Japanese Candlesticks

Definition

Candlestick charts were designed by Muneshia Homma in 1724 for the rice market in Japan.
They contain the same OPEN, HIGH, LOW, and CLOSE information which is found in a Western barchart.
The distance between the HIGH and the LOW defined the length of the "wick" of the candle (the "shadow").
The distance between the OPEN and the CLOSE defined the length of the "body" of the candle (the "real body" or "jittai").
If the CLOSE is higher than the OPEN, a bullish move occurred. The candle body was colored red. Today it is usually colored white.
If the CLOSE was lower than the OPEN, a bearish move occurred. The candle body was colored black. Today it is also colored black.

# 1	Doji	Turning Point; Slightly Bearish
# 2	Long-legged Doji Rickshaw Man	Turning Point if Both Shadows are Long and Equal in Length
# 3	Doji	Turning Point; Slightly Bullish
# 4	Dragonfly Doji	Turning Point in the Market
# 5	Gravestone Doji	Either a Turn in the Market or a Stable Market
# 6	Four-Price Doji	Possible Turning Point; the Market is Unsure

# 1	Long Red (White) Line	Extremely Strong Line
# 2	Long Black Line	Extremely Weak Line
# 3	Red (White) Opening Line	Strong Line -- Indicates High Prices
# 4	Black Opening Line	Weak Line -- Indicates Low Prices
# 5	Red (White) Closing Line	Strong Line -- Indicates High Prices
# 6	Black Closing Line	Weak Line -- Indicates Low Prices

# 1	Red (White) Spinning Top	Unsure of Which Direction to Move
# 2	Black Spinning Top	Unsure of Which Direction to Move
# 3	Red (White) Hammer Hanging Man	If it is Higher at a Top, Sell; If it is Lower at a Bottom, Buy
# 4	Black Hammer Hanging Man	If it is Higher at a Top, Sell; If it is Lower at a Bottom, Buy
# 5	Red (White) Inverted Hammer Shooting Star	If it is Higher at a Top, Sell; If it is Lower at a Bottom, Buy
# 6	Black Inverted Hammer Shooting Star	If it is Higher at a Top, Sell; If it is Lower at a Bottom, Buy

Engulfing Pattern (Tsutsumi Line)
- A two-period patterm in which the real body of the previous period is covered by the real body of the current period.
- It is analagous to the "outside day" in convetional charting.
- This pattern is particularly important IF it is formed near a top or bottom.
- It signifies that the bears are taking control from the bulls, or vice versa.
- The shadows are not significant -- only the size of the real bodies matters.
Bullish Engulfing Pattern
- Is made by Candles #1 and #2
- Indicates an end to the fall and the start of a rise
Bearish Engulfing Pattern
- Is made by Candles #3 and #4
- Indicates an end to the rise and the start of a fall

When a line with little or no movement is unable to move above or below the previous day's line, it is called a "harami line".
It does not matter whether the harami line is bullish or bearish. The main characteristic is the presence of the harami line.
The previous line is where the predictions are made.
If the Harami line is also a Doji line, it is especially helpful for signalling turns in the market.
If the previous line was a red (white) line in a rising market (Candles #1 and #2), the probabilities of hitting a ceiling are extremely strong.
The Doji form of the Harami line (Candles #5 and #6) tends to form at a very high ceiling.
The other Doji form (Candles #7 and #8) tend to form at a support area.

The "Dark Cloud Cover" is a two-period pattern which occurs when a red (white) line is followed by a black line which has a higher price than the red line and which closes inside the body of the red line.
This is a bearish formation which indicates that the bulls are unable to sustain the upward momentum, and the bears are taking control.
In a rising market, the "Kabuse Line" usually appears near the ceiling.
This formation often occurs when a top is made on Friday and a shift in sentiment occurs by Monday.
The "Kabuse Line" can be caused by the following occurrences:
- News which affects the market
- Increase in margins for a market
- Change in market control regulations

The "Piercing Pattern" is a two-period pattern which is basically the opposite of the "Dark Cloud Cover".
The black line of this pattern often occurs on Friday; the bullish red (white) line then occurs on the following Monday.
This pattern may occur during a break in the market.
The "Kirikomi Line" rarely appears at a market bottom. At a bottom, the price movement can be fairly stable for a long period of time.

The "Morning Star" and "Evening Star" are three-period patterns which are formed when the middle period has a window between the real bodies of the first and third candles in the formation.
"Morning Star"
- This is analagous to an "island bottom" in conventional charting.
- If the middle candle is a Doji, the pattern is called a "Morning Southern Cross".
"Evening Star"
- This is analagous to an "island top" in conventional charting.
- If the middle candle is a Doji, the pattern is called a "Evening Southern Cross".
- If the middle candle is a small inverted Hammer, the pattern is called a "Shooting Star".

The "Sanpei" is a three-period pattern in which all the candles are the same color.
This pattern indicates that the current market direction will continue.
If three red (white) candles occur, the pattern is called "Three Red Soldiers"
(Candles # 1-3).
If three black candles occur, the pattern is called "Three Black Crows"
(Candles # 4-6).

Bonnie's Links
created by Bonnie Lee Hill,

last modified on February 9, 2020

URL: http://mysite.verizon.net/bonniehill/pages.aux/murrey/candlestick.html