McGraw-Hill New York San Francisco Washington, D.C. Auckland BogoU Caracas Lisbon London Madrid Mexico City Milan Montreal New Delhi San Juan Singapore Sydney Tokyo Toronto [...]...Chapter 1 Japanese Candlesticks and You Once you become accustomed to using candlestick charts, you will find it disconcerting to be limited to a standard bar chart Without candlesticks, you will feel that you are not seeing the complete picture — that something is missing Besides providing the quick and easy pattern recognition, candlesticks have great visual appeal The data... see that the Japanese candlestick chart really does not display anything different from the standard bar chart However, once you become accustomed to seeing Japanese candlestick charts, you will prefer them because their clarity is superior and allows a quick and accurate interpretation of the data This matter of interpretation is also what this book is about Japanese candlestick charting and analysis... concerned Open, high, low, and close are all that is needed to do candlestick charting Many data vendors do not have open prices on stocks This problem can be addressed by using the previous day's close for today's open price This, however, presents a somewhat controversial situation and is thoroughly discussed in Chapter 6 Introduction When drawing candlestick charts by hand, the Japanese use red instead of... bottom Charting services also offer a number of popular indicators along with the bar chart Technical analysis software vendors gave the user a great deal of flexibility in displaying the bar charts The standard bar chart could be displayed with indicators, volume, open interest, and a large assortment of other technical tools appropriate for that software Chapter 1 Candlestick Charts Japanese candlestick. .. a single line or price bar; Japanese candlestick charting is no different, except that the information is so much more easily interpreted There is much information provided in a single candle line This will help in understanding the psychology behind the many candle patterns described in later chapters There are a few candle patterns that consist of only a single candlestick and also qualify as reversal... encdrnpass the shadows, but this is not always necessary A Star indicates some uncer- A candle pattern can be a single candlestick line or multiple candlestick lines, seldom more than five or six In Japanese literature, there is occasional reference to patterns that use even more candlesticks, but they will be included in the chapter on candle formations The order in which the candle patterns are discussed... closes much higher In fact the close is above the midpoint of the body of the long black day This action causes concern to the bears and a potential bottom has been made Candlestick charting shows this action quite well, where standard bar charting would hardly discern it The Piercing Line pattern reduces to a Paper Umbrella or Hammer line, which is indicative of a market reversal or turning point (Figure... the previous trend is immediate cause for concern The clear message of the Doji Star is an excellent example of the value of the candlestick method of charting If you were using close only or standard bar charts, the deterioration of the trend would not quite yet be apparent Candlesticks, however, show that the trend is abating because of the gap in real bodies by the Doji Star If the gap can also contain... the fact that there is no shadow extending from the body at either the open or the close, or at both Reference to long days is prevalent in most literature dealing with Japanese candlesticks Long describes the length of the candlestick body, the difference between the open price and the close price, as shown in Figure 2-1 A long day represents a large price movement for the day In other words, the open... the page (or computer screen), hardly the case with bar charts introduction For years, the only other price element used in bar charting was the close price The close was represented on the high-low bar as a small tick mark extending from the bar out to the right Recently, bar charting has incorporated the open price by another small tick on the left side of the high-low bar This stands true for almost . 1 Candlestick Charts Japanese candlestick charts do not require anything new or different as far as data are concerned. Open, high, low, and close are all that is needed to do candlestick charting. . solely as a method of displaying data, you will find them indispensable. Candlestick charting, candle pattern analysis, and candlestick filtering will give you an edge, a tool if you will, that. interaction between buyers and sellers. Japanese candlestick charting provides insight into the financial markets that is not readily available with other charting methods. It works well with either