Figure 11
Suppose the opening price of Stock XYZ is in a green candlestick. And it continued till the 3rd bullish green candlestick. That means that traders who entered on the first two days have gained a lot.
Based on the performance, a trader decides to buy a trade order on the beginning of the 3 day and thought that there will be a new high tomorrow.
By the next morning, a trader found out that the market not only fall but open below the entry price! Then the trader surely feels fear and prompts to sell the order immediately to minimize the loss.
Let’s take an average number of two or three thousand additional traders who have the same thought, and entered the same order at the same price, will sure start to call their broker to sell their order.
All of these traders are trying to get rid of these before they caught fire.
By then, all these emotions that cause by fear will cause the supple of order more than demand of trade order from traders. As a result, the market price decline.
The longer red candlestick, it means there are more and more traders sell their order and the further the price decline. So, be aware of the power of the emotions.
Capitalizing on Fear and GreedFrom all those previous cases, we can conclude that the price movements do result from fear and greed regarding to the traders’ sentiment.
It is not difficult to detect the footprints of greed and fear, but difficult when come to detect the signs of rally or decline. It is a norm that a trader sometimes enters the market based on the bullish reversal signal, but end up seeing a new high when the trader sells his trade; or, a trader enters the market based on bearish reversal signal, but end up with a new low that finally earn nothing but loss.
So, it is can be says that there is no 100% accurate system to predict when and where a bull or bear market sign will begins. However, the candlestick patterns techniques can help traders to locate the probable areas for these turning points.
CandleStick Fundamental
Candlestick charts were created by the Japanese over 200 years ago. They used those charts to do analysis on the rice markets. By then, this technique is now being used by not only the Japanese, but also the traders from all around the world. It is because these charts are visually more attractive and clearer to read when compare to other charts.
The major part of these charts is the candlestick body, named real body. It is a rectangular part that formed between the open and close prices. The traditional Japanese do use black and white for the real body. But nowadays, the green and red colours are being used to fill in the real body colour to make it clearer and visually more striking.
Traders are also advisable to use the candlestick indicators with others indicators such as the slow stochastic indicator, RSI and Bollinger bands. Also, noted that technical analysis can not stand on its own. It needs to use with the other method.
Green real body – the close point is higher than the open point, meaning that the value of the price has increased.
Red real body – the close point is lower than the open point, meaning that the value of the price has decreased for that period of time.
From the chart, there are two extension lines at the top and bottom of the candlestick bodies. They are called the shadows. The top shadow represents the high price of the period and the bottom shadow represents the low price of the period. Sometimes, it happened that no shadow on either side, the close or open prices are included in the candlestick bodies in that trading period.
The trading period depends on each trader on what period or how long the period they want to analyze. It can be a week, a day, an hour or even less. But then, it is advisable not to use a trading period less than an hour as it is not good measures for currency markets
Comparison between Candlestick Charts and Western Charts
Green real body – the close point is higher than the open point, meaning that the value of the price has increased.
Red real body – the close point is lower than the open point, meaning that the value of the price has decreased for that period of time.
From the chart, there are two extension lines at the top and bottom of the candlestick bodies. They are called the shadows. The top shadow represents the high price of the period and the bottom shadow represents the low price of the period. Sometimes, it happened that no shadow on either side, the close or open prices are included in the candlestick bodies in that trading period.
The trading period depends on each trader on what period or how long the period they want to analyze. It can be a week, a day, an hour or even less. But then, it is advisable not to use a trading period less than an hour as it is not good measures for currency markets
More CandleStick Studies
When there is a short Doji gapped below a long black candlestick body, and it is occurred in a downtrend market, then this is a Bullish (Doji) Star Pattern.
Recognition Criteria:1. The market is considered as a downtrend market.2. There is a long candlestick body before the short Doji.3. The short Doji is gapped below the previous long candlestick body and appeared as a signal of turning point.4. The shadows of the Doji is short as it indicates the market is not yet stable.
Explanation: A Bullish Doji Star pattern is a reversal sign that usually occurs in a downwards trend market. In this phenomenon, first the bears take control in the market, but then there would be a moment that the bears and bulls have the equally same strength. However, the bulls take over the bears power at last, making the bears weak. Normally the market would be bullish after this formation.
A formation that doesn’t have or have a very tiny real body is called a Doji. Doji is formed when the opening price and the closing price are almost the same or similiar. It indicates the buyers could not manage to force the price to go higher then the opening price. And before the price closed, sellers could not make the price to go lower than the opening price. Therefore, a formation of Doji can be seen from a chart. A conclusion can be made from a Doji is that the market price is unstable, in the meaning that the price doesn’t have the strength to go upwards or downwards.
There are four main Doji, which is named Long-legged, Gravestone, Dragonfly and 4-price. Different Doji(s) would represent by different charts, where each doji function differently.
A DOJI is usually occurs in a market tops or downs. Although DOJI is a reversal sign, but it can’t work well on its own before the next candlestick body appears. A Doji also indicates that the market is in an indecision condition, the opening and closing prices are almost the same, neither bullish nor bearish, the strength of the sellers are almost the same as the buyers. There is a common usage for this DOJI: find out the lowest price of the DOJI and use that data to predict the how high the prices can go.
Doji sticks happened when the open and close price are the same. Although it is rare, but if the open and close price is almost the same, they can be considered as a Doji. There are four kinds of Doji.
A Long-Legged Doji is a Doji which has two long shadows protruding from the real body. It shows that there is considerable fluctuation on both sides of the open price. However, in the end, the close price back to the level of open price. This Long-Legged Doji is a good signal of market indecision.
A Dragonfly Doji is a Doji which has only one long shadow on the bottom of the real body. In this Doji, the price only moves below the open price. However, in the end, the price moves back up to the open price level. This Dragonfly Doji is a good signal of a bearish trend reversal, meaning that the market is now moving upwards.
A Gravestone Doji is visually look like the opposite of a Dragonfly. It has one long shadow on the top of the real body. It indicates that the price will only move above the open price, but then will back to the open price level. This Gravestone Doji is a good signal of a bullish trend reversal, meaning that the market is now moving downwards.
A 4-Price Doji is a rare event that the open, close, high and low price points are the same. So, it seems like no movements at all. This 4-Price Doji normally happened only when a trading is suspended.
A formation that doesn’t have or have a very tiny real body is called a Doji. Doji is formed when the opening price and the closing price are almost the same or similiar. It indicates the buyers could not manage to force the price to go higher then the opening price. And before the price closed, sellers could not make the price to go lower than the opening price. Therefore, a formation of Doji can be seen from a chart. A conclusion can be made from a Doji is that the market price is unstable, in the meaning that the price doesn’t have the strength to go upwards or downwards.
There are four main Doji, which is named Long-legged, Gravestone, Dragonfly and 4-price. Different Doji(s) would represent by different charts, where each doji function differently.
A DOJI is usually occurs in a market tops or downs. Although DOJI is a reversal sign, but it can’t work well on its own before the next candlestick body appears. A Doji also indicates that the market is in an indecision condition, the opening and closing prices are almost the same, neither bullish nor bearish, the strength of the sellers are almost the same as the buyers. There is a common usage for this DOJI: find out the lowest price of the DOJI and use that data to predict the how high the prices can go.
Doji sticks happened when the open and close price are the same. Although it is rare, but if the open and close price is almost the same, they can be considered as a Doji. There are four kinds of Doji.
A Long-Legged Doji is a Doji which has two long shadows protruding from the real body. It shows that there is considerable fluctuation on both sides of the open price. However, in the end, the close price back to the level of open price. This Long-Legged Doji is a good signal of market indecision.
A Dragonfly Doji is a Doji which has only one long shadow on the bottom of the real body. In this Doji, the price only moves below the open price. However, in the end, the price moves back up to the open price level. This Dragonfly Doji is a good signal of a bearish trend reversal, meaning that the market is now moving upwards.
A Gravestone Doji is visually look like the opposite of a Dragonfly. It has one long shadow on the top of the real body. It indicates that the price will only move above the open price, but then will back to the open price level. This Gravestone Doji is a good signal of a bullish trend reversal, meaning that the market is now moving downwards.
A 4-Price Doji is a rare event that the open, close, high and low price points are the same. So, it seems like no movements at all. This 4-Price Doji normally happened only when a trading is suspended.
A formation that doesn’t have or have a very tiny real body is called a Doji. Doji is formed when the opening price and the closing price are almost the same or similiar. It indicates the buyers could not manage to force the price to go higher then the opening price. And before the price closed, sellers could not make the price to go lower than the opening price. Therefore, a formation of Doji can be seen from a chart. A conclusion can be made from a Doji is that the market price is unstable, in the meaning that the price doesn’t have the strength to go upwards or downwards.
There are four main Doji, which is named Long-legged, Gravestone, Dragonfly and 4-price. Different Doji(s) would represent by different charts, where each doji function differently.
A DOJI is usually occurs in a market tops or downs. Although DOJI is a reversal sign, but it can’t work well on its own before the next candlestick body appears. A Doji also indicates that the market is in an indecision condition, the opening and closing prices are almost the same, neither bullish nor bearish, the strength of the sellers are almost the same as the buyers. There is a common usage for this DOJI: find out the lowest price of the DOJI and use that data to predict the how high the prices can go.
Doji sticks happened when the open and close price are the same. Although it is rare, but if the open and close price is almost the same, they can be considered as a Doji. There are four kinds of Doji.
A Long-Legged Doji is a Doji which has two long shadows protruding from the real body. It shows that there is considerable fluctuation on both sides of the open price. However, in the end, the close price back to the level of open price. This Long-Legged Doji is a good signal of market indecision.
A Dragonfly Doji is a Doji which has only one long shadow on the bottom of the real body. In this Doji, the price only moves below the open price. However, in the end, the price moves back up to the open price level. This Dragonfly Doji is a good signal of a bearish trend reversal, meaning that the market is now moving upwards.
A Gravestone Doji is visually look like the opposite of a Dragonfly. It has one long shadow on the top of the real body. It indicates that the price will only move above the open price, but then will back to the open price level. This Gravestone Doji is a good signal of a bullish trend reversal, meaning that the market is now moving downwards.
A 4-Price Doji is a rare event that the open, close, high and low price points are the same. So, it seems like no movements at all. This 4-Price Doji normally happened only when a trading is suspended.
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