In the previous posts, we’ve examined many candlestick lines and formations. In this post is a visual summary. The following charts (see Exhibits 9.1, 9.2, and 9.3) have numbered lines and patterns. All are candlestick indicators that have been discussed previously. How would you interpret them? My opinion of these candlestick patterns and lines are provided. But, you should decide for yourself.
Remember, the following interpretations are subjective. You may see different indicators than I did, or some where I did not. As with any charting technique, different experiences will give different perspectives. There are no concrete rules, just general guidelines. For example, what if a hammerlike line had a lower shadow only one and one-half times the height of the real body instead of the more ideal version with a lower shadow twice-or even three times-the height of the real body. A purest might say this was not a hammer and ignore it. Others may cover shorts on such a line. Still others might wait for the next session to see what unfolds.
Exhibit 9.1 illustrates the following aspects.
- A bullish inverted hammer confirmed the next session by a higher opening and white candlestick.
- A stalled pattern implies the market’s upward drive has stalled.
- Adding a bearish hue to the stalled pattern in (2) is the fact that the last line of this pattern is a hanging man.
- The black candlestick at (4) confirms the hanging man. Combining (3) and (4) provides a tweezer top and a bearish engulfing pattern.
- Another hanging man.
- A bullish engulfing pattern and a bullish white belt-hold line were signs of a rally ahead.
- That is until the hanging-man line appeared. This was almost an ideal hanging man with a very long lower shadow, a small real body and almost no upper shadow. Confirmation of the bearish nature of this line came the next session with lack of upside movement.
- A bullish inverted hammer confirmed the following session. This was also part of a morning star.
- The three-day rally that started with the inverted hammer in (8) was halted by this harami pattern.
- A hammer signaled a possible bottom.
- A variation on the bullish piercing pattern occurred. Instead of the second white candlestick opening under the first day’s low it opens under the first day’s close. It then rallies and closes well into the black candlesticks real body.
- Another hanging man occurs. But this line was not confirmed by the next session since the market gapped higher on the open.
- A bearish engulfing pattern occurred.
- Then, a classic piercing pattern presented itself. The second session of this pattern was a bullish belt-hold line that closed on its high. It also successfully tested the lows made in (11).
- Then, a doji star signaled an end to the rally which started at (14).
- A harami called the end of the preceding price descent.
Exhibit 9.2 illustrates the following aspects.
- A tweezers bottom and a white bullish belt hold.
- A dark-cloud cover.
- A window which should mean resistance.
- Then a morning star arose. This morning star is a bit unusual in that the third session was not a long white real body. It, nonetheless, pushed well into the first session’s white candlestick. This morning star was also a successful retest of the prior week’s lows.
- The rally that started at (4) ended via a minor tweezers top. This tweezers top stopped at the window from (3).
- An inverted hammer confirmed the next session. The rally that started with the inverted hammer pushed above the window’s resistance.
- A harami. The prior trend (in this case, the rally) has been put on hold.
- The bearish implications of the prior large black candlestick session is mitigated by the next day’s small real body. These two lines formed a harami. This meant that the immediately preceding move, in this case a downtrend, had run out of steam.
- The hammer following the harami in (8) was added proof that the prior downtrend was done.
- A doji star which is a warning of a top.
- Another warning that the prior uptrend is over occurs thanks to the harami pattern.
- A dark-cloud cover. The letters X (from early February), Y (in mid-February), and Z (in late February) make up a three Buddha top.
- A hammer.
- Another harami. The prior short-term uptrend beginning at the hammer (13) was short circuited with this harami.
- Two windows which should act as resistance.
- An inverted hammer. This also made a tweezers bottom.
- The rally that started at the inverted hammer failed at the resistance level made by an open window in (15).
- A harami then hinted that the downtrend was over.
- A dark-cloud cover.
Exhibit 9.3 is a series of top reversal patterns.
- In mid-May, a harami appears. This increased the chances that the prior uptrend had ended.
- A lofty white candlestick on June 1 preceded a small white candlestick. This formed a stalled pattern.
- A bearish engulfing pattern.
- A doji is followed by a hanging man-not a healthy combination.
- A hanging-man session.
- A harami warning that the market has gone from an uptrend to a point of indecision.
- The indecision soon gave way to conviction by the sellers as shown by the bearish engulfing pattern that immediately followed the harami. This engulfing pattern is an instance where, because the market did not make a new high on the black candlestick day, it was not a reversal day with Western technical methods. Yet, the candlesticks sent out a loud reversal signal.