JAPANESE CANDLESTICKS-REVERSAL PATTERNS
1.HAMMER
-This is a bottom reversal signal.
-This has a long lower shadow,at least 2-3 times the size of the body,very little or no upper shadow.
-The bodyis at the upper end of the trading range.
-The colour of the body,whether black or white,does not matter.
What has happenned here
rices open at a particular price,and goes down......but this day,differently from the last few days,Prices start correcting back to the opening price(maybe closing a bit higher or a bit lower from the opening price).
It is an indication that the bulls are getting back in action.......It is an indication of a possible trend change.
2.HANGING MAN
-A potentially bearish pattern that occurs after an uptrend.
-Basically looks like a Hammer but after an uptrend.
-Named so,because it looks like a hanging man,with his legs dangling.
-Again,like the hammer,it has a long lower shadow,and has to be 2-3 times the size of the body.
-Little or no upper shadow.
-Body is at the upper end of the trading range.
-Again,the colour of the body is not important........but a black body is obviously more bearish.
What has happenned here:After an uptrend, the bears threatened to take control driving prices downwards.But the bulls still saved the day by driving prices back to opening price,thus forming the lower shadow.Although the bulls won that day,it is a sign of increasing bull fatigue and increasing bear strength.
3.BULLISH ENGULFING PATTERN
-Again,like the hammer,it is a bottom reversal pattern.
-Unlike the hammer,which is an individual candle line,The Bullish Engulfing pattern needs two candles.
-A Black candle and a White Candle that engulfs the previous black candle.
-The white candle must engulf,meaning the body of the white candle must open lower than the close of the previous candle,and then it must close over the open of the previous candle........it therefore engulfs the previous bar.
-It need not close over the previous candle's high to be termed as a Bullish Engulfing Pattern.
-If this pattern is accompanied by a definite increase in volume,this is a major turning point.
Of what use is this to us?-With this strong day,the bulls have reasserted their authority and declared that their time has come.Buy the mild pullback that usually follows such a candle......the low of the Bullish Candle is now support and therefore our stop area.
4.BEARISH ENGULFING PATTERN
-Like the hanging man,it is a bearish reversal pattern.
-This also requires two candles......the first one a white candle ,the second a black candle.
-The black candle engulfs the white candle.Again,the close must be below the open of the previous day.,need not take out yesterday's lows.
Same as above,the high of the bearish engulfing pattern is now a strong resistance and becomes the area where we put our stops as we short this stock downwards.
More Later!
Saint
1.HAMMER
-This is a bottom reversal signal.
-This has a long lower shadow,at least 2-3 times the size of the body,very little or no upper shadow.
-The bodyis at the upper end of the trading range.
-The colour of the body,whether black or white,does not matter.
What has happenned here
rices open at a particular price,and goes down......but this day,differently from the last few days,Prices start correcting back to the opening price(maybe closing a bit higher or a bit lower from the opening price).It is an indication that the bulls are getting back in action.......It is an indication of a possible trend change.
2.HANGING MAN
-A potentially bearish pattern that occurs after an uptrend.
-Basically looks like a Hammer but after an uptrend.
-Named so,because it looks like a hanging man,with his legs dangling.
-Again,like the hammer,it has a long lower shadow,and has to be 2-3 times the size of the body.
-Little or no upper shadow.
-Body is at the upper end of the trading range.
-Again,the colour of the body is not important........but a black body is obviously more bearish.
What has happenned here:After an uptrend, the bears threatened to take control driving prices downwards.But the bulls still saved the day by driving prices back to opening price,thus forming the lower shadow.Although the bulls won that day,it is a sign of increasing bull fatigue and increasing bear strength.
3.BULLISH ENGULFING PATTERN
-Again,like the hammer,it is a bottom reversal pattern.
-Unlike the hammer,which is an individual candle line,The Bullish Engulfing pattern needs two candles.
-A Black candle and a White Candle that engulfs the previous black candle.
-The white candle must engulf,meaning the body of the white candle must open lower than the close of the previous candle,and then it must close over the open of the previous candle........it therefore engulfs the previous bar.
-It need not close over the previous candle's high to be termed as a Bullish Engulfing Pattern.
-If this pattern is accompanied by a definite increase in volume,this is a major turning point.
Of what use is this to us?-With this strong day,the bulls have reasserted their authority and declared that their time has come.Buy the mild pullback that usually follows such a candle......the low of the Bullish Candle is now support and therefore our stop area.
4.BEARISH ENGULFING PATTERN
-Like the hanging man,it is a bearish reversal pattern.
-This also requires two candles......the first one a white candle ,the second a black candle.
-The black candle engulfs the white candle.Again,the close must be below the open of the previous day.,need not take out yesterday's lows.
Same as above,the high of the bearish engulfing pattern is now a strong resistance and becomes the area where we put our stops as we short this stock downwards.
More Later!
Saint
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