elements. When swing trading, the establishment of a trade has to be exacting in its purpose, making a profit NOW in that trade. The innate characteristics built into candlestick signals produce the parameters that make swing trading successful. The recognition of a reversal in a trend can be visually depicted in the signals. For the aggressive swing trader, knowing how the signals are formed can produce trades that pinpoint the exact point in which to enter a trade. Additionally, the same indications that get the candlestick swing trader into a trade will alert the trader when it is time to get out. As seen in the following chart, notice the Doji signals at each turn. Knowing what to do after each signal creates the format for profitable swing trading. Knowing the simple rules about what to do once observing a Doji has the candlestick swing trader in and out of trades at the optimal points.
Learning the methods to evaluate the signals makes swing trading an easy program to extract profits out of the market consistently. Candlestick signals provide two valuable facets. First, the signal searches locate the high potential profitable swing trades. The searches can be constructed to find the signals that occur at the best positions during a trend movement. Finding a candlestick buy signal when stochastics are oversold or searching for a gap up after a Doji are a couple of examples on how to fully utilize the search capabilities. The second facet is the pinpointing when to get into and out of a trade as explained earlier. Swing trading concentrates on the alignment of parameters to maximize profits. The candlestick signals add the dimension of allowing successful trades to run, as well as showing when a trade has fizzled
The Major Japanese Candlestick Patterns

There are really only 12 major 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. Here are a few of the major candlestick formations:
A Doji is formed when the open and the close are the same or very close. The length of the shadows are not important. The Japanese interpretation is that the bulls and the bears are conflicting. The appearance of a Doji should alert the investor of major indecision.
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. Longlegged 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."
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.
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.
The Dark Cloud Cover is 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 Piercing Pattern is a bottom reversal. It is a two candle pattern at the end of a declining market. The first day real body is black. The second day is a long white body. The white day opens sharply lower, under the trading range of the previous day. The price comes up to where it closes above the 50% level of the black body.
Hammer and Hanging-man are 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 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.
The Evening Star is 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.
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 Dynamic Doji - A Clear Trend Reversal Signal

The Doji Signal Learning how to read stock charts can be a very simple process. The major signals clearly illustrate trend reversals. Most investors, when learning how to read stock charts, feel that they need a multitude of indicators on one chart. Candlestick analysis does not require numerous indicators. When utilizing the major candlestick signals, chart analysis becomes very easy. The major signals reveal an immense amount of information. When learning how to read stock charts, the process should be as simple as possible. The Doji is one of the most revealing signals in Candlestick trading. It clearly indicates that the Bulls and the Bears are at an equilibrium, a state of indecision. The Doji, appearing at the end of an extended trend, has significant implications. The trend may be ending. Just this fact alone creates a multitude of investment programs that can produce inordinate profits. What is the best method for making big trading profits? Knowing how to read the stock charts! Knowing the direction of a trading entity and the strength of that move! Candlestick analysis perfects that trading strategy. Candlestick charts reveal high probability profitable reversals. Hundreds of years of investing refinement have proven that point.
The Japanese say that whenever a Doji appears, always take notice. A wellfounded rule of Candlestick charts followers is that when a Doji appears at the
top of a trend, in an overbought area, sell immediately. Conversely, a Doji seen at the bottom of an extended downtrend requires buying signals the next day to confirm the reversal. Otherwise, the weight of the market could take the trend lower. Knowing how to read the stock charts reveals the parameters that make a major signal most effective. The Doji signal is comprised of one candle. It is formed when the open and the close occur at the same level or very close to the same level in a specific timeframe. In candlestick charting, this essentially creates a cross formation. As the following illustration demonstrates, the horizontal line represents the open and close occurring at the same level. The vertical line represents the total trading range during that time. DOJI STAR
Upon seeing a doji in an over-bought or oversold conditions, (over-bought or oversold conditions can be defined using other indicators such as stochastics), becomes an extremely high probability reversal situation. When a doji appears, it is demonstrating that there is indecision now occurring at an extreme portion of a trend. This indecision can be portrayed in a few variations of the doji.
Criteria 1. 2. The open and close are the same or nearly the same
The length of the shadow should not be excessively long, especially when
viewed at the end of a bullish trend.

Signal Enhancements 1. A gap away from the previous day's close sets up for a stronger reversal move. 2. Large volume on the signal day increases the chances that a blowoff day has occurred, although it is not a necessity. 3. It is more effective after a long candle body, usually an exagerated daily move compared to the normal daily trading range seen in the majority of the trend.
The Doji is one of the most revealing signals in Candlestick trading. It clearly indicates that the bulls and the bears are at an equilibrium, a state of indecision. The Doji, appearing at the end of an extended trend, has significant implications. The trend may be ending. Just this fact alone creates a multitude of investment programs that produce inordinate profits. What is the best method for making big trading profits? Knowing the direction of a trading entity and the strength of that move, Candlestick analysis perfects the trading strategy. Candlestick formations reveal high probability profitable reversals. Hundreds of years of investing refinement have proven that point.
Candlestick analysis incorporates approximately 50 to 60 Candlestick signals. However, twelve of the signals, considered the major signals, will produce the vast majority of the trend reversals. Recognizing and understanding the psychology that formed these major signals will provide completely new insights for investors in understanding optimal times to buy and sell. Japanese rice traders realized that prices do not move based on fundamentals, they move based on the investor perception of those fundamentals. The Doji signal is one of
the most predominant reversal indicators. It is very effective in all-time frames, whether using a one-minute, five-minute, or fifteen-minute chart for day trading or daily, weekly, and monthly charts for the swing trader and long-term investor. The Japanese say that whenever a Doji appears, always take notice. A wellfounded rule of Candlestick followers is that when a Doji appears at the top of a trend, in an overbought area, sell immediately. Conversely, a Doji seen at the bottom of an extended downtrend requires buying signals the next day to confirm the reversal. Otherwise, the weight of the market could take the trend lower. The Doji signal is composed of one candle. It is formed when they open and the close occur at the same level or very close to the same level in a specific timeframe. In Candlestick charting, this essentially creates a cross formation. As the following illustration demonstrates, the horizontal line represents the open and close occurring at the same level. The vertical line represents the total trading range during that time.
Doji Star
Upon seeing a Doji in an overbought or oversold condition, an extremely high probability reversal situation becomes evident. Overbought or oversold conditions can be defined using other indicators such as stochastics, When a Doji appears, it is demonstrating that there is indecision now occurring at an
extreme portion of a trend. This indecision can be portrayed in a few variations of the Doji.
The Long-legged Doji is composed of long upper and lower shadows. Throughout the time period, the price moved up and down dramatically before it closed at or very near the opening price. This reflects the great indecision that exists between the bulls and the bears. Long-legged Doji
The Gravestone Doji is formed when the open and the close occur at the low end of the trading range. The price opens at the low of the day and rallies from there, but by the close the price is beaten back down to the opening price. The Japanese analogy is that it represents those who have died in battle. The victories of the day are all lost by the end of the day. A Gravestone Doji, at the top of the trend, is a specific version of the Shooting Star. At the bottom, it is a variation of the Inverted Hammer. Gravestone Doji
The Dragonfly Doji occurs when trading opens, trades lower, then closes at the open price which is the high of the day. At the top of the market, it becomes a variation of the Hanging Man. At the bottom of a trend, it becomes a specific Hammer. An extensively long shadow on a Dragonfly Doji at the bottom of a trend is very bullish. Dragonfly Doji
Dojis that occur in multi-signal patterns make those signals more convincing reversal signals
Harami Doji
Evening Star - Abandoned Baby
Having the knowledge of what a Doji represents, indecision, allows the Candlestick analyst to take advantage of reversal moves at the most opportune levels. Regardless of whether you are trading long-term holds for day trading from the one-minute, five-minute, and fifteen-minute charts, the Doji illustrates indecision in any time frame. A prime example can be seen in the Taser chart from this past year. The Candlestick signals become an important tool to cut through all the investment rhetoric. As was demonstrated during Tasers price run from approximately a $5 range up to the $65 range in a matter of months, the news station commentary started exuding accolades on the companys products. As the price skyrocketed, it became clear that the price had gotten well ahead of the fundamentals. But where did you take profits? Where did you start shorting a stock? That answer became obvious once we saw all of the huge Dojis at the top.
This illustration format for
graphic of taking being
indecision provided a profits or even, more aggressively, prepared to short the stock on the next days The the lower Doji open. of becomes
illustration
indecision at these prices. This is not rocket science. It is based on the the observations of successful Candlestick trading over the past four centuries
Learning to Invest in the Stock Market Using the Bullish Engulfing Signal
Learning to invest in the stock market is a difficult process. There are multitudes of sources that will give their opinions on how to invest. For the person that is just learning to invest in the stock market, the massive amount of information can be overwhelming. Becoming educated in investing should be narrowed down to one basic premise. What investment programs should I utilize that fit my investment risk factors? Learning to invest in the stock market not
only includes finding an investment program that fits ones investment nature, but also finding a program that produces the results an investor expects. Utilizing candlestick signals makes learning to invest in a stock market much easier to understand. The 12 major signals found in candlestick analysis not only reveal high probability reversal situations but understanding the psychology that formed those signals makes understanding why reversals occur much easier to comprehend. One of the fastest and easiest processes for learning to invest in the stock market is learning the candlestick signals. Each major signal provides an immense amount of information. A Bullish Engulfing signal is one of the major signals. When the elements out of a Bullish Engulfing signal are broken down, an investor can clearly understand what was going on in investor sentiment to cause a reversal. 400 years of observations from Japanese Rice traders has recognized the Bullish Engulfing signal as a very high probability reversal signal.
BULLISH ENGULFING PATTERN
Description
The Engulfing pattern is a major reversal pattern comprised of two opposite colored bodies. The Bullish Engulfing Pattern formed after a downtrend. It opens lower that the previous days close and closes higher than the previous days open. Thus, the white candle completely engulfs the previous days black candle. Criteria 1. The body of the second day completely engulfs the body of the first day. Shadows are not a consideration. 2. Prices have been in a definable down trend, even if it has been short term. 3. The body of the second candle is opposite color of the first candle, the first candle being the color of the previous trend. The exception to this rule is when the engulfed body is a doji or an extremely small body.
Signal Enhancements 1. A large body engulfing a small body. The previous day shows the trend was running out of steam. The large body shows that the new direction has started with good force. 2. When the engulfing pattern occurs after a fast move down, there will be less supply of stock to slow down the reversal move. A fast move makes a stock price over extended and increases the potential for profit taking. 3. Large volume on the engulfing day increases the chances that a blowoff day has occurred. 4. The engulfing body engulfs the body and the shadows of the previous day, the reversal has a greater probability of working.
5. The greater the open gaps down from the previous close, the greater the probability of a strong reversal. Pattern Psychology After a downtrend has been in effect, the price opens lower than where it closed the previous day. Before the end of the day, the buyers have taken over and moved the price above where it opened the day before. The emotional psychology of the trend has now been altered.
When investors are
learning the stock market they should utilize information that has worked with high probability in the past. Candlestick patterns have been observed and utilized by Japanese Rice traders for centuries. Not only did they become wealthy using these signals, they became legendarily wealthy. Using the candlestick charts helps an investor become acclimated to the common sense psychology that make prices move. Learning how to use the Bullish Engulfing signal at the proper locations in a trend can produce consistent and high profit trades. The Bullish Engulfing signal, a major candlestick reversal signal, allows an investor to improve their probabilities of been in a correct trade. Learning to invest in the stock market does not need to be confusing. The common sense elements conveyed in candlestick signals makes for a clear and concise trading technique for beginning investors as well as experienced traders.
Using the Bearish Engulfing Signal

Most investors get confused with the massive amounts of stock market data. Especially for new investors, trying to decipher which stock market data is the most important is an impossible hurdle. Candlestick signals dramatically reduce the time for importing important stock market data. The information built into the signals is the accumulation of observations from Japanese Rice traders over the centuries. How do you know which stock market data is pertinent? The information that is used consistently for centuries is an obvious clue. The 12 major candlestick signals make for very high probability research. information conveyed in each major signal has viable results. What becomes the most important element when utilizing stock market data? The results the information has produced in the past. Understanding how to evaluate what each of the major candlestick signals reveals is very important. The Bearish Engulfing signal is one of the 12 major signals. It provides a very clear representation of what is going on in investor sentiment. Where most stock market data is numeric, the candlestick signals provide that same information in a graphic form. Most stock market data requires evaluation. This evaluation often involves complicated formulas. The candlestick signals are very basic visual analytical tools. The Bearish Engulfing signal visually illustrates that there has been a dramatic change in investor sentiment. Candlesticks were developed specifically to add more information to chart analysis. A simple description of the Bearish Engulfing signal reveals why the signal works very well as a candlestick sell signal. This is the stock market data that an
The
investor should be using for both technical analysis as well as fundamental analysis. The information conveyed in this signal creates an extremely high probability that the buying is over. It also reveals an opportunity for establishing a good short position.
BEARISH ENGULFING PATTERN
Candlestick Engulfing Patterns - Neon Signs to Buy and Sell, Stocks & Commodities Magazine
The most striking facet of Japanese candlesticks is their ease of identification. Hundreds of years ago, Japanese rice traders become ultra-wealthy using Candlestick signals to trade rice. These signals were developed through simple observation. As years of successful utilization of the signals progressed, they even were able to analyze the psychology behind forming the signals. This provided a very powerful tool for projecting future price movement.
Two of the most compelling candlestick signals are the Bullish Engulfing Pattern and Bearish Engulfing Pattern. They are most effective when founding the oversold
area, at the end of a substantial downtrend or the overbought area for the Bearish pattern. The Bullish Engulfing pattern consists of two bodies. The first body is the same color as the current trend, the second is the opposite color. The signal day opens lower than the previous days close, then it trades higher so by the end of the day, it will close above the previous days open. This new white candle now engulfs the previous days candle, known as the DAKI, or the embracing line. Figure 1 - Bullish Engulfing
Witnessing a white bullish candle, engulfing the previous black candle, stands out like a neon sign after a series of black candles. It becomes very plain to see that a change has occurred in investor sentiment. A couple of simple factors make the Bullish Engulfing pattern more convincing. The bigger the previous days candle being engulfed, the more effective the new trend signal will be. Or the lower the open of the white candle, then coming back up to engulf the previous The day, the more powerful is the next advance should be.
formula
relatively
simple;
(O1>C1) and (O O1). Defined as the open of yesterday is greater than the close
of yesterday. And the open today is less than the close of yesterday, And the close of today is greater than the open of yesterday.
The Bullish Engulfing pattern represents a complete change in investor sentiment. Using this pattern as a buy signal eliminates the need to grab for the fallen knife. When is low the right time to buy? The Bullish Engulfing pattern reveals when the buyers have stepped in. Note in the Dow Jones industrial chart that the whole market sentiment reversed at the Bullish Engulfing formations. The signals work equally well when analyzing indexes as they do for individual stocks, commodities, futures or any other trading entity.
Having the knowledge of just eight or nine Candlestick signals, the Bullish and Bearish Engulfing patterns being on that list, produces huge advantages for analyzing the direction of the markets in general. This reinforces the analysis of an individual stock price. Figure 2 - Dow Jones Industrials
The Bearish Engulfing pattern is the exact opposite that of the Bullish Engulfing pattern. After an obvious uptrend, the bulls finally gap it open due to there exuberance to get in the position. If stochastics are showing that this is occurring in the overbought area, the candlestick investor becomes very diligent. A gap, however slight, away from the previous days close, should alert the candlestick investor that the trend may be ending. If long, putting a stop one half way down the last bullish candle is usually prudent. If trading comes back through that point and closes below the open of the previous day, a bearish engulfing pattern has formed. Now you can short the stock with confidence. If nothing more than being long, you now know to close the position. Knowing the direction of the market allows the investor to establish positions with more confidence. Knowing that the market indexes have turned positive permits an investor to commit funds to the long side with more aggression than normal. As seen in the above DOW chart,
being able to visualize the Bullish Engulfing patterns after extensive downtrend would have allowed an investor to get in and make impressive profits. As in the Bullish Engulfing pattern, the Bearish Engulfing pattern is very easy to see. It stands out as a blatant change of direction in the trend. The white bodies in the uptrend now have a large black candle stopping the trend. Figure 3 - Bearish Engulfing
The black candle acts as an obvious sign against the uptrend. The formula is exactly opposite of the Bullish Engulfing pattern formula. ( C1 >O1) and the(O>C1) and (C>O1), The close of the first day is higher than the open, thus a white candle. The next day has an open than is higher than the previous days close and closes lower than the previous days open.
The visual depiction of a Bearish Engulfing pattern creates an ominous darkness at the top of a trend. It does not take learning complicated formulas or analyzing numerous indicators to understand a candlestick signal. Figure 4 - Enzon Inc
Note how the Bearish engulfing pattern terminates the uptrend in the Enzon Inc. chart.. As the trend persists, buyers finally get so exuberant, they gap the price up. It immediately starts losing ground until it finally closes lower than where it opened the previous day. This clearly illustrates that the sellers have gained strength. That confirmation of selling starts a trend of selling.
The Engulfing patterns are statistically valid for indicating reversals at the tops and the bottoms. As stated early, the signals are highly accurate when a bullish Engulfing pattern is witnessed during oversold conditions. Conversely, the Bearish Engulfing pattern is valid in the overbought area. But both have a recognized indicator at the other end of a trend. A big bullish Engulfing pattern observed at the top of a trend usually represents the last gasp of the trend. The same occurs at the bottom of a trend with the Bearish Engulfing pattern. The last gasp sellers create a bearish engulfing pattern which usually is followed by increased buying. Remembering this fact provides another opportunity to extract
profits out of a price trend. When the hopeful are buying once more at the top or the panicked are selling their last stock position at the bottom, the Candlestick investor is already familiar with what that last bullish or bearish engulfing pattern indicates at the wrong end of a trend. Putting on positions becomes a comfortable endeavor while everybody else is buying or selling the wrong way. The Candlestick Engulfing patterns have survived centuries of investment skepticism. The Japanese Rice traders become ultra-wealthy utilizing these patterns. This is not rocket science. Rice traders developed high profit trading programs using purely visual recognition of reoccurring high probability formations. This is the most convincing form of statistical analysis. Use it to your advantage.
Candlestick Pattern Formations

Japanese Candlestick charting dramatically increases the information conveyed to the visual analysis. Each candlestick trading formation or series of formations can clearly illustrate the change of investor sentiment. This process is not apparent in standard bar chart interpretation. Each candle formation has a unique name. Some have Japanese names, others have English names.
Single candles are often referred to as YIN and YANG lines. These terms are actually Chinese, but are used by Western analysts to account for opposites; in/out, up/down, and over/under. INN and YOH are the Japanese equivalents. YIN is bearish. YANG is bullish. There are nine basic YIN and YANG lines in Candlestick analysis. These are expanded to fifteen to cover all possibilities clearly. The combination of most patterns can be reduced to one of these patterns.
Long
days
A long day represents a large price move from open to close. Long represents the length of the candle body. What qualifies a candle body to be considered long? That is a question that has to be answered relative to the chart being analyzed. The recent price action of a stock will determine whether a "long" candle has been formed. Analysis of the previous two or three weeks of trading should be a current representative sample of the price action.
Short Days
Short days can be interpreted by the same analytical process of the long candles. There are a large percentage of the trading days that do not fall into either of these two catagories.
Maruboza
In Japanese, Marubozu means close cropped or close-cut. Bald or Shaven Head are more commonly used in candlestick analysis. It's meaning reflects the fact that there are no shadows extending from either end of the body.
White Maruboza
<> The White Marubozu is a long white body with no shadows on either end. This is an extremely strong pattern. Consider how it is formed. It opens on the low and immediately heads up. It continues upward until it closes, on its high. Counter to the Black Marubozu, it is often the first part of a bullish continuation pattern or bearish reversal pattern. It is called a Major Yang or Marubozu of Yang.
Black Marubozu
A long black body with no shadows at either end is known as a Black Marubozu. It is considered a weak indicator. It is often identified in a bearish continuation or bullish reversal pattern, especially if it occurs during a downtrend. A long black candle could represent the final sell off, making it an "alert" to a bullish reversal setting up. The Japanese often call it the Major Yin or Marubozu of Yin.
Closing Marubozu
A Closing Marubozu has no shadow at it's closing end. A white body will not have a shadow at the top. A black body will not have a shadow at the bottom. In both cases, these are strong signals corresponding to the direction that they each represent.
Opening Marubozu
The Opening Marubozu has no shadows extending from the open price end of the body. A white body would not have a shadow at the bottom end , the black candle would not have a shadow at it's top end. Though these are strong signals, they are not as strong as the Closing Marubozu.
Spinning
Top
Spinning Tops are depicted with small bodies relative to the shadows. This demonstrates some indecision on the part of the bulls and the bears. They are considered neutral when trading in a sideways market. However, in a trending or oscillating market, a relatively good rule of thumb is that the next days trading will probably move in the direction of the opening price. The size of the shadow is not as important as the size of the body for forming a Spinning Top.
Doji
The Doji is one of the most important signals in candlestick analysis. It is formed when the open and the close are the same or very near the same. The lengths of the shadows can vary. The longer the shadows are, the more significance the Doji becomes. More will be explained about the Doji in the next few pages. ALWAYS pay attention to the Doji. The dimension of knowing what the formations signify magnifies the potential for
profits. The bodies, unlike the bars of bar charts, reveal an immense amount of information.
Trading the Tri-Star Pattern

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Tri Star Pattern Description The Tri Star pattern is relatively rare. However, it is a very significant reversal indicator. It is comprised of three Dojis. The three-day period illustrates indecision of a period of days.
Criteria 1. All three days are Dojis. 2. The middle day gaps above or below the first and third day. The length of the shadow should not be excessively long, especially when viewed at the end of a bullish trend.
Signal Enhancements 1. The greater the gap, away from the previous days close, sets up for a stronger reversal move. 2. Large volume on one of the signal days increases the chances that a significant reversal is taking place.
Pattern Psychology After an up-trend or a downtrend has been in effect, the appearance of the first Doji reveals that there is now indecision in the bulls and the bears camp. The next day gaps in the same direction as the existing trend and forms the second Doji. This reveals that no certainty for either direction has become apparent. The third day opens opposite the previous trends direction and forms another Doji that day. The final Doji is the last gasp. Any investor that had any conviction is now reversing their position. Because of the rarity of this pattern, double-check the data source to confirm that the Dojis are not bad data. Candlestick charts provide huge amounts of information
Candlestick charts allow an investor to develop trading strategies that maximize profit potential. Unlike bar chart that illustrate what price movements did during a specific timeframe, candlestick charts reveal 'how' that price moved. Candlestick charts demonstrate what investor sentiment was doing during the timeframe and how it did it. This additional information creates a huge advantage for the candlestick investor. Although a price may have been up on the day, the candlestick chart will reveal whether a specific candlestick signal had been formed. This information becomes valuable for projecting a reversal or a continuation of a trend. The simple logic that is built into candlestick charts makes the evaluation for trade entry and exit
strategies much easier to execute. For example, a candlestick chart that reveals a price that closed higher on the day in an overbought condition may not have any relevance to somebody that does not recognize a candlestick signal. However, if that price, during that day, had been much higher but closed near the lower end of the trading range, it may still appear as a positive day to somebody using bar charts or just reading the results of the day from the Wall Street Journal. Utilizing a candlestick chart would reveal a different story. A Shooting Star signal would have formed, providing a completely different scenario. When the major signals appear on candlestick charts, an investor can prepare for when they get in and out of trades with a much more clear analysis. Being able to execute trades at an early stage of a reversal keeps an investor from having to execute less favorable trades when a trend is already in motion, trying to sell when the buyers are stepping away. Candlestick charts produce the evaluation graphics that allow an investor to make decisions instantly. Market Direction - What are the markets telling us? Both the Dow and the NASDAQ have been in the overbought conditions for the past few weeks. The Dow has now reached the obvious resistance level at the 10,700 level. The past three days of trading have demonstrated spinning tops. This indicates indecision occurring at an important technical level. Stochastics are now in the process of turning down. As of yet, the selling has been indecisive. Two scenarios can be put forth upon seeing this type of market condition. The spinning tops could be illustrating the prelude to a pullback. That will be confirmed by a long bearish candle in the next day or so. This would give a clear indication that the spinning tops were a reversal action. If the next few days show more spinning tops, doji, or other indecisive trading formations, without any severe selling, that would be more of an indication that the markets are not selling off, but just taking some profits at a major resistance level. A day or two more of indecisive selling could then be followed by another strong candle that would take prices up through the obvious resistance level.
The NASDAQ showed some minor indecisive trading over the past few days. The large selling of Tuesday was followed by a hammer/doji formation. Although the stochastics are turning over, the selling has not yet shown any severe sell signals. A large bearish candle at this level would confirm the selling. After the doji on Wednesday, any indecisive or positive trading would reveal that the uptrend may not be over. What is the best way to position a portfolio with this type of market scenario? Since the market direction is still in question, an obvious factor can be evaluated. There are stocks moving in a positive direction due to those sectors still remaining strong or at least have not revealed any sell signals. There are other sectors/stocks that are now showing good bearish signals. When the direction of the market is in doubt, a prudent strategy would be to have both long and short positions open. This becomes a much easier strategy to implement when utilizing the candlestick
charts. The rationale is always that the candlestick signals are the cumulative knowledge of all investors buying and selling a particular trading entity during a specific timeframe. Simply stated, the charts still show bullish tendencies will probably not selloff as hard as the charts that show clear candlestick sell signals. Of course, the opposite is true. The charts that are showing candlestick sell signals will not move in a very bullish manner even if the market starts showing great bullish strength. This allows an investor to still produce a net profit from the proper positioning of long and short positions of the portfolio despite which direction the market may move with strength. This becomes a very simple money management technique that can still take advantage of indecisive periods in the markets.
As illustrated
in the Advanced Energy Industries chart, a Shooting Star signal in the
overbought condition illustrated that the buying was now been overtaken by the sellers. No matter which way the market may move in the next few days, the probabilities are extremely strong that this stock price should continue its downtrend, with the possibility of testing the next support level, the 50 day moving average.
SHOOTING STAR (Nagare Boshi)
Description
The Shooting Star is also comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. It is found at the top of an up trend. The Japanese named this pattern because it looks like a shooting star falling from the sky with the tail trailing it.
Criteria
1. The upper shadow should be at least two times the length of the body. 2. The real body is at the lower end of the trading range. The color of the body is not important although a black body should have slightly more bearish implications. 3. There should be no lower shadow or a very small lower shadow. 4. The following day needs to confirm the Shooting Star signal with a black candle or better yet, a gap down with a lower close.
Signal Enhancements
1. The longer the upper shadow, the higher the potential of a reversal occurring. 2. A gap up from the previous days close sets up for a stronger reversal move provided: 3. The day after the Shooting Star signal opens lower. 4. Large volume on the Shooting Star day increases the chances that a blow-off day has occurred although it is not a necessity.
Pattern Psychology
After a strong up-trend has been in effect, the atmosphere is bullish. The price opens and trades higher. The bulls are in control. But before the end of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day. This could indicate that the bulls still have control if analyzing a Western bar chart. However, the long upper shadow represents that sellers had started stepping in at these levels. Even though the bulls may have been able to keep the price
positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.
Using The Hammer Signal
Learning about the stock market for personal stock market investing can be very costly if not approached in the right manner. Attributes built into candlestick charts greatly reduce the potential of losses while learning about the stock market. The knowledge conveyed in just one of the 12 major signals helps investors understand the dynamics of what makes price move. This is true for investors that are just learning about the stock market all the way up to experienced traders. The candlestick charts are in use today because they have worked effectively throughout the centuries. Japanese Rice traders recognized that investor sentiment operates in reoccurring patterns. They recognized candlestick charts provided patterns that would reoccur as a trend was about ready to reverse. This became valuable information. The psychological elements that are incorporated into the major candlestick signals makes learning about the stock market easier and more profitable. Out of a universe of 50 to 60 candlestick reversal signals, it has been found that only 12 of the signals require attention. These 12 major signals will provide more trade situations than most investors will be able to utilize. The insights gained
from dissecting each of the 12 major signals becomes a valuable tool for learning about the stock market. The common complaint for most investors learning to read candlestick charts was there were too many candlestick signals. When learning the stock market, an investor wants a proven investment technique. Candlestick charts produces a very strong trading platform the candlestick signals have proven themselves to work. The question is not whether they work or not, the question is whether somebody can learn how to use them correctly. The Candlestick Forum is a stock market education site that takes candlestick charts and individual candlestick signals and reduces the information down to the basic elements. If each signal is dissected and studied, the information that the signal conveys will become a powerful investment tool for the rest of your life. The knowledge presented in Candlestick Charts makes learning the stock market, or any other trading market, much easier to understand. Each signal provides an immense amount of information. One of the most visually compelling signals is the Hammer signal. The hammer signal is easily recognized by the lower shadow ( the tail ) protruding to the downside after an extended downtrend. HAMMERS AND HANGING MAN
Description The Hammer is comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls started to step in. The color of the small body is not important but a white candle has slightly more bullish implications than the black body. A positive day is required the following day to confirm this signal. Criteria 1. The lower shadow should be at least two times the length of the body. 2. The real body is at the upper end of the trading range. The color of the body is not important although a white body should have slightly more bullish implications. 3. There should be no upper shadow or a very small upper shadow. 4. The following day needs to confirm the Hammer signal with a strong bullish day. Signal Enhancements 1. The longer the lower shadow, the higher the potential of a reversal occurring. 2. A gap down from the previous day's close sets up for a stronger reversal move provided the day after the Hammer signal opens higher.
3. Large volume on the Hammer day increases the chances that a blow off day has occurred. Pattern Psychology After a downtrend has been in effect, the atmosphere is very bearish. The price opens and starts to trade lower. The bears are still in control. The bulls then step in. They start bringing the price back up towards the top of the trading range. This creates a small body with a large lower shadow. This represents that the bears could not maintain control. The long lower shadow now has the bears questioning whether the decline is still intact. A higher open the next day would confirm that the bulls had taken control. The Hanging Man Signal Learning how the stock market works for novices is a difficult process. The first thing an investor should learn is the basics of why prices move. Unfortunately, the new investor can be overwhelmed with stock trading advice. Most of that advice does not teach an investor how to utilize human emotions. The candlestick signals, especially the 12 major signals, involve the visual elements produced by human emotions. Being able to correctly analyze what these emotions are doing at specific points of a trend becomes a valuable tool for successful investing Learning how the stock market works for novices is an endeavor that most investors never master. Learning how the stock market works for novices involves controlling one's emotions. Candlestick signals are a great benefit for the beginning investor as well as the experienced trader. The information conveyed in the major candlestick signals is the visual depiction of investor sentiment. Most investors sentiment unfortunately involves the
extremes of human emotions, fear and greed. Learning how the stock market works for novices is an educational process. The information incorporated into a major candlestick signal provides a huge advantage for those investors just learning how to play the stock market. Learning how the stock market works for novices should be made is simple as possible. The results of simple visual analysis permits an investor to take advantage of high probability situations. The major signals are created by the aspects of human emotions being put into trading decisions. Investor psychology produces reoccurring thought processes as investors go through different stresses of a price trend. The 12 major signals are a very important tool when learning how to play the stock market. Understanding the investment psychology that creates each signal is an important element for understanding how professional investors think. One of the most important facets for learning how a stock market works for novices is knowing how to put the probabilities in your favor. The candlestick signals create a format that does just that. Hundreds of years of observations have resulted in reversal signals that are easy to identify. When learning how the stock market works for novices, it is very important to find indicators that have a high probability of producing profits and a low probability of producing losses. This may be stating the obvious. However, the utilization of candlestick signals is being done by a very small percentage of the investment population. Use the major signals to start profiting from your investment decisions immediately. The Hanging Man produces some very important attributes when analyzing a potential reversal. It is considered one of the 12 major signals. Learn how to use a Hanging Man signal correctly. The probabilities of being in a correct trade when utilizing this signal becomes extremely high.
HANGING MAN
Description The Hanging Man is also comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. It is found at the top of an up trend. The Japanese named this pattern because it looks like a head with the feet dangling down. Criteria 1. The upper shadow should be at least two times the length of the body. 2. The real body is at the upper end of the trading range. The color of the body is not important although a black body should have slightly more bearish implications. 3. There should be no upper shadow or a very small upper shadow. 4. The following day needs to confirm the Hanging Man signal with a black candle or better yet, a gap down with a lower close. Signal Enhancements 1. The longer the lower shadow, the higher the potential of a reversal occurring. 2. A gap up from the previous days close sets up for a stronger reversal move provided the day after the Hanging Man signal trades lower. 3. Large volume on the signal day increases the chances that a blowoff day has occurred although it is not a necessity.
Pattern Psychology After a strong up-trend has been in effect, the atmosphere is bullish. The price opens higher but starts to move lower. The bears take control. But before the end
of the day, the bulls step in and take the price back up to the higher end of the trading range, creating a small body for the day. This could indicate that the bulls still have control if analyzing a Western bar chart. However, the long lower shadow represents that sellers had started stepping in at these levels. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on. When identifying the Hanging Man signal under the correct conditions, with stochastics in the overbought conditions, at the top of an uptrend, provides the information needed for identifying the possibility of a trend reversal. When learning to play the stock market, being able to put all the probabilities in ones favor is very important. When will an uptrend reverse? When indications start appearing that demonstrate that the sellers are starting to take control! The Hanging Man signal provides the elements that indicate the sellers stepping into a trend. Use this information to your advantage.
The candlestick signals produce high probability situations.

Stock market tips are usually the demise of most investors. The dream of most investors is to find the stock market tips that are going to make them wealthy. Unfortunately, that does not happen. Depending upon stock market tips will lead most investors into a demoralizing method of investing. Consider the factors that surround stock market tips. The information is usually relatively old by the time it reaches the ordinary investor. If the stock market tips are coming from an acclaimed guru of a stock market, it has probably been well positioned into accounts before the general public is made aware of the recommendation.
What you do when executing stock market tips? That should be the first question. Most stock market tips emphasize getting into the position as quickly as possible. Whatever great things are going to happen in the stock price are going to happen soon. Stock market tips are not representative of an intelligent investment strategy. Investing involves implementing a program where an investor can continue to improve return results. Candlestick signals provide the format for establishing consistent investment returns. The major problem that comes from putting funds into everybody's stock market tips is very simple to understand. If that particular investment situation does not perform as expected, the investor is right back where they started. They do not have a viable investment strategy. Candlestick signals, on the other hand, are based upon high probability situations. Establishing a position based upon one of the major candlestick signals allows an investor to evaluate when to get into a position and when to get out of a position. The signals are the result of many centuries of observations. If the statistical results of the major candlestick signals were not proven, we would not be looking at them today. The psychology built into a major signal is simple common sense investment philosophy. As demonstrated in the piercing signal, the Japanese Rice traders have a high expectation of what the result should be. Having this knowledge makes investment programs very easy to implement. PIERCING PATTERN
Description The Piercing Pattern is composed of a two-candle formation in a downtrending market. The first candle is black, a continuation of the existing trend. The second candle is formed by opening below the low of the previous day. It closes more than midway up the black candle, near or at the high for the day Criteria 1. The body of the first candle is black; the body of the second candle is white. 2. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend. 3. The second day opens lower than the trading of the prior day. 4. The white candle closes more than halfway up the black candle. Signal Enhancements 1. The longer the black candle and the white candle, the more forceful the reversal. 2. The greater the gap down from the previous days close, the more pronounced the reversal. 3. The higher the white candle closes into the black candle, the stronger the
reversal. 4. Large volume during these two trading days is a significant confirmation.
Pattern Psychology After a strong downtrend has been in effect, the atmosphere is bearish. Fear becomes more predominant. The prices gap down. The bears may even push the prices down further. However, before the end of the day, the bulls step in and dramatically turn prices around. They finish near the high of the day. The move has almost negated the price decline of the previous day. This now has the bears concerned. More buying the next day will confirm the move. Being able to utilize information that has been used successfully in the past is a much more viable investment strategy than taking shots in the dark. Keep in mind, when you are given privileged information about stock market tips, where you are in the food chain. Are you one of those privileged few that gets top-notch pertinent information on a timely manner, or you one of the masses that feed into a frenzy and allow the smart money to make the profits?
Technical analysis courses should utilize the candlestick signals

Technical analysis courses usually educate investors with masses of amounts of information. Technical analysis courses are usually directed towards providing numerous analytical techniques. Unfortunately, many of these techniques are not crucial for pinpointing investment information. Most technical analysis courses instruct investors on watching indicators that other investors usually
watch. The benefit of utilizing candlestick signals is being able to instantly evaluate what investor sentiment is doing at those levels that everybody else is watching. The information that is built into candlestick signals reveal immediately what investment sentiment is doing. If a candlestick buy signal occurs right on a major technical level, a level that many other investors are watching, the candlestick investor has the advantage of visually seeing the confirmation immediately of that level. Other investors may require confirmation that comes in the form of additional buying. That is a benefit to the candlestick investor. They can get in before the rest of the technical investors get in. There are many good technical analysis courses available. Click here to view Intelyze training course. An investor that is planning to take technical analysis courses should learn candlestick signals before hand. This knowledge will make any technical analysis courses much easier to comprehend. The 12 major candlestick signals provide an immense amount of technical information. Learning the stock market becomes much easier when utilizing the correct analytical tools. Applying the candlestick information to any information learned in technical and analysis courses will dramatically speed the positive results to investors accounts. Learn each of the major signals . The information that is conveyed in each one of the signals provides insights into price trends not found in most technical analysis courses. The candlestick signals should be the basis of an investors analytical toolbox. The Dark Cloud signal is a signal that tells an obvious reversal of a trend. It is name because it looks like a dark cloud over a nice bright sunny uptrend. DARK CLOUD COVER
Description The dark Cloud Cover is the bearish counterpart to the Piercing pattern. The first day of the pattern is a long white candle at the top end of a trend. The second days open is higher that the high of the previous day. It closes at least one-half way down the previous day candle, the further down the white candle, the more convincing the reversal. Remember that a close at or below the previous days open turns this pattern into a Bearish Engulfing pattern. Kabuse means to get covered or to hang over.
Criteria 1. The body of the first candle is white, the body of the second candle is black. 2. The up-trend has been evident for a good period. A long white candle occurs at the top of the trend. 3. The second day opens higher than the trading of the prior day. 4. The black candle closes more than half-way down the white candle. Signal Enhancements 1. The longer the white candle and the black candle, the more forceful the reversal. 2. A higher the gap up from the previous days close, the more pronounced the
reversal. 3. The lower the black candle closes into the white candle, the stronger the reversal. 4. Large volume during these two trading days is a significant confirmation Pattern Psychology After a strong up-trend has been in effect, the atmosphere is bullish. Exuberance sets in. They gap the price up. The bears start to show up and push the price back down. It finally closes at or near the lows for the day. The close has negated most of the previous days gains. The bulls are now concerned. They obviously see that the uptrend may have stopped. This signal makes for a good short, with a stop being the high of the black candle day. Notice that if the Dark Cloud Cover were to close lower, below the open of the previous day, it becomes a Bearish Engulfing pattern. The Bearish Engulfing pattern has slightly stronger bearish implications.
The Harami - A High Profit Candlestick Signal, Stocks & Commodities Magazine
The Harami is one of the major candlestick signals in Japanese Candlestick analysis. There are approximately 50 to 60 signals in the Candlestick signal universe. The biggest deterrent for many investors trying to learn the candlestick signals is a large number of signals. Most investors complain that there are too many to learn. Mastering Candlestick analysis can be done very easily by learning the 10 major signals. Knowing the signals, and understanding how those signals are formed, provide investors with a tremendous insight into what goes
on an investor sentiment at reversal areas in a trend. Being able to identify the major signals and understand the investor sentiment that created those signals allows an investor to project market reversals with a high degree of accuracy. This is based upon hundreds of years of actual observations by Japanese rice traders. Simple logic tells us that if these signals did not work, they would not be here for us to view after centuries of use. All the candlestick signals do not need to be memorized. Most signals do not occur often enough to use mental energy for identifying them. The 10 major signals will produce more investment opportunities than most investors will require. The Harami is considered one of the major signals. The Bullish Harami is a two formation pattern. The first formation is usually a large black candle appearing at the end of a downtrend. The end of a downtrend is represented by stochastics being in the oversold area. The Bullish Harami is formed by the second candle opening above the previous day's close and closing below the previous day's open. In Japanese, Harami means pregnant woman. As you see in the illustration, the black candle is the woman's body, the white candle is her belly sticking out.
A Harami at an important support level, as seen in the Nasdaq chart, is more effective when a Doji is part of the two day Harami signal. Once the trading came near the 200-day moving average, the Doji/Harami being confirmed with a gap-
up the next day becomes a very high probability projection that the trend has reversed.
Exerpt from the book Profitable Candlestick Trading Description The Harami is an often seen formation. The pattern is composed of a two candle formation in a down-trending market. The body of the first candle is the same color as the current trend. The first body of the pattern is a long body, the second body is smaller. The open and the close occur inside the open and the close of the previous day. It's presence indicates that the trend is over.
The Japanese definition for Harami is pregnant woman or body within. The first candle is black, a continuation of the existing trend. The second candle, the little belly sticking out, is usually white, but that is not always the case (see Homing Pigeon). The location and size of the second candle will influence the magnitude of the reversal. Criteria 1. The body of the first candle is black, the body of the second candle is white. 2. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend. 3. The second day opens higher than the close of the previous day and closes lower than the open of the prior day. 4. Unlike the Western Inside Day, just the body needs to remain in the previous day's body, where as the Inside Day requires both the body and the shadows to remain inside the previous day's body. 5. For a reversal signal, further confirmation is required to indicate that the trend is now moving up. Signal Enhancements 1. The longer the black candle and the white candle, the more forceful the reversal.
2. The higher the white candle closes up on the black candle, the more convincing that a reversal has occurred despite the size of the white candle.
Pattern Psychology After a strong down-trend has been in effect and after a selling day, the bulls open the price a higher than the previous close. The short's get concerned and start covering. The price finishes higher for the day. This is enough support to have the short sellers take notice that the trend has been violated. A strong day after that would convince everybody that the trend was reversing. Usually the volume is above the recent norm due to the unwinding of short positions. End of excerpt
The significance of a Harami is that it tells us that the selling has stopped. As far as a trend reversal, the Harami has excellent capabilities of indicating how strong the new trend to the up side will be. For example, if a Harami opens and closes at the very low end of the previous day's black candle, the trajectory of the new uptrend may be very flat or slow. If the Harami closes midway into the previous black candle, the up words trend will be moderately strong. If the Harami closes near the top of the previous day's black candle, the new uptrend may be very strong. In this way, a Harami can act as a barometer for the buying sentiment in the new uptrend. A Harami can be additionally determined if it appears at a significant technical
level such as a trend line or a moving average line. For example, witnessing a Harami that is formation in an oversold condition becomes much more significant if it is also forming on a 50-day moving average or a 200-day moving average. This becomes instant verification that what most western technical analysis is using for a possible support level is becoming instantly verified by a Candlestick signal. The Candlestick signal creates an immediate buy point whereas other technical analysis may need additional time to confirm. The candlestick analyst can profit immediately. The Bearish Harami is exactly opposite the Bullish Harami. After an uptrend and the stochastics are in the overbought area, there will be one last white candle. The following day opens below the previous day's close and closes above the previous day's open. This will form a black candle inside the previous day's white candle. This essentially tells us that the buying has stopped. Confirmation is seeing the next day open weaker.
Notice the Bearish Harami's in the Crude Oil chart. In late May, the experts were projecting that oil prices could go to $60.00 per barrel. This analysis was prompted by Crude Oil going above $40.00 a barrel for the first time in decades. However, every time the price would push above the $40.00 per barrel price, the Harami's revealed that the sellers were stepping in. What is the smart money doing? You do not need extensive research team to delve into what is happening in each industry, stock or commodity. The signals tell what is the actual investor sentiment. Just like the Bullish Harami, the Bearish Harami will indicate the magnitude of the new downtrend by where it closes in the previous day's candle. A very small candle at the top end of the previous day's white candle would indicate every slow downtrend whereas they close at the lower end of the previous day's white
candle would indicate that the selling pressure is going to be much stronger. Understanding what the Harami signal is representing, the better the opportunity is to profit from the signal. The results, from witnessing a Harami, are fairly predictable. The Japanese rice traders established the statistical analysis to warrant the signals to still be in effect after centuries of use. Use that information to your advantage.
How to Trade the Bullish Harami. Most stock market strategies involve complicated approaches and formulas. Candlestick analysis provides a platform for making stock market strategies very simple to implement. Unfortunately, most investors put money into the markets without any concern for stock market strategies. This not only skews many investors investment perceptions, it also delays the process for how to learn to trade the stock market correctly. Stock market strategies should be incorporated into an investors learning process from the very beginning. Candlestick signals provide the information that can put investors on the right track from the beginning. Taking advantage of the investor knowledge incorporated into candlestick signals allows an investor to eliminate bad habits. Stock market strategies should involve investment programs that put the probabilities of being in a correct trade in an investor's favor. To simplify the process, if an investor merely learns the 12 major candlestick signals, the correct investor habits will be much easier to implement. Successful stock market strategies involve investment practices that can be accounted for and constantly improve. The 12 major candlestick signals provide a framework for establishing a high probability trades. They also convey to an investor when the investor sentiment is not working properly. Most stock market strategies pay little attention to procedures on losing trades. The candlestick signals provide an expected result. When they do not occur, losses can be cut short . Funds can then be moved on to high probability situations.
Utilizing the 12 major signals establishes a knowledge base for what should happen in the future. Knowing the investor sentiment that developed the signals provides a much better insight for investors to determine successful trade situations. The Bullish Harami is an example of visual statistic analysis. Upon witnessing a bullish Harami at the end of a downtrend, an investor has a good idea of what to expect. This major signal becomes a vital information packed analytical tool. HARAMI BULLISH HARAMI
Description The Harami is an often seen formation The pattern is composed of a two candle formation in a down-trending market. The body of the first candle is the same color as the current trend. The first body of the pattern is a long body, the second body is smaller. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over. The Japanese definition for Harami is pregnant woman or body within. The first candle is black, a continuation of the existing trend. The second candle, the little belly sticking out, is usually white, but that is not always the case. The location and size of the second candle will influence the magnitude of the reversal. Criteria 1. The body of the first candle is black, the body of the second candle is white.
2. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend. 3. The second day opens higher than the close of the previous day and closes lower than the open of the prior day. 4. Unlike the Western "Inside Day", just the body needs to remain in the previous days body, where as the "Inside Day" requires both the body and the shadows to remain inside the previous days body. 5. For a reversal signal, further confirmation is required to indicate that the trend is now moving up. Signal Enhancements 1. The longer the black candle and the white candle, the more forceful the reversal. 2. The higher the white candle closes up on the black candle, the more convincing that a reversal has occurred despite the size of the white candle. Pattern Psychology After a strong down-trend has been in effect and after a selling day, the bulls open the price a higher than the previous close. The shorts get concerned and start covering. The price finishes higher for the day. This is enough support to have the short sellers take notice that the trend has been violated. A strong day the next day would convince everybody that the trend was reversing. Usually the volume is above the recent norm due to the unwinding of short positions.
Commodity Trading with Candlestick Signals and the Bearish Harami

Commodity trading principles are the basic elements incorporated in the candlestick signals. Commodity trading principles are easier to analyze than stock trades. This is derived from one simple factor. Commodity trading principles are based upon supply and demand. Whereas stock analysis involves a multitude of external factors that can affect a price, commodity trading principles relied mostly upon the perception of supply and demand. This creates a much smoother trend analysis than stock prices. Candlestick signals were developed on the most basic commodity trading principles. 400 years of investor observations occurred while trading Rice, one of the most basic commodities. Over the past four centuries, the 50 or 60 candlestick signals became recognized. Of these, 12 signals were found to occur a majority of the time. Their appearance also indicated extremely high probability reversal situations. These 12 signals are now considered the major candlestick signals. Learning these signals allows an investor to gain valuable insights into investor sentiment. Understanding the investor psychology that formed the major signals is the basis for fully understanding commodity trading principles. The facets of supply and demand do not immediately change commodity prices. The perception of what supply and demand forces may be doing is what changes commodity prices. Candlestick signals are the graphic depiction of those reversals in investor sentiment. Understanding the factors that go into a candlestick signal formation makes understanding commodity trading much easier to comprehend.
The Bearish Harami is one of the major signals that exhibits common sense into graphic depiction. Candlestick analysis provides a clear understanding of what happens to investor sentiment at the reversal areas. The elements that create a Bearish Harami produce clear insights into what was going on in investor minds at a reversal. BEARISH HARAMI
Description The Bearish Harami is the exact opposite of the Bullish Harami. The pattern is composed of a two-candle formation. The body of the first candle is the same color as the current trend. The first body of the pattern is a long body; the second body is smaller. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over. Criteria 1. The body of the first candle is white; the body of the second candle is black. 2. The uptrend has been apparent. A long white candle occurs at the end of the trend. 3. The second day opens lower than the close of the previous day and closes higher than the open of the prior day.
4. For a reversal signal, confirmation is needed. The next day should show weakness. Signal Enhancements 1. The longer the white candle and the black candle, the more forceful the reversal. 2. The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the size of the black candle. Pattern Psychology After a strong uptrend has been in effect and after a long white candle day, the bears open the price lower than the previous close. The longs get concerned and start profit taking. The price finishes lower for the day. The bulls are now concerned as the price closes lower. It is becoming evident that the trend has been violated. A weak day after that would convince everybody that the trend was reversing. Volume increases due to the profit taking and the addition of short sales. Having insight ito the effect of Haramis provides an opportunity to maximize returns. If all of your investment funds are being fully used, a Harami may reveal that one of the positions has stalled for a few days. An aggressive trader may want to move those funds to a better trade, and then come back after a few days to reinvest once the position is moving.
Stock Market Advice for Trading The Morning Star Signal

Stock market advice is plentiful over the internet. There is sage stock market advice like; Don't try to time the market, use cost averaging, diversify, and limitless tid-bits but they do not teach you anything about trading. What good is stock market advice if you still don't know how to read a stock chart? The Candlestick Forum provides practical stock market advice by continued "How To Trade" articles for identifying specific candlestick charts. This article will help you to identify The Morning Star signal and the trading criteria used for successful implementation. We hope these articles are helping you along your way to successful stock market trading. Be sure to join Stephen Bigalow live over the internet for his free Thursday evening Chat Sessions.
MORNING STAR
Description The Morning Star is a bottom reversal signal. Like the planet Mercury, the morning star, it foretells that brighter things - sunrise, is about to occur, or that prices are going to go higher. It is formed after an obvious downtrend. It is made by a long black body, usually one of the fear-induces days at the bottom of a long decline. The following day gaps down. However, the magnitude of the trading range remains small for the day. This is the star of the formation. The third day is a white candle day. And represents the fact that the bulls have now stepped in and seized control. The optimal Morning Star signal would have a gap before and after the star day.
The make up of the star, an indecision formation, can consist of a number of candle formations. The important factor is to witness the confirmation of the bulls taking over the next day. That candle should consist of a closing that is at least halfway up the black candle of two days prior. Criteria 1. The downtrend has been apparent. 2. The body of the first candle is black, continuing the current trend. The second candle is an indecision formation. 3. The third day shows evidence that the bulls have stepped in. That candle should close at least halfway up the black candle. Signal Enhancements 1. The longer the black candle and the white candle, the more forceful the reversal. 2. The more indecision that the star day illustrates, the better probabilities that a reversal will occur. 3. A Gap between the first day and the second day adds to the probability that a reversal is occurring. 4. A gap before and after the star day is even more desirable. 5. The magnitude, that the third day comes up into the black candle of the first day, indicates the strength of the reversal. Pattern Psychology A strong downtrend has been in effect. The sellers start getting panicky. There is a large sell-off day. The next day as the selling continues, bulls are stepping in at the low prices. If there is big volume during these days, it shows that the ownership has dramatically changed hands. The second day does not have a large trading range. The third day the bears start to lose conviction as the bull increase their buying. When the price starts
moving back into the trading range of the first day, the sellers diminish and the buyers seize control.
The Morning Star - A Powerful Candlestick Reversal Signal, Stocks & Commodities Magazine
The major Candlestick reversal signals are very illuminating. They are hundreds of years of visual observations revealing high probabilities of a reversal occurring. Not to overstate the obvious, but if Candlestick signals didnt work, we would not be looking at them today. The Japanese rice traders that they used candlestick signals became enormously wealthy. The major benefit of Candlestick signals is that they are very easy to learn and identify. You do not need to learn formulas. You do not have to do extensive fundamental analysis. A Japanese Candlestick reversal signal is a visual identification of a change in investor sentiment. Of the 50 or 60 Candlestick signals, there are 10 major signals that occur at the reversals the majority of the time. The Morning Star signal is one of the most clear, symmetrical candlestick reversal patterns.
The Japanese rice traders described it as the planet Mercury, the morning star. It foretells that brighter things, sunrise, is about to occur, meaning that prices are going to go higher. It is formed after an obvious downtrend. The three day signal consists of a long black body, usually one produced of the fear induced at the bottom of a long decline. The following day gaps down. However, the magnitude of the trading range remains small for the day. This produces an indecision type day. The third day is a white candle day. The white candle represents the fact that the bulls have now stepped in and seized control. The optimal Morning Star signal would have a gap before and after the star day. The make up of the star, an indecision formation, can consist of a number of candle formations, however a Doji or a spinning top is usually the predominant formation in a Morning Star signal. The important factor is to witness the confirmation of the bulls taking control the next day. That candle should consist of a closing more than half-way up the black candle of two days prior. Identifying the Morning Star signal is relatively easy. It is visually apparent to the eye. There are some very simple parameters that can enhance the Morning Star signals probabilities of creating a reversal.
1. The longer the black candle and the white candle, the more forceful the reversal. This demonstrates a more severe change in investor sentiment. 2. The more indecision that the star day illustrates, the better probabilities that a reversal will occur, such as a Doji signal. 3. A gap between the first day and the second day adds to the probability that a reversal is occurring. A gap before and after the star day is even more desirable. 4. The higher the close of the third day, coming up past the middle point of the black candle of the first day, reveals more potential in the strength of the reversal.
The probability of a Morning Star signal reversing a trend becomes extremely high when found in oversold conditions. Using a simple indicator such as stochastics, in the 20 area or below, represents an oversold condition.The most important element of the signal is the magnitude of the white candles close during the third day. Candlestick analysis can be used in all trading entities. Whether doing a longterm evaluation on a monthly Dow chart or a one minute chart trading the eminis, the signals working just as effectively for revealing change in investor sentiment during that time frame. As seen in the daily Dow chart, the Morning Star signals revealed when the Dow established a bottom. Being able to analyze the direction of a DOW l increases the probabilities of being a correct trade when analyzing individual stock charts.
In July and August 2004, the Dow index reversed after Morning Star signals. Note point A, when the stochastics were on the oversold condition, a three day morning Star signal appeared. Then two Morning Star signals appeared a week later to start the next rally again in the Dow Jones Averages. In both cases, it becomes very clear to start buying stocks that have produced good candlestick buy signals.
Being able to evaluate that the market is moving up in general allows the candlestick investor to identify and establish long positions more aggressively at the bottom of tread reversals. For example, buying the AVI Biopharma Inc. chart
as it produced a Morning Star signal, just as the markets were bottoming, would have created a very large percentage return.
Candlestick signals occur in the markets every single day. Scanning software makes finding the signals very easy. They can find the best candlestick trade in less than 10 minutes every day. This is not rocket science. This is using the same successful analysis that has been used for centuries. There we willcan be a very simple trading parameter. When you see a Morning Star occurring in oversold condition, the probabilities of being in a successful trade is very high.
Stock Market Information on How to Trade the Shooting Star Signal

There is no shortage of stock market information, whether you are researching the internet or the book stores. Be prepared to be flooded with material covering stock market information. The biggest decision is how to go about selecting which materials to start reading. Do you want to learn about day-trading? Are you more interested in learning options, or trading commodities? Maybe you want to be better educated to discuss your portfolio with your Broker. How do you know if the stock market information you are reviewing was written by someone qualified in the subject? Perhaps you will allow us to narrow the field a bit. Stephen Bigalow is not only the author of 'High Profit Candlestick Patterns', and 'Profitable Candlestick Trading', but He Trades For A Living! The same information he teaches throughout this website, and in all his training products, is the same information he uses every day to make his own trading decisions for his personal portfolio and for his professional Hedge Fund. He contributes new articles each week to aid other investors on the advantage of combining candlestick signals and how to read candlestick charts. We hope you enjoy the following training information for the Shooting Star Signal. For additional articles on trading individual candlestick signals please begin with Candlestick Images and Explanations. The Shooting Star
Description The Shooting Star is comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. It is found at the top
of an uptrend. The Japanese named this pattern because it looks like a shooting star falling from the sky with the tail trailing it.
Criteria 1. The upper shadow should be at least two times the length of the body. 2. The real body is at the lower end of the trading range. The color of the body is not important although a black body should have slightly more bearish implications. 3. There should be no lower shadow or a very small lower shadow. 4. The following day needs to confirm the Shooting Star signal with a black candle or better yet, a gap down with a lower close.
Signal Enhancements 1. The longer the upper shadow, the higher the potential of a reversal occurring. 2. A gap up from the previous day's close sets up for a stronger reversal move provided. 3. The day after the Shooting Star signal opens lower. 4. Large volume on the Shooting Star day increases the chances that a blow-off day has occurred although it is not a necessity. Pattern Psychology After a strong up-trend has been in effect, the atmosphere is bullish. The price opens and trades higher. The bulls are in control. But before the end of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day. This could indicate that the bulls still have control if analyzing a Western bar chart. However, the long upper shadow represents that sellers had started
stepping in at these levels. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.
Investing stock market advice using the Evening Star Candlestick signal
So you want investing stock market advice and naturally you begin with a 'Google' search. But, this returns 56,700,000 pages for your review. Where do you begin? Do you really want to plow through all those pages and be bombarded with "buy this" or "register here for investing stock market advice"? Internet sites are a business, and we are no exception, but what happened to all the great 'free' material the internet is supposed to provide? The Candlestickforum continues it's commitment to provide free stock market advice. We hope you are following our 'Candlestick Images and Explanations'. Each week we add another candlestick signal where we provide a graphic illustration of candlestick chart signals with descriptions for recognizing the candlestick signal, the trading criteria with signal enhancements and the pattern psychology behind the signal. We back up our promise to provide free stock market advice. Every Thursday evening Stephen Bigalow presents a live stock chat session over the internet. Absolutely FREE, no registration needed, come join us and you will find the investing stock market advice you have been looking for. Now for the free advice we promised.... EVENING STAR ( Sankawa Yoi No Myojyo )
Description The Evening Star pattern is a top reversal signal. It is exactly the opposite of the Morning Star signal. Like the planet Venice , the evening star, it foretells that darkness is about to set or that prices are going to go lower. It is formed after an obvious uptrend. It is made by a long white body occurring at the end of an uptrend., usually when the confidence has finally built up. The following day gaps up, yet the trading range remains small for the day. Again, this is the star of the formation. The third day is a black candle day and represents the fact that the bears have now seized control. That candle should consist of a closing that is at least halfway down the white candle of two days prior. The optimal Evening Star signal would have a gap before and after the star day. Criteria 1. The uptrend has been apparent. 2. The body of the first candle is white, continuing the current trend. The second candle is an indecision formation. 3. The third day shows evidence that the bears have stepped in. That candle should close at least halfway down the white candle. Signal Enhancements 1. The longer the white candle and the black candle, the more forceful the reversal. 2. The more indecision that the star day illustrates, the better probabilities that a reversal will occur.
3. A gap between the first day and the second day adds to the probability that a reversal is occurring. 4. A gap before and after the star day is even more desirable. The magnitude, that the third day comes down into the white candle of the first day, indicates the strength of the reversal. Pattern Psychology A strong uptrend has been in effect. The buyers can't imagine anything going wrong, they are piling in. However, it has now reached the prices where sellers start taking profits or think the price is fairly valued. The next day all the buying is being met with the selling, causing for a small trading range. The bulls get concerned and the bears start taking over. The third day is a large sell off day. If there is big volume during these days, it shows that the ownership has dramatically changed hands. The change of direction is immediately seen in the color of the bodies.
Swing Trading Refined Using Candlestick Signals!

Candlestick signals become important for swing trading. Understanding what the signals are telling you will produces a very accurate format for swing trading as well as all other forms of investing. Swing trading, with a short-term outlook, requires being able to see exactly what the trends are doing over a 3 to 10 day period. The use of Candlestick's become much more important especially in a market trend that is not showing very much conviction one way or the other. Understanding what the Candlestick signals are telling you becomes an important factor for making profits and for limiting losses. Interpreting what the signals are telling you is very easy. Whether swing trading, day-trading, or long
term investing, the probabilities of being on the correct side of the trade grows dramatically when utilizing the information conveyed in a Candlestick signal.
Market Direction - As was noted late last week and early this week, two Harami signals indicated that the downtrend had stopped. At that time, with the trend apparently bottoming midway between the 50 day moving average in the 200 day moving average, a quick analysis would have suggested an up move to test either the 20 day moving average or the 50 day moving average. However, Thursday produced a doji, demonstrating indecision, and Friday created a bearish candle in the Dow, that closed more than halfway down the bullish candle the day prior to the doji. The last three days formed an Evening Star signal. A true Evening Star signal would be witnessed when the stochastics are in the overbought area.
Even though the Evening Star signal did not occur in overbought area, the formation still has to be evaluated as to what is the investor sentiment appearing to be at this time. Very simply stated, after Thursday's doji, there was an opportunity for the Bulls to continue the rally. But we saw that the selling had stepped back in. Had we seen a bullish day on Friday, the evaluation of the market trend would have been simple, they are still moving this market up. After the big sell-off on Friday, and the stochastics coming out of the oversold area but turning back down, now allows us to analyze what Monday's market action could produce. Before the appearance of the two harami's last week, the Dows pullback had been fairly severe. The projection had been that it may test the 200 day moving average down near the 9800 level. The market action, as seen this past week
reveals a mild bounce in a down-trending market. Friday's action, after the doji, and forming a an evening Star signal, should now tell us that if we see weakness on Monday, the last weeks bounce may be over and we are now still heading for the 200 day moving average. Is this a complete change of projections for just a few days ago? Yes, but that is what using the candlestick signals tell you to do. What could have been the possibilities from the market indications a few days ago has been completely altered by what the candlestick signals are telling us now. That is the whole premise of using candlestick analysis. It changes the investment strategy from being positioned in the direction of what you " think" the market is going to do to a market strategy based upon what the candlestick signals are indicating the investor sentiment is now. What may have been the correct analysis five days ago may not be the same analysis today. Most investors lose money because once they make an analysis of the market direction, their ego holds them to that analysis versus being willing to alter their analysis when things change, whether it be three days, three weeks, or three months. What looked like could be a test of the 50 day moving average in the Dow just a few days ago, now has the probabilities reverting back to testing the 200 day moving average if further weakness as seen in the market on Monday.
The Evening Star signal, as described from the excerpt from the book " Profitable Candlestick Trading" is considered one of the major signals. Although it did not occur in overbought situation, as seen in the market this week, it still represents
the there has been a change in investor sentiment compared to three days ago. Recognizing the signals gives the candlestick investor a leg up on which way the market may be heading. EVENING STAR (Sankawa Yoi No Myojyo)
Description The Evening Star pattern is a top reversal signal. It is exactly opposite the Morning Star signal. Like the planet Venice, the evening star, it foretells that darkness is about to set or that prices are going to go lower. It is formed after an obvious uptrend. It is made by a long white body occurring at the end of an uptrend., usually when the confidence has finally built up. The following day gaps up, yet the trading range remains small for the day. Again, this is the star of the formation. The third day is a black candle day. And represents the fact that the bears have now seized control. That candle should consist of a closing that is at least halfway down the white candle of two days prior. The optimal Evening Star signal would have a gap before and after the star day. Criteria 1. The uptrend has been apparent.
2. The body of the first candle is white, continuing the current trend. The second candle is an indecision formation. 3. The third day shows evidence that the bears have stepped in. That candle should close at least halfway down the white candle. Signal Enhancements 1. The longer the white candle and the black candle, the more forceful the reversal. 2. The more indecision that the star day illustrates, the better probabilities that a reversal will occur. 3. A gap between the first day and the second day adds to the probability that a reversal is occurring. 4. A gap before and after the star day is even more desirable. The magnitude, that the third day comes down into the white candle of the first day, indicates the strength of the reversal. Pattern Psychology A strong uptrend has been in effect. The buyers can't imagine anything going wrong, they are piling in. However, it has now reached the prices where sellers start taking profits or think the price is fairly valued. The next day all the buying is being met with the selling, causing for a small trading range. The bulls get concerned and the bears start taking over. The third day is a large sell-off day. If there is big volume during these days, it shows that the ownership has dramatically changed hands. The change of direction is immediately seen in the color of the bodies.
What is the Strongest Candlestick Signal? The Kicker Signal!

What is the strongest candlestick signal? The Kicker signal! It demonstrates a severe change an investor sentiment. A good rule of thumb is that if an investor sees a Kicker signal, he/she should go long or short depending on whether it is a Bullish Kicker or a Bearish Kicker. And that is exactly what we saw happen today in the NASDAQ index. The Bearish Kicker signal, especially with the stochastics in the overbought area, indicates that we want to be out of our long positions, either sitting in cash or shorting the market. KICKER SIGNAL ( Keri Ashi )
Description The Kicker signal is the most powerful signal of all. It works equally well in both directions. Its relevance is magnified when occurring in the overbought or oversold area. It is formed by two candles. The first candle opens and moves in the direction of the current trend. The second candle opens at the same open of
the previous day, a gap open, and heads in the opposite direction of the previous days candle. The bodies of the candles are opposite colors. This formation is indicative of a dramatic change in investor sentiment. The candlesticks visually depict the magnitude of the change. Criteria 1. The first days open and the second days open are the same. The price movement is in opposite directions from the opening price. 2. The trend has no relevance in a Kicker situation. 3. The signal is usually formed by surprise news before or after market hours. 4. The price never retraces into the previous day's trading range. Signal Enhancements 1. The longer the candles, the more dramatic the price reversal. 2. Opening from yesterdays close to yesterdays open already is a gap. However, gapping away from the previous days open further enhances the reversal. Pattern Psychology The Kicker signal demonstrates a dramatic change in the investor sentiment. Something has occurred to violently change the direction of the price. Usually a surprise news item is the cause of this type of move. The signal illustrates such a change in the current direction that the new direction will persist with strength for a good while.
There is one caveat to this signal. If the next day prices gap back the other way, liquidate the trade immediately. This does not happen very often, but when it does, get out immediately.
Market Direction With the NASDAQ producing a Kicker signal to the downside and the Dow in a severe sell-off, the probabilities point to being short in this market. Crude Oil prices spiked up another $1.50 today. The fear of much higher oil prices is now affecting the market conditions. Crude Oil is now trading at new contract highs. The Federal Reserve raised interest rates by a quarter of a point yesterday. It is not unusual to see a rally the same day as the announcement, then a turnaround the next day. Does this mean the turnaround is going to last for a while? The Kicker signal today in the NASDAQ is a very good indication that it will.
The weakness shown by the Kicker signal in the NASDAQ, with stochastics in the overbought area, should at least have the NASDAQ test the 50-day moving average. However, the strength of the Kicker signal could start a downtrend that could test the recent lows. The stochastics in both the NASDAQ and the Dow indicate we should have a few days, at least, to the downside. The semiconductors tried to bounce up in the last couple of days but have now failed. As seen in our daily follow-ups, these positions were closed out on the weak open today. Once again, the advantage of the Candlestick signals is that they reveal opportune times to get into stocks as well as get out of them. The weak signals in the semiconductor stocks, over the past day or two, made it clear that the sellers were starting to come back into these stocks. Today, SOX pulled back with a Bearish Engulfing signal to the 50-day moving average with
stochastics in the overbought area starting to turn down. This could also lead to a test of the recent lows.
Entry Points - Each day our recommendations include the conditions that should occur before entering a trade. For example, AGI and AFCI, on Wednesday, were recommended but with the caveat of buying on strength. In both of these cases, they opened lower than Tuesdays close. The market conditions, showing selling from the open Wednesday, would have had us waiting to see if there was any strength. It is important to analyze what the market conditions are when entering a trade. Please read all of the stipulations in the recommendations. Not entering a trade when conditions are not correct will keep your funds from being placed in trades that are not working. Those funds remain available to be placed in better positions. Read the recommendation carefully. SOX, Semiconductor Index
The retailing stocks have been acting weak for the past week. This pullback in the market has added to their downside move. During these indecisive periods of the market, it is wise to have both long and short positions in the portfolio. For the specific purpose of being able to shift the portfolio quickly once the trend is revealed coming out of that indecisive period. This makes the shift much more manageable. Note how the selling came into stocks such as Childrens Palace a little over a week ago. The stochastics turning down and seeing consistent selling signals made this a prime candidate as a short position when the market indexes were in an iffy stage.
Stock Market Technical Analysis Simplified With Candlestick Signals

Stock market technical analysis is dramatically improved when applying Candlestick signals. Working off the premise that the Candlestick signals are the cumulative knowledge of everyone who is buying or selling during a specific time frame, the evaluation of technical trends becomes better formatted when understanding what the signals are telling you. The effectiveness of Candlestick signals in stock market technical analysis is more clearly evident in the past couple of weeks when experiencing world events such as terrorist attacks.
Stock market technical analysis using Candlestick analysis allowed for a trading strategy on the morning of the bombings. The Candlestick signals indicate what investor sentiment is doing during any particular time frame. What were the market conditions on the morning of the London bombings? The stochastics were in the oversold condition. The previous two weeks had been showing Candlestick bottoming signals. Two sets of Morning Star signals had formed as stochastics had approached the oversold condition. This stock market technical analysis, without an extracurricular world event, was indicating that investor sentiment was starting to turn bullish once more. With this stock market technical analysis in mind, upon hearing the news of the London bombings, an event that could dramatically influence investor sentiment, a trading strategy could be implemented. Knowing that the markets were already in a short-term oversold condition, where the Dow had appeared to hold the 10,300 level, a simple analysis could be made after hearing the news. Our stock market technical analysis indicated to allow the Candlestick signal of that day dictate what our strategy should be. Utilizing stock market technical analysis in this manner becomes very simple. What was going to be the Candlestick formation that day? The markets immediately sold off that morning. They did so with good strength very early in the day. What should become the investment strategy? Our stock market technical analysis already told as we are in an oversold condition. Our Candlestick signals indicated that buying had been trying to start for the past two weeks. Prices were already down big early in the day. As we had advised in our members' morning comments, it was a day to hold the long positions until we saw what Candlestick formation was going to occur. The candlestick charts clearly identify when signals may occur.
Had the day closed at the lower end of the trading range, it would have provided a completely different scenario than the formation of a Hammer signal. The Hammer signal revealed that investor sentiment was not in a massive selling mode. This provided the signal to buy aggressively upon seeing more strength the following day. HAMMERS (Takuri)
Description The Hammer is composed of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls have started to step in. The color of the small body is not important but a white candle has slightly more bullish implications than the black candle. A positive day is required the following day to confirm this signal. Criteria
1. The lower shadow should be at least two times the length of the body. 2. The real body is at the upper end of the trading range. The color of the body is not important although a white body should have slightly more bullish implications. 3. There should be no upper shadow or a very small upper shadow. 4. The following day needs to confirm the Hammer signal with a strong bullish day. Signal Enhancements 1. The longer the lower shadow, the higher the potential of a reversal occurring. 2. A gap down from the previous days close sets up for a stronger reversal move provided the day after the Hammer signal opens higher. 3. Large volume on the Hammer day increases the chances that a blow off day has occurred. Pattern Psychology After a downtrend has been in effect, the atmosphere is very bearish. The price opens and starts to trade lower. The bears are still in control. The bulls then step in. They start bringing the price back up towards the top of the trading range. This creates a small body with a large lower shadow. This represents that the bears could not maintain control. The long lower shadow now has the bears questioning whether the decline is still intact. A higher open the next day would confirm that the bulls had taken control.
Market Direction - The series of Morning Star signals, confirmed with the bullish candle after the London bombing Hammer day, started the market uptrend. Friday, an option expiration day, started to show some toppiness. Both the Dow, the NASDAQ, and the S&P 500 showed indecisive trading. This was not unexpected on a Friday in the summertime and on an options expiration day. However, the stochastics in all of the indexes have now reached the overbought area. It would not be unusual to see some pullback occurring from these levels. This pullback would be more of a profit-taking process versus a reversal. The uptrend appears to be intact. The fear of the feds continuing to raise interest rates as well as oil prices in high trading areas has not produced any euphoric buying as of yet. This becomes a good indicator that the uptrend should persist.
If a pullback should start appearing, with the evidence of selling starting on Monday or Tuesday, a logical pullback target would be the 50 day and 200 day moving averages. Weakness, confirming Friday's Doji signals, would be the time to be taking some profits from this recent rally. The strategy, after the test of the MA's, would be to analyze which sectors appear to be the next strong movers.
If the markets start pulling back from here, anticipating that the markets are in an uptrend, the Candlestick signals make it very easy to identify when the pullback is over. As illustrated in our recommendation of CTTY, once the breakout occurred and the profit-taking came into the stock, the Inverted Hammer, followed by a Bullish Engulfing signal, made for a very profitable trade. CTTY formed another Inverted Hammer on Thursday with some confirmed buying on Friday. Watch for the next leg up.
There are always opportunities being revealed when Candlestick signals are used for finding high profit trades.
The Inverted Hammer Signal

Learning how to play the stock market is an endeavor that most investors never master. Learning how to play the stock market involves controlling one's emotions. Candlestick signals are a great benefit for the beginning investor as well as the experienced trader. The information conveyed in the major candlestick signals is the visual depiction of investor sentiment. Most investors' sentiment unfortunately involves the extremes of human emotions, fear and greed. Learning how to play the stock market is an educational process. An investor should learn the basics of why prices move. The candlestick signals, especially the 12 major signals, involve the visual elements produced by human emotions. Being able to correctly analyze what these
emotions are doing at specific points of a trend become a valuable pool for successful investing. The information incorporated into a major candlestick signal provides a huge advantage for those investors just learning how to play the stock market. The result of simple visual analysis permits an investor to take advantage of high probability situations. The major signals are created by the aspects of human emotions being put into trading decisions. Investor psychology produces reoccurring thought processes as investors go through different stresses of a price trend. The 12 major signals are a very important tool when learning how to play the stock market. Understanding the investment psychology that creates each signal is an important element for understanding how professional investors think. One of the most important facets for learning how to play the stock market is knowing how to put the probabilities in your favor. The candlestick signals create a format that does just that. Hundreds of years of observations have resulted in reversal signals that are easy to identify. When learning how to play the stock market, it is very important to find indicators that have a high probability of producing profits and a low probability of producing losses. This may be stating the obvious. However, the utilization of candlestick signals is being done by a very small percentage of the investment population. Use the major signals to start profiting from your investment decisions immediately. The Inverted Hammer produces some very important attributes when analyzing a potential reversal. It is considered one of the 12 major signals. Learn how to use an inverted hammer signal correctly. The probabilities of being in a correct trade when utilizing this signal becomes extremely high.
INVERTED HAMMER
Description The Inverted Hammer is comprised of one candle. It is easily identified by the small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls are stepping in, but the selling is still going on. The color of the small body is not important but the white body has more bullish indications than a black body. A positive day is required the following day to confirm this signal. Criteria 1. The upper shadow should be at least two times the length of the body. 2. The real body is at the lower end of the trading range. The color of the body is not important, although a white body should have slightly more bullish implications. 3. There should be no lower shadow, or a very small lower shadow. Signal Enhancements 1. The longer the upper shadow, the higher the potential of a reversal occurring. 2. A gap down from the previous day's close sets up for a stronger reversal move. 3. The day after the inverted hammer signal opens higher. 4. Large volume on the day of the inverted hammer signal increases the chances that a blowoff day has occurred.
Pattern Psychology After a downtrend has been in effect, the atmosphere is bearish. The price opens and starts to trade higher. The Bulls have stepped in, but they cannot maintain the strength. The exisiting sellers knock the price back down to the lower end of the trading range. The Bears are still in control. But the next day, the Bulls step in and take the price back up without major resistance from the Bears. If the price maintains strong after the Inverted Hammer day the signal is confirmed.

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