- Bar Formations
- Candlestick Formations
- Reversal Candles
Bar Chart
- Bar charts are often referred to as OHLC charts
- Distance from high to low represents the range
- Allows traders to identify patterns easily
Reversal Bars – Key Reversal Days
- Bearish Key Reversal – surge to a new high then reverse and close below the previous bar close
- Bullish Key Reversal – drop to a new low then recover and close above the previous bar close
Reversal Bars – 2 Bar Key Reversals
- Bearish 2 Bar Reversal – opens at the same level but closes lower with the same low as previous
- Bullish 2 Bar Reversal – opens at the same level but closes higher with the same high as previous
Reversal Bars – Inside Days
- Bearish inside day – prices stay within the range of the previous bar
- Bullish inside day – prices stay within the range of the previous bar
Reversal Bars – Outside Days
- Bearish Outside Day – surge to a new high then reverse and close below the previous bar’s low
- Bullish Outside Day – drop to a new low then reverse and close above the previous bar’s high
Reversal Bars – Spike
- Bearish Spike – surge to new highs then reverse and close near open but above the previous close
- Bullish spike – drop to new lows then recover and close near open but below the previous close
Japanese Candlesticks
- First used in Japan during the 16th century
- Used by rice traders to forecast future prices
- Japanese candlesticks provide early warning signals to possible price changes
- Can help traders identify trend continuations and reversals
Anatomy of a Candlestick
- Colour of the body
- Size of the body
- Length of shadows
Doji Patterns
- Doji candlesticks have no body
- Suggest indecision and are considered neutral
- Any bias depends on the prior trend
- The length of the shadow may vary
Bullish and Bearish Engulfing Patterns
- The Bearish Engulfing is formed at the end of an uptrend and is considered a bearish signal
- A red body is formed that opens higher, and closes lower than the previous green candle
- The Bullish Engulfing is formed at the end of a downtrend and is a bullish signal
- A green body is formed that opens lower, and closes higher than the previous red candle
Piercing and Dark Cloud Patterns
- The dark cloud is formed at the end of an uptrend and is considered a bearish signal
- The last candle opens above the previous high closing lower than 50% of the green candles body
- The piercing pattern is formed at the end of a downtrend and is a bullish signal
- The last candle opens under the previous low but closes above 50% of the red candle’s body
Morning and Evening Star Patterns
- The Evening Star is formed at the end of an uptrend and is considered a bearish signal
- The evening star, the planet Venus, occurs just before the darkness sets in
- The Morning Star is formed at the end of a downtrend and is a bullish signal
- The morning star, the planet Mercury, foretells the sunrise, or the rising of prices
Shooting Star and Hammer Patterns
- The “Shooting Star” is formed at the end of an uptrend and is considered bearish
- A small red body with a long upper shadow with a very small or no lower shadow
- The “Hammer” is formed at the end of a down trend, and is considered bullish
- A small green body with a long lower shadow with a very small or no upper shadow
- Candlestick Anatomy
- Filtering Entry Signals
- Reversal Candles
Anatomy of a Candlestick
- Colour of the body
- Size of the body
- Length of the shadows
Entry and Exit Filter
- When we want to enter a long position we buy above the high of the candle (upper shadow)
- When we want to enter a short position we sell below the low of the candle (lower shadow)
- The same filtering technique applies for stop losses
Reversal Candles
- Bearish reversal candle
- Bearish reversal candle
- Not a reversal candle
- Bearish reversal candle
Add Your Heading Text Here
- Bullish reversal candle
- Bullish reversal candle
- Not a reversal candle
- Bullish reversal candle
