Meeting Lines

Meeting Lines (or Counterattack Lines) are formed when opposite colored bodies have the same closing price. The first candlestick body is the same color as the current trend. The second body is formed by a gap open in the same direction as the trend. However, by the close it has come back to the previous day’s close. The bullish meeting line has the same criteria as the piercing pattern except that it closes at the same close as the previous day but not up into the body. Likewise, the bearish meeting line is the same as the dark cloud pattern, but it does not close down into the body of the previous day.

 

 

 

 

 

 

 

Criteria for the Meeting Lines Pattern

  • The first candlestick body should continue the prevailing trend.
  • The second candlestick gaps open continuing the trend.
  • The real body of the second day closes at the close of the first day.
  • The body of the second day is opposite color of the first day
  • Both days should be long candle days.

Signal Enhancements – The longer the bodies, the more significant the reversal pattern.

Meeting Lines Pattern Psychology
The trend is further promoted by a long body day after a strong trend has been in effect. The energy is increased the second day with a gap in the same direction. Before the end of the day, however, the price comes back to the same closing price of the previous day. This indicates that the other side of the market has now stepped in. Another day, opposite of the predominant trend is required to demonstrate that the trend has reversed. The opposite colored body does not need to be as long as the first body. Please note that in every case a confirmation day is going to be needed. The meeting lines pattern has more strength if there are no shadows at the meeting point.

Recognizing and understanding the psychology that forms the major candlestick patterns will provide completely new insights for investors to understand optimal times to buy and sell. Japanese rice traders realized that prices do not move based on fundamentals but instead that they move based on the investor perception of those fundamentals.

Take advantage of the benefits that Japanese Candlestick trading provides. Opportunities are easily identified and someone will take advantage of the information the signals provide even if you don’t. Once you learn the valuable benefits revealed by Candlestick formations the rewards will be overwhelming.

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Three Inside Up and Three Inside Down

When identifying the three inside up and the three inside down candlestick patterns, it is important to note that the Harami pattern occurs after a long candle day that is in the same direction of the trend. Also important to note, is that in order for you to understand both the three inside up and the three inside down patterns, you must be familiar with the bearish harami and bullish harami signals. The Harami is the first indication that the trend has stopped and the third day confirms that the harami has indicated correctly. The three-day pattern is a modern era confirmation of the Harami pattern.

 

 

 

 

 

 

Criteria for Three Inside Up and Three Inside Down Patterns

  • The harami pattern is the overriding signal component of this pattern.
  • The harami body should be the opposite color of the long candle day.
  • Day three has a close that is higher than the open of day one.(Three Inside Up) or lower than day one in the bearish indication.(Three Inside Down)

Three Inside Up and Three Inside Down Pattern Psychology
After a trend and the occurrence of a long body day, (that extends this thread), the harami pattern shows that the trend has stopped. A factor that helps identify the strength of the reversal is how large the harami is compared to the previous day’s body. A body that is relatively large indicates more strength in the opposite direction. Additionally, the magnitude of the strength in day three adds to the potency of the reversal.

The investment psychology incorporated into candlestick signals makes it easier to understand what is going on in an investor’s mind. The signals were created through hundreds of years of visual analysis and interpretation by successful Japanese Rice traders.

One of the biggest misconceptions of investors is that prices move based upon fundamental reasons when in fact prices move based upon the “perception” of fundamental reasons. The Japanese Rice traders discovered this many centuries ago. Why do prices go down when good news is announced? The answer is that the anticipation of that good news was already built into the stock price.

The psychology built into a major candlestick signal is simple common sense investment philosophy. When you learn how to utilize the candlestick signals correctly you now have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendation.

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The Three White Soldiers

The Three White Soldiers (also known as the advancing three white soldiers) is a healthy market reversal pattern and is one of many strong reversal candlestick patterns. It consists of three white (or green candles) with the second and third candles opening lower than the previous days close. They do, however close at a new high.

 

 

 

 

 

Criteria for the three white soldiers

  • Each consecutive long candle closes with a higher open
  • The second and third candlesticks open in the previous day’s body.
  • Each day should close very near its high for the day
  • The opens should be within the top half of the previous day’s body.

Pattern Psychology for the three white soldiers

After a downtrend, or a flat period, the presence of this formation suggests a healthy rally is going to occur over the next couple of days. This flat period is indicated by prices that stayed low for a long period of time. The market neared its bottom or was already at the bottom which suggests that sellers were present. By the end of each day the buying overcomes the early sellers and as in any rally, too much buying with little selling can be dangerous. Please note that this bullish reversal pattern does not require confirmation.

The average investor does not have to be dependent on the investment professional when utilizing candlestick patterns. Professional recommendations are not always in your best interest at the forefront. Whether totally unfamiliar with investment concepts or very sophisticated in investment experience, the Japanese Candlestick trading formations are easily utilized. The signals and patterns are easy to see and their interpretations are reliable.

Be sure to learn the twelve major candlestick patterns before you move onto the secondary candlestick patterns. You may want to begin with the doji, the engulfing signals, hammer signal, as well as the hanging man signal. Once you learn about the twelve major signals then move onto the secondary signals such as this three white soldiers signal.

Recognizing and understanding the psychology that forms the major candlestick patterns will provide completely new insights for investors to understand optimal times to buy and sell. Japanese rice traders realized that prices do not move based on fundamentals but instead that they move based on the investor perception of those fundamentals.

 

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Unique Three River Bottom Pattern

The Unique Three River Bottom is a bullish pattern and is somewhat characteristic of the Morning Star Pattern. This candlestick signal is formed with three candles and at the end of a downtrend a long black or red body is produced. The second day opens higher as it drops down to new lows and then closes near the top of the trading range. This is a Hammer-type formation and on the third day it opens lower but not below the low of the previous day. It closes higher and produces a white or green candle however it does not close higher than the previous day’s close. The Unique Three River Bottom Pattern is a rare pattern.

 

 

 

 

 

Criteria

  • The candlestick body of the first day is a long black or red candle and it is consistent with the prevailing trend.
  • The second day does a harami or hammer signal and it also has a black or red body.
  • The second day’s shadow has set a new low.
  • The third day opens lower but not below the lowest point of the previous day. It also closes higher but below the previous days close.

Signal Enhancements
The longer the shadow of the second day the greater the probability of a successful reversal.

Pattern Psychology
After a strong downtrend trend is in effect, the trend is further promoted by a long body black or red candle. The next day prices open higher but the bears are able to take prices down to new lows. Before the end of the day, the bulls bring prices back up to the top end of the trading range. On the third day the bears try to take down prices again but the bulls maintain control. If the following day sees prices going up to new highs then the reversal is confirmed.

Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick signals have credible probabilities of indicating correct future direction of a price move.

Continue to learn about other candlestick patterns in addition to the Unique Three River Bottom Pattern.

 

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