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PROFITABLE CANDLESTICK TRADING PDF

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PROFITABLE CANDLESTICK TRADING Pinpointing Market Opportunities to Maximize ProfitsStephen BigalowJohn Wiley & Sons DOWNLOAD PDF. Wiley, p. Japanese candlestick charting and analysis is one of the most profitable yet underutilized ways to trade the market. Signals. His published book,. PROFITABLE CANDLESTICK TRADING: PINPOINTING MARKET OPPORTUNITIES TO MAXIMIZE. PROFITS, incorporates the common.


Profitable Candlestick Trading Pdf

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I want to thank you very much for requesting Candlestick Trading for. Maximum Profits! My goal in this course will be to give those somewhat familiar with. PDF | This article investigates the profitability of candlestick patterns. The holding Keywords. technical analysis, trading rule, candlestick, charting pattern. “Profitable Candlestick Trading” book, a signal is the cumulative knowledge of all (see “Big Profit Patterns Using Candlesticks Signals and Gaps”) the strength.

Through the years, the number of people who have become proficient users of Candlestick analysis has been minimal. Nearly two decades of using the signals have produced two basic revelations: One of the most powerful investment techniques has been sitting in front of the U.

Years of informal surveys have reached this conclusion. There is a definite perception about Candlestick trading. It is seen as requiring a long time to learn and become proficient at it. That is the major reason the majority of investors have stayed away from Candlesticks. That misconception is what spurred the writing of this book.

Other books on the topic were written nearly a decade ago. Those books were informational and well written, however, they were published in somewhat of a vacuum.

Once the books were read, each investor was out there on his or her own. The number of people to confer with after first becoming exposed to the Candlestick method was minimal.

The ideas were new in the United States and there were few places to turn to for guidance. For the past two decades, most investors have been aware of Candlesticks. This is due to the favorable visual impact. The illustrative properties of the Candlestick chart make viewing much easier. Four hundred years of research by profitable Japanese rice traders was the inception of statistical analysis. What may take computers one afternoon to ix x Preface perform, the Japanese rice traders assembled over centuries of time.

However, there is a definite benefit involved with human interpretation of these signals. The Japanese traders were able to describe the investor sentiment behind the formation of the signals. This becomes an extremely powerful asset for exploiting profits from markets that involve human emotions. Being thoroughly convinced that Candlestick analysis surpasses all other technical analysis induced me to eliminate the misperceptions.

Japanese Candlesticks is definitely not a passing fad. It is here stay and effectively extract profits from the trading markets—profits for those who take the little time required to become acquainted with the Candlestick thinking process. Not only does the knowledge of what a signal looks like benefit the candlestick educated investor, but learning the common-sense psychology that formed the signal provides the investor with a whole new perspective into successful investing.

Somebody is making huge profits in the markets. It is not the conventional wisdom advocates, download and hold. The big winners are those who have developed successful methods for interpreting when to download and sell. Candlestick analysis is that method. Read this book and your investment abilities will be forever improved, improved to the point of not just constantly exceeding market averages, but being able to exploit the indications of the signals to amass extraordinary profits.

Once you learn the Japanese Candlestick technique, your understanding of how investment markets work will dramatically alter your investment psychology. The probabilities of producing magnificent profits will always be in your favor. Learn Candlesticks and reap the knowledge that has led to centuries of successful trading.

Japanese Proverb Japanese Candlestick analysis is a highly effective, but under-used investment decision-making technique. Candlestick charts reveal many insights using wellrecognized Japanese candlestick formations, yet few people understand the ramifications or significance of the signals that are clearly and reliably displayed. This book was written to educate investors on how to use the Japanese Candlestick technique profitably.

The easy-to-follow procedures detailed in this book provide the reader with profit-making techniques that can be learned quickly. While this may sound bold and far-fetched, fortunes have been made using the Japanese Candlestick techniques.

This newly acquired perception will produce consistent profits along with an associated mental re-programming designed to maximize investment returns. Once an investor becomes convinced of the reliability of the Candlestick methodology, that investor also acquires a preprogrammed investment discipline. Most readers will be surprised at how the knowledge gained from a close reading of this book dramatically enhances investment abilities across all investment vehicles and over all trading timeframes.

Mastering the candlestick methodology will be the next major step for maximizing investment returns. Why, if the signals demonstrate such a high degree of accuracy, are there not many more investors, 1 2 Profitable Candlestick Trading whether institutional or individual, using these signals? The answer is that the Candlestick technique in the past has been too labor-intensive and required a long and steep learning curve before the investor gained proficiency.

This book was written to provide the reader with an easy and fast training program to circumvent those obstacles. The Benefits from the Candlestick System Japanese Candlestick signals possess one major attribute that is not present in other technical systems: The signals are created by the change in investor sentiment. This point is the crux of the success of Candlestick analysis. Again, to emphasize the importance of what you have just read: Understanding this truism will make it easier to acclimate your investment psychology to this successful trading discipline.

The secrets of the effectiveness of the signals can be learned in a fast and easy process. An investor does not need to be knowledgeable about technical charting to take immediate advantage of the signals.

The graphical formation of a signal makes reversals immediately visible. A Candlestick formation provides a visual graphic of investor psychology during a specific time period. For the purpose of illustration in this book, the standard timeframe is one day, and the trading entity is stock—equity as opposed to commodity.

Investment strategies can be structured, of course, for whatever time period is suited for your trading style: Applicable trading instruments include any vehicle that has the key elements of investor fear and greed. The graphics of a Candlestick chart have greater appeal than Western charts commonly known as bar charts. The amount of data displayed is exactly the same, but the ease of visual interpretation is dramatically different.

The immediate representative depiction of price movement as the result of investor sentiment is visually in front of you. Recognizing the change in investor sentiment is made easier when the graphics are clear and easy to understand. Once you become accustomed to the Candlestick charts, all other charting will seem diminished in terms of effectiveness.

Candlestick signals, incorporated with other types of charts, fine-tune the reversal identification process.

Watch your profits soar by simply combining Candlesticks with basic technical charting methods. A Successful History Knowing the history of the formations inevitably imparts confidence in the Japanese Candlestick technique. Japanese rice traders developed the system Introduction 3 over a year period.

Logic dictates that a system that has persevered that long must have credible features. The history of the rice traders that developed the signals reinforces that assumption. With its years of development, the Candlestick methodology got its major refinement in the mids. Adopted by the Honma family, he became known as Sokuta Honma. His successful interpretation of the candlestick formations made him the most feared and respected rice trader in Japan, and the wealth he produced for his family became legendary.

Success is a ladder that cannot be climbed with your hands in your pockets. And in Edo Tokyo , it rains. The Market Sanmi No Den rules can be summarized as: Without being too greedy, analyze the time and price ratio by reviewing its past movements.

Aim at selling at the ceiling and downloading at the bottom. Increase the position after a rise of bags from the bottom or bags from the top. The price stayed the same; the volume measured in bags changed in those days. If a trade is not working, analyze it as fast as possible. Once it is discovered to be a bad trade, liquidate it immediately and rest before putting on the next trade. Liquidate 70 to 80 percent of a profitable trade, liquidating the remainder after the price has indicated a top or bottom.

Rules D and E represent investing philosophies. Although, Honma did not originate Candlestick analysis, his rules and philosophies gave the technique credibility. When in his early 50s, Honma wrote rules that became the cornerstone of Japanese Candlestick analysis, as well as the basis for Japanese investment disciplines. His use of 4 Profitable Candlestick Trading three-period patterns is the foundation for Japanese charting, along with other Western charting practices.

Through Candlestick recognition, the name Sokyu Honma is associated with successful investing in Japan, as the name Bill Gates is associated with successful computer program marketing in the United States.

Consult the Market about the Market When analyzing the market, pay attention to the market movement itself— in other words, consult the market about the market. The would-be investor has to follow the market movement like the cat that wishes to catch the mouse. Charts reflect the past. Repeating patterns are not percent accurate, but visually verifiable probabilities can adjust the odds immensely in your favor. Identification of certain events provides a basis for predicting an occurrence.

The same historical observations have made Candlestick signals highly accurate. Candlestick Charts Versus Bar Charts After using the Candlestick charts, you will find that bar charts do not provide the same clarity.

Despite the fact that the exact same information is being conveyed, the Candlestick charts, through greater visual appeal, provide information that is more communicative than bar charts. Candlestick patterns allow the investor to identify pertinent information in a relatively fast and unencumbered manner. Bar Charts A vertical line, seen here in Figure 1. The top of the line is the high of the daily trading range; the bottom is the low of the day.

A notch to the right side of the line represents the closing price. In more recent years, a notch has been added to the left side of the line to designate the opening price. Opening prices have not been as readily available in stock transactions until a few years back.

Futures and commodity charts have had access to this information for a longer period of time. Internet charting services and software vendors provide a large number of additional technical indicators along with the charts. Fortunately, we are living in a time when software packages are constantly being developed to provide more and more technical information.

Upon becoming accustomed to the Candlestick charts, an individual can fine-tune the probabilities of successful trades many times greater than what the capabilities would have been just a few short years ago. Candlestick Charts Using the same information provided in a bar chart, Japanese Candlestick charts provide immensely more illustrative graphics. As in bar charts, the open, close, high, and low are all that is required. Yet, the manner in which they are depicted provides a great amount of information to the Candlestick analyst.

Forming the Candlesticks Horizontal lines represent the open and the close. See Figure 1. Once both lines are added to the chart, they are boxed.

This box is called the BODY. If the close is higher than the open, the body is white or empty. If the close is lower than the open, the body is black or filled. The body color only illustrates where the close was compared to the open. The contrasting colors of the bodies provide for rapid visual interpretations. A declining column of dark candles interrupted by the appearance of a white candle attracts the attention of the eye immediately.

This is something that would not occur when viewing conventional bar charts. The lines extending from the body represent the extremes of the price movement during the day. These are known as the shadows. The shadow above the body is known as the upper shadow.

In some Japanese analytical circles, the upper shadow is also described as the hair. The shadow below the body is known as the lower shadow or the tail. The length of the shadows has important implications to the strength of reversal moves. The bodies with shadows look much like candles—thus the name Candlesticks.

The information provided by the formations puts the Candlestick analyst giant leaps ahead of other technical analysts.

Best Candlestick PDF Guide – Banker’s Favorite Fx Pattern

The colors of the boxes are not important. For visual clarity, white and black easily show contrast. Some computer software uses green for up and red for down. The purpose of the chart is to provide a clear indication of what signals are being formed. Figures 1. Once you have become accustomed to the candlestick charts, the visual aspects of the candlestick charts will make all other charting techniques seem obsolete.

Introduction Figure 1. Figure 1. Investor fear and greed create the signals.

Knowing this information creates a frame of mind to anticipate how formations might be developing. That simple. Yet reality reveals over and over that John Q. Public is going to download a stock after it has already made a major move upwards. This decision is based on greed.

You can see the evidence for yourself as the daily price range expands and the volume increases at the top of up moves. Conversely, rational investment decisions are overpowered by fear when prices reach the lower end of their decline. When prices are getting lower, common sense says to be downloading.

However, the same expansion of daily volatility and volume can be seen as investors get panicky. It is at these stages that the Candlestick signals will enable you to make inordinate profits. Observing uniquely accurate Candlestick signals will provide you with a much more positive investment frame of mind. Doubt and fear will give way to confidence.

Knowing that a signal creates a high probability occurrence allows you to make rational, not emotional decisions about your portfolio.

There is a time to take counsel of your fears, and there is a time to never listen to any fear. General George S. Each day the stock price goes lower and lower. Finally, everybody just wants out of the stock at any price. Fear now takes control.

The stock price gaps down the next day on big volume. Investors are finally relieved of the pain and fear of holding that stock any longer. Note after the long decline shown in Figure 1. Candlestick analysis allows investors to be prepared and profit from these moves. Introduction 9 Figure 1. Improve Investment Skills Permanently Japanese Candlestick analysis will improve your investment skills permanently.

Knowing how investors react to price movements provides the Candlestick analyst with powerful advantages. First, the knowledge of what bottoming signals look like keeps the investor from grabbing for the falling knife. Patience is essential while waiting for a signal.

Secondly, Candlestick investors now have an investment platform for downloading at the bottom and selling at the top. Knowing that bottoming signals occur with a high degree of accuracy takes the emotion out of getting into or out of a position.

Looking for signals to occur at the low end of a trading range creates an unemotional discipline. The risk factors are greatly diminished when downloading at the bottoms and selling at the tops.

Yet this practice is not taught at any institution of learning. The experience most investors obtain to become reasonably proficient investors, unfortunately comes from the school of hard knocks. Apparently, some people get a handle on good discipline much easier than others do.

Otherwise, everybody would be doing well in the markets. But for those who require a stronger framework for establishing a good investment regimen, the 10 Profitable Candlestick Trading Japanese Candlestick method has those qualities.

Not only does the methodology direct you to download at the bottoms and sell at the tops, it gives you the background psychology that makes you understand why a reversal is occurring. Becoming a Profitable Candlestick Investor Most investors do not have an investment plan. This is simple to confirm. Ask friends and associates how they find their investment picks.

The answers will range across the board: On top of it all, it is usually a combination of these and many other mishmash approaches. The performance is inconsistent. To make matters worse, if the performance is decent, there usually is no way to measure the successful sources. This book will provide you with strategies that will dramatically increase your investment returns.

You will be exposed to techniques that teach you how to remember and utilize the signals, quickly. Again, the point is to educate you in an efficient, yet expeditious manner.

There are other books on the market that will be recommended for your full learning process. Those books will be more descriptive in how the signals were named and the psychology behind their formation. The primary value of this book to you is learning how to produce consistent profits from the signals. This book is divided into two sections. The second section focuses on how to maximize profits.

This includes trading strategies that minimize the downside risk. You will learn how to close out losing trades with minimal loses and no emotional attachment. At the same time, profit maximization procedures and philosophies will be demonstrated when closing out profitable trades.

How do I maximize profitability? There are always rationalizations that move away from this vital outlook. Whether one is managing money for others or whether they are managing their own funds, the same basic question should arise each time an investment decision is required: The cultivation process is directed to finding the best place for investment funds.

This step-by-step procedure explained in Chapter 9 builds in a self-directing discipline for maintaining profit maximization. To enhance those probabilities, you will have the benefit of reading about subtle signal variations that will keep you from losing money. You will be exposed to common mistakes that can be avoided when producing a profit maximization program. This book introduces you to software programs with excellent search capabilities.

You will be exposed to search formulas that produce highly profitable trade situations in a matter of minutes. Stepby-step trade implementation procedures describe how to place all the probabilities in your favor. This is a powerful, common sense trading process that the signals create for the candlestick-educated investor. Not only does Candlestick analysis provide a mechanical investment game plan, it produces a blueprint for establishing a non-emotional investment procedure.

Fundamental Analysis Versus Technical Analysis Fundamental analysis influences 90 percent of all investment decisions. For the long-term investor, it is the reasonable basis for committing long-term funds. Yet, is it the way to maximize returns? Consider what is involved when analyzing the future potential of a stock price.

Is the management capable? Is the product line sustainable? What are their competitors doing? How are government regulations affecting this industry? Any one of many fundamental elements can change at any time, creating a reversal in the growth potential of a company. The stock market has averaged approximately 12 Profitable Candlestick Trading an 11 percent return annually over the course of history. These statistics have been skewed during the past four years. Until , the market never had more than two years in a row of double-digit growth.

Most investors today have not experienced a severe bear market. A bear market does not give a hoot about fundamentals. When the market tide goes down, all corporate ships are lowered. Conversely, the worst stocks in the world can get a boost when the markets are skyrocketing. Perception — The Major Investment Truism One truism about making money in any market is that perception overpowers reality. Even during periods of great economic growth, holding on to the stock of fundamentally sound companies may not make you any richer.

If investors perceive that better profits can be made elsewhere, that is where the money is going to go. It may be true that you make more money by holding a good fundamentally sound stock for the long term, provided that the only alternative is to hold non-fundamentally sound stocks for the same timeframe. If your intent is to maximize portfolio growth, the logical method of investing includes downloading what has the most upside potential today.

That brings us back to investor perception. The Candlestick signals identify where investor funds are going today, this week, this month. The Candlestick signals pinpoint the turns in investor sentiment.

Using this knowledge produces trading strategies that minimize downside and maximize upside probabilities. download on the Rumor If it is obvious, it is obviously wrong. Joseph Granville How often have we witnessed a company announcing good earnings or a beneficial contract or disclosing information that would appear to be advantageous for the stock price, yet the price of the stock immediately declines?

A major advantage of identifying Candlestick signals is the lack of need to maintain expansive information networks. Introduction 13 A Candlestick download signal provides you with the knowledge of when the downloaders are stepping into a stock. You do not need to know why that is occurring. The only fact that should concern an investor is what stocks are going up and what stocks are going down. A Candlestick download signal represents the probability that this stock is positioned to make you money.

The Candlestick signals identify that action. But how do you determine whether the news is more or less of a surprise as to what was anticipated? That can be easily determined by the candlestick that is formed, putting you days, sometimes weeks, ahead of the rest of the investment community. A gap down, at the bottom of a trend resulting from bad news, may not indicate the time to download.

A blackbodied candle formation that day means something completely different than a white-bodied candle. This will be dealt with in detail in Chapter 9.

Where did you learn how to invest? Where does anybody learn how to invest? There are no official courses that are taught to investors. In school, we are taught about the different investment vehicles and strategies.

But there are few forums for teaching the actual psychology of a professional investor. Even if there were a qualified investment education program, teaching the emotional disciplines may be nearly impossible.

Experience is the major factor when becoming successful in most investment disciplines. Experience is the only education for developing the proper mental process. This is the most difficult hurdle in the path to proficient investing practices. Investing and love are in the same category: Despite any amount of logical reasoning, intellectual analysis, and preplanning in a decision involving either, emotion takes over as the dominant component.

The power of investment discipline can be harnessed. Investment rationale, which is the foundation of Candlestick formations, is implemented in a sensible and logical methodology. Reading this book will expose you to highly defined pattern recognition techniques. With this knowledge, an investor—whether a beginner or vastly experienced—can employ the basics of investment logic in a calculated program. Was there a point in your investment life where you decided to make a study of the most successful investment programs?

If so, did you sit down and consciously investigate strategies and learn how to use specific trading philosophies? Unfortunately, most investors start their investment programs because they have a little money to invest. Where do they turn for investment advice? A stockbroker, banker, parent, friend, investment newsletter service, or a multitude of sources, some of whom probably started out the same way they did.

Beginning investors are looking for somebody to direct them about where to find a good investment, not a good investment strategy. Who do you blame when you sell out of your profitable positions too early because you are afraid they will pull back and turn into losses? Or you hang on to your losing positions as they ratchet down, each little up-tick giving you hope, but finally sell out at the bottom because the pain is too great?

Profitable Candlestick Trading: Pinpointing Market Opportunities to Maximize Profits

Emotion is eliminated. This book will put you in the position of feeling confident that the vast majority of your investment positions will work. You will be able to sleep well every night.

You will learn to quickly identify the trade that is not working, immediately liquidate it, and then put those funds into the next position where the probabilities are greatly in your favor. Learn How to Fish Many people spend more time and energy on downloading a car than they do in researching how to build their financial wealth. And there is a good explanation for that.

downloading a car, even finding out that you paid too much for it, ends with the decision process. You own it. You paid too much for it. Too bad! Now life goes on. The investment decision has a constant decision-making aspect to it. Each month, week, day, or minute has the potential for making another decision. The decision-making process required for producing good returns on your portfolio is a constant and scutinizable activity, one that can have many embarrassing throwbacks, such as downloading at the peak, selling out at the bottom, picking the wrong company in an industry, selling too early, or selling too late.

Without the use of a definable investment strategy, most investors Introduction 15 go through life hoping that their investment decisions are going to work out. They had no game plan going in; they usually have no game plan for exiting. The Candlestick signals work equally well on both sides of a trade. They are as accurate for showing when selling comes into a stock price as they are for showing when downloading comes into a position, thereby enabling investors to control their entry and exit strategies.

Human Emotion Why do most investors repeatedly make the same trade mistakes? That great bugaboo emotion. Investment logic and investment emotions create a vast decision-making divergence. Have you ever analyzed a stock situation, whether fundamentally or technically, and planned your entrance and exit strategies thoroughly before putting on the trade? Once the trade is on, the circumstances that you analyzed occur, but all the preplanning for the establishment of the trade now disappear.

This phenomenon is a common occurrence among investors—easily explained, but hard to overcome: We all think we are intelligent. We analyze an investment situation and put our stamp of intellectual prowess on the line.

downloading a stock position immediately declares that, with the same investment criteria available to everybody else, we have made a statement, subconsciously, that our analytical abilities are better than the average investor.

Of course, when a stock price moves against us, that is just a temporary misreading of the market factors. Man who toot in church sit in his own phew. Ego—Our Investing Hurdle Part of our minds—our egos—assure us that our assessments were correct and everybody else will eventually see this stock price moving in the direction that we first anticipated. Unlike making a decision to download a car, a book, a vacuum cleaner, or anything else that required a one-time decision about the expenditure of funds, investments have an additional emotionally debilitating element.

The decision process continues each tick after the initial download. You download a stock and the price immediately goes down. Do you sell it here or is it at the bottom?

It keeps going down, the same question occurs every day, every tick. Conversely, the stock price is going up. Is it time to take profits? How embarrassing it would be if it went back down to where you bought it. Or worse, if after it was up at this price, you eventually sold the position 16 Profitable Candlestick Trading for a loss. Each position becomes an emotional conquest—your intellect versus the rest of the market players.

Man is the only kind of varmint that sets his own trap, baits it, and then steps in it. John Steinbeck Candlestick formations take the emotional factors out of investing. In Chapter 7, you will learn how to take the emotion out of owning each individual position. The signals provide a discipline that can be inherently adhered to.

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If you follow the signals, the percentage of correct trades becomes more evident as you invest. If you trade against what the signals are indicating, common sense or investment pain will readily illustrate that you need to follow the signals. The percentage of correct trade results, produced from properly analyzed signals, will reinforce a trading platform that you will learn to follow faithfully. What is the optimal trading system?

What trading program will eliminate the flaws that we each have in our investment psyche? How can we find the investments that will produce profits NOW?

When do we get in? When do we get out? Using any trading discipline will produce greater returns than the normal non-structured investment approach. Using the Candlestick signals, however, will produce a greater profit-potential investment strategy than you can imagine. Hundreds of years of honing the visual identification process —the initial form of statistical analysis—provide a well-founded investment stratagem. You can reasonably assume that the percentage of positive results from Candlestick signals is significantly worthwhile.

Otherwise, those signals would not be in existence today. Additionally, it is extremely useful to implement a trading strategy that can be documented and analyzed. Each new trade provides an analytical tool. What went right with this trade? What went wrong with this trade? The post trade results can be compared to existing results produced by similar signal formations.

An investor should be able to evaluate each trade in order to better the results of the next trade. Being able to identify the potential of a highprobability trade, days ahead of the other market participants, has obvious advantages. The downside risk is reduced.

The signals alert you to the first change in investor sentiment. You get into and out of positions before the Introduction 17 masses. Upside potential is enhanced, exploiting the next round of downloading by the investment analysts. Candlesticks provide all of the elements needed for successful investing: They are accurate enough to still be in use years after their beginning. They eliminate emotion and instill discipline.

They enhance existing technical methods. They tell you when to get into and out of a trade. Once you finish this book, your mental investment procedures will be radically altered. Mastery of the Candlestick technique will provide the mindset of a successful professional investor. You will also gain valuable insights into human nature. You will be able to cash in on low-risk, highpotential opportunities overlooked by the common investor.

The inherent nature of the signals instills common sense disciplines. You are about to be exposed to the most refined signal generating system in all of financial history. Hundreds of years of observation have produced results with a system that has thrived through the centuries.

Are you tired of settling for mediocre returns? Does the rationale of losing less than what the indexes lost not impress you anymore? Do recommendations from major Wall Street brokerage firms appear to have lukewarm potential by the time they are presented to you?

Why settle for watered down investment programs when you can pinpoint exact bottoms and tops? Why forego profit potential that can be extracted from the markets directly into your pocket?

The effort required to master the Candlestick technique is minimal when going about it in a structured manner. Practical insights derived from the visual aspects of the signals will point out the real profit potential of investing. The following chapters explain the formations, the psychology behind the formations, and give illustrations of the signals.

Read these sections at your own pace. It is not necessary to remember each signal and the psychology behind it to a high degree. Learning how the signal is created aids in remembering the signal, but it is not required for making profits. Of the 40 or so signals, there are approximately ten major signals. Become familiar with what the signals look like. Later chapters outline the process for learning the signals easily and rapidly.

And those who look only to the past or the present are certain to miss the future. John F. Kennedy The most valuable aspect of technical analysis is the recognition of reversal points. Japanese Candlestick analysis puts the probabilities on your side. To drive the point home, the signals are the results of hundreds of years of visual recognition of successful reversals.

The ability to identify technical clues that put the probabilities in your favor is the ultimate function of technical analysis. Western charting has patterns that indicate reversals of major trends. Head and shoulders, double tops or double bottoms, and island reversals are formations that have exhibited high degrees of accuracy for identifying change in the current trends. Being familiar with the psychology behind specific candle formations provides immense advantages.

Candle signals can identify a trend reversal in one day. More often, the Candlestick signals can forewarn when a trend is preparing to change. Using the analogy of a steam locomotive as a trend, most trends do not reverse on a dime. If a train has to reverse direction, there are logical indications. First may be a whistle, then the rhythm of the wheels can be heard to slow down.

Steam may shoot out the sides as the brakes are applied. The wheels start squealing on the rails. All these signs give you the belief that the train is coming to a stop. The Candlestick signals give investors similar indications. A major trend will probably not have a one-day reversal. It may take a few days or weeks for the force psychology of investors to expend itself and reverse direction. The appearance of a reversal signal alerts the investor that a change of investor sentiment is occurring or is about to occur.

Viewing a sell signal at the top of a long uptrend should inform you that the trend might now be losing stream. Will the trend continue up from here? But not with the same potential as putting your investment funds elsewhere.

The force of the trend may still take prices higher. However, with the indications that the sellers may be stepping in, the strength of the uptrend should be greatly diminished.

The investor can now be preparing for the appearance of the next sell signal. Will the trend reverse and go back the other direction? That will take more signals to confirm. See Figure 2. The trend may go flat for a while. Or waffle in a range. You will want to monitor the situation, looking for a strong sell signal. In the meantime, you have dozens of other excellent Candlestick potentials to shift money into on any given day.

With these principles in mind, review the rest of this chapter. The signals themselves are to be learned by simple visual remembrance. Do not be greatly concerned with trying to learn each and every one. Chapter 5 demonstrates techniques that will help you learn and remember the signals. The first 8 or 10 signals produce the majority of trade potentials. Just those signals alone provide most investors with more trade opportunities than what they can use each day. Candlestick Formations Japanese Candlestick charting dramatically increases the depth of information conveyed for visual analysis.

Each formation or series of formations can clearly illustrate the change of investor sentiment. This process is not apparent in standard bar chart interpretation. Each candle formation has a unique The Reversal Pattern 21 name. Some have Japanese names; others have English names.

When possible in this book, the English name and Japanese name are given.

The Japanese names are shown in Romanji writing so that English-speaking people can say the names. Single candles are often referred to as yin and yang lines. These terms are actually Chinese, but are used by Western analysts to account for opposites: Inn and yoh are the Japanese equivalents. Yin is bearish. Yang is bullish. There are nine basic yin and yang lines in Candlestick analysis. These are expanded to 15 to cover all possibilities clearly.

The combination of most patterns can be reduced to one of these patterns. Long Days The long day shown in Figure 2. Long represents the length of the candle body. What qualifies a candle body to be considered long? That is a question that has to be answered relative to the chart being analyzed. The recent price action of a stock determines whether a long candle has been formed. Analysis of the previous two or three weeks of trading should be a current representative sample of the price action.

Figure 2. Short Days Short days shown in Figure 2. There is a large percentage of trading days that do not fall into either of these two categories.

Marubozu In Japanese, Marubozu means close-cropped or close-cut. Bald or Shaven Head is more commonly used in Candlestick analysis. Its meaning reflects the fact that there are no shadows extending from either end of the body. Black Marubozu The long black body with no shadows at either end shown in Figure 2.

It is considered a weak indicator. It is often identified in a bearish continuation or bullish reversal pattern, especially if it occurs during a downtrend. A long black candle could represent the final sell off, making it an alert to a bullish reversal setting up. This is an extremely strong pattern. Consider how it is formed. It opens on the low and immediately heads up. It continues upward until it closes, on its high.

Counter to the Black Marubozu, it is often the first part of a bullish continuation pattern or bearish reversal pattern. It is called a Major Yang or Marubozu of Yang. The Reversal Pattern 23 Figure 2. A white body does not have a shadow at the top. A black body does not have a shadow at the bottom. In both cases, these are strong signals corresponding to the direction that they each represent.

A white body would not have a shadow at the bottom end; the black candle would not have a shadow at its top end. Though these are strong signals, there are not as strong as the Closing Marubozu. This demonstrates some indecision on the part of the bulls and the bears. They are considered neutral when trading in a sideways market.

The size of the shadow is not as important as the size of the body for forming a Spinning Top. Doji The Doji shown in Figure 2. It is formed when the open and the close are the same or nearly the same.

The lengths of the shadows can vary. The longer the shadows are, the more significance the Doji becomes.

More will be explained about the Doji in the next few pages. The Reversal Pattern 25 Stochastics Before going into the description of the signals, an explanation of stochastics is in order.

The effectiveness of Candlestick signals is greatly enhanced when download signals occur in oversold situations and sell signals appear in overbought situations. The best indicators for establishing overbought and oversold criteria are the stochastics. Stochastics were developed many years ago by George Lane.

They are oscillators that measure the relative position of the closing price compared to the daily trading range. Simply stated, where is the close relative to the range of prices over the last x trading periods? Stochastics are a function of some simple observations. Closing prices have a tendency to close near the higher end of a daily trading range as an uptrend gains strength.

Conversely, closing prices close near the lower end of a daily trading range as a decline picks up strength. This makes stochastics unique from most oscillators. Most oscillators are normalized representations of relative strength, the difference between the close and the current trend. However, when used in combination with the Candlestick signals, the signal will be viable when the stochastics are in the extreme ranges.

The function of the chart patterns is to provide a clear visual signal. As you read through this section, try to remember the physical attributes of the signals. This is what you will use when analyzing charts. The following section will be broken down into two segments: The difference between the two is a combination of the frequency that they appear and the reversal-probabilities produced by their appearance. The Japanese say when a Doji occurs, one should always take notice.

It is one of the most important Candlestick signals. The formation is created when the opening price and closing price are the same. This forms a horizontal line. The implication is that the bulls and the bears are in a state of indecision. It is an important alert at both the top and bottom of trends. At the top of a trend, the Doji signals a reversal without needing confirmation. The rule of thumb is that you should close a long or go short immediately.

However, the Doji occurring during the downtrend requires a bullish day to confirm the Doji day. The Japanese explanation is that the weight of the market can still force the trend downwards. The Doji is an excellent example of the Candlestick method having superior attributes compared to the Western bar charting method. The deterioration of a trend is not going to be as apparent when viewing standard bar charts.

Criteria 1. The open and the close are the same or nearly the same. The length of the shadow should not be excessively long, especially when viewed at the end of a bullish trend. Signal Enhancements 1. Large volume on the signal day increases the chances that a blowoff day has occurred although it is not a necessity. The Reversal Pattern 29 3. It is more effective after a long candle body, usually an exaggerated daily move compared to the normal daily trading range seen in the majority of the trend.

After the trend move and the price opens at a level, the bulls and the bears move the price up and down during the day. By the end of the day, the price closes at or close to the level that it opened. This state of equilibrium now has the controlling group in some doubt. The opposite group builds up confidence that the trend has lost steam.

The price opened and closed in the middle of the trading range. Throughout the day, the price moved up and down dramatically before it closed at or near the opening price. This reflects the great indecision that exists between the bulls and the bears. The price opens at the low of the day and rallies from there, but by the close the price is beaten back down to the opening price. The Japanese analogy is that it represents those who have died in battle.

The victories of the day are all lost by the end of the day. A Gravestone Doji, at the top of the trend, is a specific version of the Shooting Star. At the bottom, it is a variation of the Inverted Hammer. The Japanese Figure 2. The Reversal Pattern 31 sources claim that the Gravestone Doji can occur only on the ground, not in the air.

This implication is that it works much better to show a bottom reversal than a top reversal. However, a Doji shows indecision no matter where it is found. At the top of the market, it becomes a variation of the Hanging Man.

What are their competitors doing? How are government regulations affecting this industry? Any one of many fundamental elements can change at any time, creating a reversal in the growth potential of a company. The stock market has averaged approximately 12 Profitable Candlestick Trading an 11 percent return annually over the course of history. These statistics have been skewed during the past four years.

Until , the market never had more than two years in a row of double-digit growth. Most investors today have not experienced a severe bear market. A bear market does not give a hoot about fundamentals. When the market tide goes down, all corporate ships are lowered. Conversely, the worst stocks in the world can get a boost when the markets are skyrocketing. Perception — The Major Investment Truism One truism about making money in any market is that perception overpowers reality.

Even during periods of great economic growth, holding on to the stock of fundamentally sound companies may not make you any richer. If investors perceive that better profits can be made elsewhere, that is where the money is going to go. It may be true that you make more money by holding a good fundamentally sound stock for the long term, provided that the only alternative is to hold non-fundamentally sound stocks for the same timeframe.

If your intent is to maximize portfolio growth, the logical method of investing includes downloading what has the most upside potential today. That brings us back to investor perception. The Candlestick signals identify where investor funds are going today, this week, this month.

The Candlestick signals pinpoint the turns in investor sentiment. Using this knowledge produces trading strategies that minimize downside and maximize upside probabilities. download on the Rumor If it is obvious, it is obviously wrong. Joseph Granville How often have we witnessed a company announcing good earnings or a beneficial contract or disclosing information that would appear to be advantageous for the stock price, yet the price of the stock immediately declines? A major advantage of identifying Candlestick signals is the lack of need to maintain expansive information networks.

Introduction 13 A Candlestick download signal provides you with the knowledge of when the downloaders are stepping into a stock. You do not need to know why that is occurring.

The only fact that should concern an investor is what stocks are going up and what stocks are going down. A Candlestick download signal represents the probability that this stock is positioned to make you money.

The Candlestick signals identify that action. But how do you determine whether the news is more or less of a surprise as to what was anticipated? That can be easily determined by the candlestick that is formed, putting you days, sometimes weeks, ahead of the rest of the investment community. A gap down, at the bottom of a trend resulting from bad news, may not indicate the time to download. A blackbodied candle formation that day means something completely different than a white-bodied candle.

This will be dealt with in detail in Chapter 9. Where did you learn how to invest?

Where does anybody learn how to invest? There are no official courses that are taught to investors. In school, we are taught about the different investment vehicles and strategies.

But there are few forums for teaching the actual psychology of a professional investor. Even if there were a qualified investment education program, teaching the emotional disciplines may be nearly impossible. Experience is the major factor when becoming successful in most investment disciplines. Experience is the only education for developing the proper mental process. This is the most difficult hurdle in the path to proficient investing practices.

Investing and love are in the same category: Despite any amount of logical reasoning, intellectual analysis, and preplanning in a decision involving either, emotion takes over as the dominant component.

The power of investment discipline can be harnessed. Investment rationale, which is the foundation of Candlestick formations, is implemented in a sensible and logical methodology. Reading this book will expose you to highly defined pattern recognition techniques. With this knowledge, an investor—whether a beginner or vastly experienced—can employ the basics of investment logic in a calculated program. Was there a point in your investment life where you decided to make a study of the most successful investment programs?

If so, did you sit down and consciously investigate strategies and learn how to use specific trading philosophies? Unfortunately, most investors start their investment programs because they have a little money to invest.

Where do they turn for investment advice? A stockbroker, banker, parent, friend, investment newsletter service, or a multitude of sources, some of whom probably started out the same way they did. Beginning investors are looking for somebody to direct them about where to find a good investment, not a good investment strategy. Who do you blame when you sell out of your profitable positions too early because you are afraid they will pull back and turn into losses?

Or you hang on to your losing positions as they ratchet down, each little up-tick giving you hope, but finally sell out at the bottom because the pain is too great? Emotion is eliminated. This book will put you in the position of feeling confident that the vast majority of your investment positions will work.

You will be able to sleep well every night. You will learn to quickly identify the trade that is not working, immediately liquidate it, and then put those funds into the next position where the probabilities are greatly in your favor.

Learn How to Fish Many people spend more time and energy on downloading a car than they do in researching how to build their financial wealth. And there is a good explanation for that. downloading a car, even finding out that you paid too much for it, ends with the decision process. You own it. You paid too much for it. Too bad! Now life goes on. The investment decision has a constant decision-making aspect to it. Each month, week, day, or minute has the potential for making another decision.

The decision-making process required for producing good returns on your portfolio is a constant and scutinizable activity, one that can have many embarrassing throwbacks, such as downloading at the peak, selling out at the bottom, picking the wrong company in an industry, selling too early, or selling too late. Without the use of a definable investment strategy, most investors Introduction 15 go through life hoping that their investment decisions are going to work out.

They had no game plan going in; they usually have no game plan for exiting. The Candlestick signals work equally well on both sides of a trade. They are as accurate for showing when selling comes into a stock price as they are for showing when downloading comes into a position, thereby enabling investors to control their entry and exit strategies. Human Emotion Why do most investors repeatedly make the same trade mistakes? That great bugaboo emotion.

Investment logic and investment emotions create a vast decision-making divergence. Have you ever analyzed a stock situation, whether fundamentally or technically, and planned your entrance and exit strategies thoroughly before putting on the trade?

Once the trade is on, the circumstances that you analyzed occur, but all the preplanning for the establishment of the trade now disappear.

This phenomenon is a common occurrence among investors—easily explained, but hard to overcome: human ego! We all think we are intelligent. We analyze an investment situation and put our stamp of intellectual prowess on the line. downloading a stock position immediately declares that, with the same investment criteria available to everybody else, we have made a statement, subconsciously, that our analytical abilities are better than the average investor.

Of course, when a stock price moves against us, that is just a temporary misreading of the market factors. Man who toot in church sit in his own phew. Ego—Our Investing Hurdle Part of our minds—our egos—assure us that our assessments were correct and everybody else will eventually see this stock price moving in the direction that we first anticipated. Unlike making a decision to download a car, a book, a vacuum cleaner, or anything else that required a one-time decision about the expenditure of funds, investments have an additional emotionally debilitating element.

The decision process continues each tick after the initial download. You download a stock and the price immediately goes down. Do you sell it here or is it at the bottom? It keeps going down, the same question occurs every day, every tick. Conversely, the stock price is going up. Is it time to take profits? How embarrassing it would be if it went back down to where you bought it. Or worse, if after it was up at this price, you eventually sold the position 16 Profitable Candlestick Trading for a loss.

Each position becomes an emotional conquest—your intellect versus the rest of the market players. Man is the only kind of varmint that sets his own trap, baits it, and then steps in it. John Steinbeck Candlestick formations take the emotional factors out of investing.

In Chapter 7, you will learn how to take the emotion out of owning each individual position. The signals provide a discipline that can be inherently adhered to. If you follow the signals, the percentage of correct trades becomes more evident as you invest. If you trade against what the signals are indicating, common sense or investment pain will readily illustrate that you need to follow the signals.

The percentage of correct trade results, produced from properly analyzed signals, will reinforce a trading platform that you will learn to follow faithfully. What is the optimal trading system? What trading program will eliminate the flaws that we each have in our investment psyche?

How can we find the investments that will produce profits NOW? When do we get in? When do we get out? Using any trading discipline will produce greater returns than the normal non-structured investment approach.

Using the Candlestick signals, however, will produce a greater profit-potential investment strategy than you can imagine. Hundreds of years of honing the visual identification process —the initial form of statistical analysis—provide a well-founded investment stratagem.

You can reasonably assume that the percentage of positive results from Candlestick signals is significantly worthwhile. Otherwise, those signals would not be in existence today. Additionally, it is extremely useful to implement a trading strategy that can be documented and analyzed.

Each new trade provides an analytical tool. What went right with this trade? What went wrong with this trade? The post trade results can be compared to existing results produced by similar signal formations.

An investor should be able to evaluate each trade in order to better the results of the next trade. Being able to identify the potential of a highprobability trade, days ahead of the other market participants, has obvious advantages. The downside risk is reduced. The signals alert you to the first change in investor sentiment. You get into and out of positions before the Introduction 17 masses. Upside potential is enhanced, exploiting the next round of downloading by the investment analysts.The Reversal Pattern 51 Signal Enhancements 1.

Japanese candlesticks show the interaction between downloaders and sellers, which is reflected in price movement. The price moves back up to the top of the trade range, closing either slightly below or slightly above the opening. Candlestick analysis allows investors to be prepared and profit from these moves. It was not designed to be a trade signal.

Does the rationale of losing less than what the indexes lost not impress you anymore? There are always rationalizations that move away from this vital outlook.

But before the end of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day. Become familiar with what the signals look like. While a demo account is useful for the educational course of, to commerce the markets efficiently one wants to totally admire the psychology behind trading.