AI
Thursday, May 29, 2003 1:14:32 PM
Candlestick Epiphany
I spent a lot of time over the holiday studying candlesticks and discovered that the most commonly discussed patterns are pretty rare, while more common patterns that are seldomly discussed offer extremely valuable short term forecasting input.
The most common pattern I've found are contructed with just two candles and loosely fall into the category of engulfing candles. Bullish signals are given if:
A white candle is followed by a black candle where the real bodies are exactly (or almost exactly) the same and the close of the first candle is equal to the open of the second candle. I call this pair of candles "twins" and have use an "A" on the chart annotations.
The second variation differs only in that the close of the second, black candle is lower than the open of the first, white candle. To the purist, this isn't truly an engulfing candle because the close of the first candle is the same as the open of the black candle. I used a "B" to annotate these pairs.
Bearish patterns would be the exact opposite of the patterns described above. Note the emphasis on the length and location of the real bodies. I haven't noticed much significance in the length and location of shadows, EXCEPT at market bottoms.
Candles with long lower shadows, particularly black candles are very bullish. When the first candle of a bullish engulfing pair has a long lower shadow - especially on high volume, the likelihood that a rally will occur is extremely high. I categorize candles with long lower shadows in four groups:
1.Hammers
2.Umbrellas
3.Potatomashers
4.Bottlerockets.
The length of the real body determines the classification. Bottlerockets seem to be the most bullish.
To this point, I've looked exclusively at the $NYA. I intend to look at every day from 1990 to 2003 to determine rules on how these patterns should be used. Here's an example:
[J13091037,Y]>
[J9960081,Y]>
[J13091037,Y]>
[J13091428,Y]>
I spent a lot of time over the holiday studying candlesticks and discovered that the most commonly discussed patterns are pretty rare, while more common patterns that are seldomly discussed offer extremely valuable short term forecasting input.
The most common pattern I've found are contructed with just two candles and loosely fall into the category of engulfing candles. Bullish signals are given if:
A white candle is followed by a black candle where the real bodies are exactly (or almost exactly) the same and the close of the first candle is equal to the open of the second candle. I call this pair of candles "twins" and have use an "A" on the chart annotations.
The second variation differs only in that the close of the second, black candle is lower than the open of the first, white candle. To the purist, this isn't truly an engulfing candle because the close of the first candle is the same as the open of the black candle. I used a "B" to annotate these pairs.
Bearish patterns would be the exact opposite of the patterns described above. Note the emphasis on the length and location of the real bodies. I haven't noticed much significance in the length and location of shadows, EXCEPT at market bottoms.
Candles with long lower shadows, particularly black candles are very bullish. When the first candle of a bullish engulfing pair has a long lower shadow - especially on high volume, the likelihood that a rally will occur is extremely high. I categorize candles with long lower shadows in four groups:
1.Hammers
2.Umbrellas
3.Potatomashers
4.Bottlerockets.
The length of the real body determines the classification. Bottlerockets seem to be the most bullish.
To this point, I've looked exclusively at the $NYA. I intend to look at every day from 1990 to 2003 to determine rules on how these patterns should be used. Here's an example:
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
