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Candlesticks


    Brian Cox
    5/21/06
The Essentials
The greatest advantage to using candle
  on your charts, instead of bars is that
  single candle lines and multiple
  candle patterns offer more reliable,
  earlier and more effective reversal
  singles




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The Essentials
 Invented by the Japanese. Used first
  in the 1870s with the opening of the
  Japanese stock market.
 Can be used with the weekly, daily
  and 5 minute charts.
 Candlesticks do not give price targets
  and need a close to confirm candle
  signal

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The Essentials
 Before placing a trade based on a
  candle signal:
     other technical signals should be
      considered
     Consider the risk / reward of the trade.
 Candle charts are best used as a tool
  not a system.


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Construction
            Upper Shadow



White:                     Black / red:
Open low                   Open high
and close                  and close
higher       Real body     lower




            Lower Shadow
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Construction
                  Upper Shadow
     High = 37                    High = 37
     Close = 35                   Open = 35

White:                                  Black / red:
Open low                                Open high
and close          Real body            and close
higher                                  lower

   Open = 30                     Close = 30

    low = 29                     low = 29
                  Lower Shadow
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Construction Review
 The rectangular portion of the
  candlestick is called the real body.
 The thin line extending above the real
  body is called the upper shadow.
 The upper shadow of a black candle
  represents the range between the
  high and the session’s price.


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Construction Review
 The lower shadow of a white real
  body candlestick represents the range
  between the session’s open and low.
 The black real body means that the
  close was lower than the opening.
 The white real body means that the
  close was higher than the opening.


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Basic Market Strategies
 Candles play a powerful role in early
  reversal signals.
 Candle lines and patters confirm
  support and resistance.




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Basic Market Strategies
          Candles come in many different shapes




            Spinning Tops                  High Wave Candles
      Tends to indicate indecision   Tends to indicate confusion

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Basic Market Strategies
Spotting reversals




  Hammer             Hanging man      Shooting Star
 following a         following an      following an
 down trend            up trend          up trend
Bullish signal    Possible Bearish     Bearish signal
                       signal
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          Real Bodies can be black or white
Basic Market Strategies Review
 A long lower shadow on a daily charts
  shows the market bouncing off from
  the lows of the day.
 The spinning top is another name for
  a small real body.
 The real body of a spinning top can
  be black or white.
 A wave candle must have long upper
  and lower shadows
5/21/06                               12
Basic Market Strategies Review
   A spinning top indicates indecision.
   A wave candle indicates confusion.
   A hammer occurs in a downtrend.
   A hammer can be white or black.
   A hanging man occurs in an up trend.
   The confirmation for the hanging man
    is a close under the hanging man’s
    close
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Basic Market Strategies Review
 A shooting star occurs during an up
  trend.
 A shooting star is considered bearish




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The Dangerous Doji
 The doji can signal a significant trend
  shift or reversal.
 A doji forms when the opening and
  closing price are the same.
 There are bearish and bullish doji.
 Are valuable for calling the market
  tops (especially after a long white
  candle).

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The Dangerous Doji




    Long-legged Doji          Dragonfly Doji       Gravestone Doji

 Market in Balance           Possible Bullish        Bearish signal
  Rally could be                  signal
   losing steam

          The doji is more influential when it is a rare occurrence.

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The Dangerous Doji




          Northern doji   Southern doji



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The Dangerous Doji Review
 A doji forms when the open and close
  are the same.
 A doji signals that the bears and bulls
  are in stalemate.
 The dragonfly doji, the high of the
  session represents the open, high and
  close.
 The doji in a rally is sometimes a sell
  signal.
5/21/06                                18
The Dangerous Doji Review
 A doji in an uptrend is called a
  northern doji.
 The northern doji is most effective
  when the market is overbought and
  the doji appears at a resistance area.




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Long Real Bodies (Belt-Hold)
 Candles with extended real bodies
  can also display strong signals




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Belt-hold signs
           Bullish belt-hold         Bearish belt-hold

                                       Resistance




                     Support

  Bullish belt hold is white near support and bearish is black near
                              resistance
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The Dangerous Doji Review
 The bullish belt-hold; following a
  downtrend will starts low near
  resistance and raises up and closes
  out higher
 The bearish belt-hold; following a
  uptrend will start high near resistance
  and closes out lower.


5/21/06                                 22
The Belt hold Review
 The bearish belt hold becomes more
  signification as it nears resistance.
 The longer the height of the belt-hold
  candle, the more important the signal
  it gives.
 On the chart, we draw the support
  line from the bottom of the lower
  shadow.

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The Belt hold Review
 The smaller the real body, the less
  force the move behind the move.
 A series of long lower shadows as the
  market is descending shows that the
  market is descending reluctantly.
 On the chart, we draw the support
  line from the bottom of the lower
  shadow.

5/21/06                               24
The Belt hold Review




   If the trend is mostly higher, caution is warranted due to long
                            upper shadows




5/21/06                                                              25
The Power of Candle Patterns
 Candle charts are most powerful
  when two or more candle lines
  combine in a candle pattern.
 A dark cloud cover pattern is a
  bearish signal consisting of a two-
  candle patter that indicates a top
  reversal.


5/21/06                                 26
The Power of Candle Patterns
             Piercing Pattern    Dark Cloud cover




  White real body that closes     Follows a strong white body
     within the back body,       session. The second session
  perferably more than 1/2 of   opens above and closed below
       black body lenght          the center of the white body.
5/21/06                                                           27
The Power of Candle Patterns
              Bullish Engulfing        Bearish Engulfing




           White real body opens     Black body opens higher
          lower and closes higher    and closes lower than the
          than the black body (the
                                       white body (the bears
           bulls have taken over!)
                                         have taken over)

5/21/06                                                          28
The Power of Candle Patterns
Review
 As the second session of a piercing
  pattern pushes more and more
  deeply into the first candle, it may
  become a bullish engulfing pattern.
 The opposite pattern to the dark
  cloud cover is the piercing pattern.
 A piercing pattern is to a bullish
  engulfing pattern as a dark cloud
  cover is to a bullish engulfing pattern.
5/21/06                                  29
The Power of Candle Patterns
Review
 A bullish engulfing pattern occurs
  when at second session’s white real
  body raps around the prior session’s
  black body
 If an extremely large white candle
  completes a bullish engulfing pattern
  you should buy or sell based on the
  risk reward profile.

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          Candle Patterns Review



Lets see an actual set of candle stick
  patterns




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Candlesticks
                          What would you
                          Do now?


          End of Part I




5/21/06                                    32
Candlesticks
                          What would you
                          Do now?



          End of Part I




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Candlesticks
                          What
                          does this
                          indicate?

          End of Part I




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Candlesticks
                          What is this
                          called? (bearish
                          or bullish)

          End of Part I




5/21/06                                      35
Candlesticks


          End of Part I




5/21/06                   36
Candlesticks
                          Is it time to buy?


          End of Part I




5/21/06                                        37
Candlesticks
                          What will you
                          do now?


          End of Part I




5/21/06                                   38
                          What is the
                          name of this?


Candlesticks


          End of Part I




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Candlesticks

                          Buy? Sell?


          End of Part I




5/21/06                            40
Candlesticks

                          What is
                          this called?

          End of Part I




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Candlesticks
                          What is
                          the
                          direction?


          End of Part I




5/21/06                            42
                  Strong Resistance



Candlesticks


          End of Part I




5/21/06                               43
Candle Sticks


          End of Part I




5/21/06                   44

				
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