Welcome to the art of reading markets
The Japanese Way ! ! ! SANJAY VED
Japanese Candlesticks •Japanese Candlestick analysis •Candle stick charts versus Bar chart Standard bar charts Candlestick charts
Candlestick charts Construction
Construction (continued) Bear day Open
Construction (continued) Bull day Close
Construction (continued) Doji
Types of days Big Days
Types of days Shaven Heads Open Morubozu
Types of days Spinning Tops (Koma)
Grave Stone Doji (hakaishi) •Construction long upper shadow closing is the same as opening • Psychology: It reflects that the bulls dominated the session after the opening but in mid session the bears became active and pushed the prices down. •Implication : Bearish if appears after a rally
Dragon Fly Doji (tonbo) •Construction: no upper shadow long lower shadow closing is the same as opening • Psychology: It reflects sellers(bears) dominated the market initially but after midsession the bulls forced the prices up and ultimately closed at the opening level.
Long Legged Doji (hakaishi) •Construction: long upper shadow long lower shadow closing is the same as opening • Psychology: It reflects indecision amongst buyers (bulls) and sellers(bears)
Hammer (tonkachi) •Scenarios and Psychology: The market has been in a downtrend and there is a bearish sentiment all around. Somehow the sell off does not take place, the bears feel uneasy as the recovery is swift and by the end of the session the prices recover to close near the opening levels. If the candle is bullish it is better. Confirmation is required with an open higher and a higher close would be ideal.
Hanging Man (kubitsuri) •Scenarios and Psychology: The market has been in an up trend and there is a bullish sentiment all around.But weakness seeps in. Prices do not remain firm, bulls feel uneasy and profit booking takes.Prices are pushed to lower levels.By the end of the session the prices recover to close near the opening levels. If the candle is bearish it is better.
Engulfing Bearish pattern (tsutsumi) •Scenarios & Psychology: After a sustained up-trend a white body appears with low volumes. The next day prices open at new highs and there is a sell off with high volumes and finally the day ends with prices ending below the previous days close. Emotionally, the up-trend is damaged. If the next day prices remain lower a reversal has occurred
Engulfing Bullish Pattern (tsutsumi) A down trend is in place when a small black body occurs and prices remain subdued and close at the lower end with low volumes. The next day prices open with a downward gap and huge buying emerges pushing the price up. This makes the bears nervous and they book profits fuelling a rally. At close the prices are above the previous days high. If the next day prices are firm the trend can reverse.
Bullish Harami (harami) •Scenario: •Down trend is in place for some time. A long black candle with average volumes is formed The next day prices open higher with a gap. Some bears, taken by surprise, cut their shorts causing the price to rise further. • Volume is high which suggests short covering. •Confirmation of reversal on the next day will be proof the trend reversal.
Bearish Harami (harami) •Scenario : •An up-trend is in place for some time with long white candle and huge volumes. • The next day prices open lower and stay in a small range closing lower but within the previous days real body. •This is the first signal for traders to be watchful specially if the volumes are low as it appears that the trend is about to change.
Piercing Line (kirikomi) •Scenario : •A long black body is formed in a downtrend which maintains bearish sentiments. An open the next day with a downward gap heightens the bearish scenario, but the market rallies all day and closes above the midpoint of the previous days real body.(ideal > 60%) with high volumes. •This market action causes nervousness amongst the bears and a reversal is around the corner.
Dark Cloud Cover (kabuse) •Scenario : •A long white candlestick is formed in an up-trend. The next day prices open with an upside gap indicating a strong opening. •Prices may or may not go higher, but at certain level nervousness seeps in followed by profit booking. This leads to prices closing well into the real body of the previous day. A reversal is on the cards. •If prices open below the close & remain that way for the rest of the day, the bears move into action to join the party.
(harami yose sen) •Psychology behind harami cross is the same as harami pattern. A trend is in place for some time and all of a sudden the prices are confined within the limits of the previous days real body. To make matters worse the prices close at the same level as the opening. •Volume is dry(low) reflecting indecision amongst both the bulls and the bears. Reversal is on the cards.
(sankawa ake no myjoyo) •Scenario : •A downtrend has been in place confirming the power of the bears who are in total control leaving no doubt that this action may ontinue further. The next day prices gap lower on the open, trade within the small range and close near the open(this signals a weakening bear grip). •The third day sees prices open with an upper gap and close higher. The bulls gear into action seeing the opportunity.
(sankawa yoi no myojyo) •Scenario : •An up trend is in place which is assisted by a long white candle. There is little doubt about the uptrend to continue. The next day prices gap higher and move in a narrow range only to close near the opening level. This small body shows the nervousness amongst the bulls and their inability to drive the prices up further. This also reflects indecision amongst the players. The next day prices are pushed further down.
Morning doji star
(ake no myojyo doji bike) •Scenario : •A down trending market is in place with a long black candle followed by a doji gapping downward. This shows indecision and a status quo between the bulls and the bears. • The next day prices open with an upward gap and maintain the upward trend signaling the shift of the power from the hands of the bears to the bulls.
Evening Doji Star
(yoi no myojyo doji bike minami jyuji sei) •Scenario : •An up trending market is in place with a long white candle followed by a doji gapping upward. This shows indecision and a status quo between the bulls and the bears. • The next day prices open with a downward gap and maintain the downward trend signaling the shift of the power from the hands of the bulls to the bears.
Upside gap two crows (shita banare niwa garasu)
•Scenario : •A white body occurs in an up-trend. The second day prices open with an upward gap and declines to close below the open to form a black day but higher than the first days high/close. •This is followed by a higher open and then drop to a close lower than the previous days close. •Though this close may be higher than the first days open the bullish sentiment has definitely taken a hit.
Other Patterns •Belt Hold Line •On Neck Line •In Neck Line •Separating Line •Thrusting Line •Shooting Star etc.
Recommended Books 1) Candlestick Charting Techniques
by Steve Nison
2) Beyond Candlesticks
by Steve Nison
3) The Art of War
by Sun Tzu
And lot of practice . . .
Japanese Candlesticks Presentation by : SANJAY VED [email protected]
Thank You ! ! !