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Japanese Candlesticks. Ron William Technical Analyst Email: rwilliam@investorsintelligence.com investorsintelligence.com. Brief History . Market timing , charting , behavioural finance & quantitative analysis .

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japanese candlesticks

Japanese Candlesticks

Ron William

Technical Analyst

Email:rwilliam@investorsintelligence.com

investorsintelligence.com

brief history
Brief History
  • Market timing, charting, behavioural finance & quantitative analysis.
  • Methodology dates back to 1600s, originally used by Japanese rice farmers to monitor and forecast crop prices.
  • Famous trader named Homma (aware of supply/demand links), realised the markets were strongly influenced by emotions.
  • Introduced to the west in 1990 by Steve Nison, a leading expert in candlestick analysis.
constructing the candle line
Constructing the Candle Line

BullishCandle White Real Body

BearishCandle

Black Real Body

High

High

Upper Shadow

Close

Open

Real Body

Close

Open

Lower Shadow

Low

Low

slide4

The Real Body is the essence

of market psychology

basic candles
Basic Candles

Long Day

Doji

Spinning Top

High Wave

1. Small real body

2. Colour not imp.

Prior trend weak

Open and close

are narrow/same

Market is tired

1. Small real body

2. Colour not imp.

3. Long shadows

Strong buy/sell

Midpoint used as

support/resistance

Indicates confusion

slide7
Doji

Criteria: Open and close are narrow or the same

Psychology: Market is “tired”

slide8
Doji

Silver (Weekly Chart)

Doji hints market is “tired”

5

3

4

2

1

slide9

Doji in box range

USD/ZAR (Daily Chart)

Series of doji within box range merely sets tone

single line
Single Line

Hammer

Shooting Star

1. Lower Shadow 2X

length of Real Body

2. RB at upper end,

colour not important

3. No/very small upper

shadow

4. Confirmed with a

strong bullish day

1. Upper Shadow 2X

length of Real Body

2. RB at lower end,

colour not important

3. No/very small lower

shadow

4. Confirmed with a

strong bearish day

Hammering a base

Trouble overhead

slide11

Hammer

GBP/USD (Daily Chart)

Support

shooting star
Shooting Star

Wheat (Weekly Chart)

Risk?

Selling on close

implies risking

the pattern high

Sell?

Preferred Sell

dual line
Dual Line

Piercing Line

Engulfing

Dark Cloud Cover

1. Downtrend evident

2. Session opens <

prior low

3. Bullish RB closes

>50% into bearish RB

1. Uptrend evident

2. Session opens >

prior high

3. Bearish RB closes

> 50% into bullish RB

1. Large RB wraps

around small RB

2. Opposite colours

3. Up/Down trend

Sentiment reversal

Sentiment reversal

Arresting control

slide14

Bullish Engulfing

Kuwait Stk Mkt (Weekly Chart)

dark cloud cover
Dark Cloud Cover

Palladium (Weekly Chart)

Midpoint

Sell

three line
Three Line

Evening Star

Morning Star

3 White Soldiers

3 Black Crows

1. Downtrend evident

2. Bearish session

is followed by

indecision.

3. Bulls close > 50%

into prior Bear RB

1. Three bullish RB’s,

all of similar size

2. Prior trend is down

3. Each session opens

with recent RB &

closes near high

1. Three bearish RB’s,

all of similar size

2. Prior trend is up

3. Each session opens

with recent RB &

closes near lows

1. Uptrend evident

2. Bullish session

is followed by

indecision.

3. Bears close > 50%

into prior Bull RB

Downtrend

Upside reversal

Downside reversal

Uptrend

western charting
Western charting

Optimises and confirms

Price targets

  • Support and Resistance
  • Trend-lines
  • Price Patterns
  • Moving Averages
  • Oscillators
  • Elliott Wave
moving averages
Moving Averages

Gold (Weekly Chart)

Hammer

Piercing Line

High-wave

70-week average

Piercing Line

price patterns
Price Patterns

Soybean (Daily Chart)

3 White Soldiers

Shooting Star

Shooting Star

3 White Soldiers

Morning Star

Bullish Engulfing

3 White Soldiers (variant)

confluence
Confluence

EUR/USD (Daily Chart)

61.8%

50%

Measured Objective

38.2%

relative strength index
Relative Strength Index

CRB (Weekly Chart)

slide22

Bollinger Bands

Oil (Daily Chart)

Bearish Engulfing

Hammer

Hammer

Dark Cloud Cover

Dark Cloud Cover

Bullish Engulfing

High-Wave

Hammer

elliott wave
Elliott Wave

(3)

Gold (Daily Chart)

(4)?

(1)

(2)

slide24

Corrective Wave (4)?

Gold (Weekly Chart)

(3)

Dark Cloud Cover

Hanging Man

(4)?

Hammer

Piercing Line

trading rules
Trading Rules
  • Wait for the session’s close to confirm
  • DO NOT use candles in isolation
  • Always consider Risk/Reward ratios before placing a trade with a candle signal
  • Candles DO NOT offer price targets
  • Remember the importance of stops
slide26

Human Emotion Drives the Market

Candle Analysis Unrivaled in Gauging Market Psychology

Presentation slidesdesigned by Ron William