Ladies and gentlemen, good afternoon!

Today, I’m bringing you something new to share. Since many people still need to
learn about the investment market, I’d like to introduce candlestick charts to you.

The Japanese have been using technical analysis in rice trading since the 17th
century. While this early version of technical analysis differs somewhat from the
American version introduced by Charles Dow around 1900, many of the guiding
principles are quite similar. According to Steve Nison, candlestick charts first
appeared sometime after 1850. The development of candlestick charts and charting
techniques is primarily credited to the legendary rice trader Homma, from the town
of Sakata. His original ideas may have been modified and refined over years of
trading, eventually evolving into the candlestick charting system we use today.

To create a candlestick chart, you need a dataset that includes the opening price,
highest price, lowest price, and closing price for each time period you want to
display. The hollow or filled portion of the candlestick is called the “body”. The thin
lines extending above and below the body represent the high/low range and are
referred to as “shadows” (also known as “wicks” or “tails”). The highest price point
is marked by the top of the upper shadow, while the lowest price point is marked by
the bottom of the lower shadow.

 If the stock’s closing price is higher than the opening price, a hollow candlestick is
drawn, with the bottom of the body representing the opening price and the top of the
body representing the closing price.
 If the stock’s closing price is lower than the opening price, a filled candlestick is drawn,
with the top of the body representing the opening price and the bottom of the body
representing the closing price.
Many traders find candlestick charts more visually appealing and easier to interpret
than traditional bar charts. Each candlestick provides a simple, visually engaging
representation of price action, allowing traders to quickly compare the relationship
between the opening and closing prices as well as the high and low prices. The
relationship between the opening and closing prices is considered crucial and forms
the essence of a candlestick. A hollow candlestick, where the closing price is higher
than the opening price, indicates buying pressure. A filled candlestick, where the
closing price is lower than the opening price, signals selling pressure.

Long Bodies and Hollow Bodies

In general, the longer the body, the stronger the buying or selling pressure.
Conversely, short candlesticks indicate little price movement, representing
consolidation.
A long bullish candlestick indicates strong buying pressure. The longer the
candlestick, the greater the distance between the closing price and the opening price.
This suggests that prices have risen significantly from open to close, reflecting high
buyer enthusiasm. While long bullish candlesticks are generally seen as a positive
sign, their significance largely depends on their position within the broader technical
chart. After a prolonged downtrend, a long bullish candlestick can signal a potential
reversal or a support level. However, if buying pressure becomes excessive after an
extended uptrend, it may indicate over-optimism.

A long bearish candlestick signals strong selling pressure. The longer the candlestick,
the greater the decline from the opening price to the closing price. This suggests that
prices have dropped sharply from open to close, with sellers in control. After a
prolonged uptrend, a long bearish candlestick may indicate a potential turning point
or mark future resistance levels. Conversely, following a long downtrend, a long
bearish candlestick may reflect panic selling or capitulation.
The most powerful candlesticks are the Marubozu brothers: the black Marubozu and
the white Marubozu. A Marubozu has no upper or lower shadow, meaning its high
and low prices are represented by the opening or closing prices. A white Marubozu
forms when the opening price equals the low and the closing price equals the high.
This indicates that buyers controlled the price action from the first trade to the last.
Conversely, a black Marubozu forms when the opening price equals the high and the
closing price equals the low, signaling that sellers dominated the price movement
throughout the session.

Long and Short Shadows

The upper and lower shadows on a candlestick provide valuable insights into the
trading session. The upper shadow represents the high of the period, while the lower
shadow represents the low. A candlestick with short shadows suggests that most
trading activity was concentrated near the open and close prices. In contrast, a
candlestick with long shadows indicates that the price moved significantly beyond
the open and close during the session.
A candlestick with a long upper shadow and a short lower shadow indicates that
buyers dominated the session and pushed prices higher, but sellers eventually forced
the price to retreat from its highs. The contrast between a strong high and a weaker
closing price results in a long upper shadow.

Conversely, a candlestick with a long lower shadow and a short upper shadow
suggests that sellers controlled the session and drove prices lower. However, buyers
later re-entered the market with stronger bids, pushing the price back up by the
close. This buying pressure creates a long lower shadow.
Doji

A Doji represents an important type of candlestick that can provide valuable

information on its own or as part of many significant patterns. A Doji forms when a
security’s opening and closing prices are nearly equal. The length of the upper and
lower shadows may vary, resulting in a candlestick that resembles a cross, an
inverted cross, or a plus sign.

On its own, a Doji is a neutral pattern. Any bullish or bearish bias depends on the
preceding price action and future confirmation. The term “Doji” is used for both
singular and plural forms.

Ideally (but not necessarily), the opening and closing prices should be equal. While a
Doji with identical opening and closing prices is considered more robust, the key is to
capture the essence of the candlestick.

A Doji conveys a sense of indecision or a tug-of-war between buyers and sellers.

During the trading session, the price fluctuates above and below the opening price,
but it ultimately closes at or near the open. This results in a standoff, where neither
bulls nor bears can gain control—potentially signaling a turning point in the market.
Different securities have different standards for determining the strength of a Doji. A
$20 stock might form a Doji with an opening and closing price difference of 1/8 point,
while a $200 stock might form a Doji with a difference of 1 1/4 points. The reliability
of a Doji depends on the price, recent volatility, and preceding candlesticks.

Relative to the previous candlestick, a Doji should have a very small body, appearing
as a thin line. Steven Nison points out that a Doji forming within another
small-bodied candlestick is not considered significant. However, a Doji appearing
between candlesticks with long bodies is regarded as meaningful.

Doji and Trends

The significance of a Doji depends on the preceding trend or candlestick. After a

bullish move or a long bullish candlestick, a Doji indicates that buying pressure is
beginning to weaken. Conversely, after a decline or a long bearish candlestick, a Doji
signals that selling pressure is starting to ease. A Doji suggests that the forces of
supply and demand are becoming more balanced, indicating that a trend reversal
may be approaching. However, a Doji alone is not enough to confirm a
reversal—further confirmation is often needed.
After an uptrend or a long bullish candlestick, a Doji indicates that buying pressure
may be weakening and the uptrend could be nearing its end. Although a security
might drop simply due to a lack of buyers, maintaining an uptrend requires
consistent buying pressure. Therefore, a Doji after an uptrend or a long bullish
candlestick is often more significant. Even after a Doji forms, further price decline
may be needed to confirm bearish sentiment. This could manifest as a gap down, a
long bearish candlestick, or a breakdown below the opening price of the long bullish
candlestick.

After a long bullish candlestick and a Doji, traders should be cautious of a potential
evening Doji star.
After a downtrend or a long bearish candlestick, a Doji indicates that selling pressure
may be weakening, and the downtrend could be nearing its end. Although the bears
are losing control of the decline, further strength is still needed to confirm any
reversal. Bullish confirmation could come from an upward gap, a long bullish
candlestick, or a breakout above the opening price of a long bearish candlestick.

After a long bearish candlestick and a Doji, traders should be cautious of a potential
early morning Doji star.

The Long-legged Doji has long upper and lower shadows, nearly equal in
length. These Doji candlesticks reflect a great deal of indecision in the
market. A Long-legged Doji shows that the price moved significantly higher
and lower than the opening price, but ultimately closed near the open.
After much back-and-forth, the final result is nearly the same as the
initial opening.

Dragonfly and Gravestone Doji

Dragonfly Doji

A Dragonfly Doji forms when the opening price, highest price, and closing price are
equal, and the lowest price creates a long lower shadow. Due to the lack of an upper
shadow, the resulting candlestick looks like a "T" shape. The Dragonfly Doji indicates
that sellers dominated the session and pushed the price lower, but by the end of the
trading day, buyers reentered the market, pushing the price back to the opening
price and near the high of the session.

Gravestone Doji

A Gravestone Doji forms when the opening price, lowest price, and closing price are
equal, and the highest price forms a long upper shadow. With no lower shadow, the
candlestick looks like an inverted "T" shape. The Gravestone Doji suggests that
buyers took control and pushed the price higher during the session. However, by the
close, sellers reasserted control, pushing the price back down to the opening price
and near the low of the session.

Like the Dragonfly Doji and other candlesticks, the reversal potential of the
Gravestone Doji depends on the prior price action and future confirmation. While
the long upper shadow indicates a failed rally, the intraday high provides some
evidence of buying pressure. After a long downtrend, long bearish candlestick, or
support level, the focus shifts to buying pressure and potential bullish reversal
signals. After a long uptrend, long bullish candlestick, or resistance level, the focus
shifts to a failed rally and potential bearish reversal. Both scenarios require
confirmation from further price action to validate the reversal.
Bullish and Bearish Markets

Candlesticks depict the battle between bulls (buyers) and bears (sellers) within a
given time period. A comparison could be made to a football game (with the bulls
and bears as teams). The bottom of the candlestick (the lowest point in the trading
session) represents the bears hitting the ground, while the top (the highest point in
the trading session) represents the bulls hitting the ground. The closer the game gets
to the end, the closer the bulls are to scoring a touchdown. The closer the closing
price is to the low, the closer the bears are to scoring. While there are many
variations, I will narrow it down to six key types of "games" (or candlesticks).

1 A long white candlestick indicates that the bulls (buyers) controlled the game
(the market) for most of the session.

2 A long black candlestick suggests that the bears (sellers) controlled the game (the
market) for most of the session.

3 A small candlestick indicates that neither team (buyers nor sellers) was able to
move the ball (the price), and the price ended up near where it started.

4 A long lower shadow suggests that the bears controlled the game (the price) for
part of the session, but by the end, they lost control and the bulls made an
impressive comeback.
5 A long upper shadow suggests that the bulls controlled the game (the price) for
part of the session, but ultimately lost control, and the bears made an impressive
comeback.

6 Long upper and lower shadows indicate that both the bulls and bears had their
moments during the session, but neither could dominate, resulting in a stalemate.

What Candlesticks Don’t Tell You

Candlestick charts do not reflect the sequence of events between the opening and
closing prices; they only show the relationship between these prices. The high and
low prices are clear and indisputable, but candlesticks (and bar charts) cannot tell us
which one came first.

For a long bullish candlestick, it is assumed that the price increased for most of the
trading session. However, the trading session could be more volatile depending on
the high/low order. The example above describes two possible high/low sequences
that can form the same candlestick. The first sequence shows two small fluctuations
and one large fluctuation: a small drop at the opening creates the low, a significant
rise forms the high, followed by a small drop to the closing price. The second
sequence shows three fairly sharp moves: a sharp rise from the opening price to
form the high, a sharp drop from the opening price to the low, and a sharp rise from
the closing price. The first sequence depicts strong, sustained buying pressure and is
considered more bullish. The second sequence reflects higher volatility and some
selling pressure. These are just two examples, and there are hundreds of possible
combinations that could form the same candlestick.
Candlesticks still provide valuable information about the relative positions of the
opening, high, low, and closing prices. However, the trading activity that forms a
specific candlestick may vary.

Previous Trend

Greg Morris, in his book Candlestick Charting Explained, points out that for a pattern
to qualify as a reversal pattern, there should be a prior trend to reverse. A bullish
reversal requires a preceding downtrend, while a bearish reversal requires a
preceding uptrend. The direction of the trend can be determined using trendlines,
moving averages, peak/trough analysis, or other aspects of technical analysis. A
downtrend may exist whenever a security trades below its descending trendline,
below previous reaction highs, or below a specific moving average. The length and
duration of the trend depend on individual preferences. However, since candlesticks
are inherently short-term, it is often best to consider the price action over the past
1-4 weeks.

【Candlestick Positioning】
【Star Position】

A star position refers to a candlestick that gaps away from the previous candlestick,
creating a distinct separation. The first candlestick in this pattern typically has a
larger body, but not always, while the second candlestick at the star position has a
smaller body. Based on the previous candlestick, the star-position candlestick will
gap either upwards or downwards, and it appears isolated from the prior price
action.

The two candlesticks can be a combination of white (bullish) and black (bearish)
candlesticks. Small-bodied candlesticks such as Doji, Hammer, Shooting Star, and
Inverted Hammer can form in a star position. There are also several patterns that
use star positions in 2- and 3-candlestick formations.

These patterns can be indicative of market indecision or a potential reversal. For

example:

 A Morning Star (a bullish reversal pattern) often starts with a long black candlestick
followed by a small-body candlestick that gaps down, and then a white candlestick that
closes above the midpoint of the first candlestick.
 A Evening Star (a bearish reversal pattern) typically starts with a long white candlestick,
followed by a small-body candlestick that gaps up, and then a black candlestick that
closes below the midpoint of the first candlestick.

In both cases, the gap in the star position suggests a shift in market sentiment, either
from bearish to bullish or vice versa.
Harami Position

A Harami pattern occurs when a candlestick forms inside the body of the previous
candlestick. In Japanese, "Harami" means "pregnant," and appropriately, the second
candlestick is contained within the body of the first one. Typically, the first
candlestick has a larger body, while the second candlestick has a smaller body. The
shadows (high/low) of the second candlestick do not necessarily have to be
contained within the first candlestick, but ideally, they are. Small-bodied candlesticks
such as Doji and Inverted Hammer can also form in the Harami position.

Harami patterns can indicate potential reversals depending on the previous price
action. For example:

 A Bullish Harami (a potential reversal to the upside) forms after a downtrend.

 A Bearish Harami (a potential reversal to the downside) forms after an uptrend.

There are also several 2-candlestick and 3-candlestick patterns that use the Harami
position.

Long Shadow Reversal Patterns

There are two pairs of single-candlestick reversal patterns consisting of a small body,
a long shadow, and a short shadow or no shadow. Generally, the long shadow should
be at least twice the length of the body, and the body can be either black or white.
The position of the long shadow, in relation to previous price action, determines the
pattern's classification.

1. Hammer and Hanging Man:

o These two patterns are formed from the same candlestick but have different
meanings depending on the preceding price action.
o Both have a small body (either black or white), a long lower shadow, and a short
or absent upper shadow.
o Hammer forms after a downtrend and is considered a bullish reversal pattern.
o Hanging Man forms after an uptrend and is considered a bearish reversal
pattern.

2. Shooting Star and Inverted Hammer:

o These also consist of the same candlestick pattern but with a long upper shadow
instead of a long lower shadow.
o Shooting Star forms after an uptrend and is a bearish reversal pattern.
o Inverted Hammer forms after a downtrend and is a bullish reversal pattern.

These patterns require confirmation from the following price action to determine
whether they will lead to a reversal.

Hammer and Hanging Man

The Hammer and Hanging Man look very similar but have different meanings based
on the preceding price action. Both have a small body (black or white), a long lower
shadow, and a short or no upper shadow.

 The Hammer forms after a downtrend and suggests that a bullish reversal may occur.
 The Hanging Man forms after an uptrend and suggests that a bearish reversal may occur.

Like most candlestick patterns, Hammer and Hanging Man need confirmation from
the following price action to validate the reversal signal.
Hammer Candlestick

The Hammer candlestick is a bullish reversal pattern that forms after a downtrend.
Beyond signaling a potential trend reversal, it can also mark a bottom or a support
level. After a price decline, the Hammer signals a possible bullish recovery.

 Long Lower Shadow: The long lower shadow indicates that sellers pushed the price
significantly lower during the session, but buyers managed to bring it back up by the
close.
 Strong Close: A strong close near the opening price indicates that buyers regained
control, ending the trading day with upward momentum.

Although the Hammer can suggest a reversal, confirmation is needed before taking
action. The low point of the Hammer shows that there is still significant selling
pressure in the market. To confirm the potential reversal, additional buying
pressure is necessary, ideally accompanied by increased volume. This confirmation
can come in the form of an upward gap or a long white candlestick (bullish
candlestick).

The Hammer pattern is similar to a selling climax. A high volume during its formation
can increase the reliability of the reversal signal, making it a more potent indication
of a trend change.
Hanging Man

The Hanging Man is a bearish reversal pattern, typically forming after an uptrend. It
can also serve as an indication of a top or resistance level.

 Long Lower Shadow: The long lower shadow shows that sellers pushed the price
significantly lower during the session, confirming that selling pressure is starting to
increase.
 Strong Close: Despite the downward push, buyers managed to regain control and close
the price higher. However, the appearance of selling pressure still raises a cautionary
flag.

Similar to the Hammer, the Hanging Man requires confirmation before taking any
action. The confirmation can come in the form of a downward gap or a long black
candlestick with high volume. This provides more confidence that the bearish
reversal is taking place.

Inverted Hammer and Shooting Star

The Inverted Hammer and Shooting Star candlesticks look very similar, but they
have different meanings depending on the previous price trend:

 Inverted Hammer: Forms after a downtrend and signals a potential bullish reversal.
 Shooting Star: Forms after an uptrend and signals a potential bearish reversal.
Both candlesticks have:

 Small Bodies: Can be either black or white.

 Long Upper Shadows: Indicating significant price rejection during the session.
 Small or No Lower Shadows: Suggesting limited price movement in the lower range.

Both patterns signal a potential trend reversal but require further confirmation
before acting.

Shooting Star

The Shooting Star is a bearish reversal pattern that forms after an uptrend and
appears at the "star" position, which is why it is named as such. It indicates a
potential trend reversal or resistance level.

 Long Upper Shadow: The long upper shadow suggests that the price rose significantly
during the session, but failed to maintain those gains, signaling a shift in control from
buyers to sellers.
 Small Body: The body is either black or white, typically smaller than the upper shadow,
reflecting the price's inability to sustain the highs.
 Close Far From the High: The price closes much lower than its high, showing that despite
the early buying pressure, sellers took control by the end of the session.

After a strong upward movement, the Shooting Star raises a cautionary flag,
indicating that the bearish pressure is beginning to build. To confirm the reversal,
the upper shadow should be relatively long, ideally at least twice the length of the
body.
 Confirmation: To confirm the bearish reversal, further downward confirmation is
needed. This could come in the form of a downward gap or a long black candlestick with
high volume. This would provide stronger evidence that the trend is indeed reversing.