Search Results for: homing pigeon

Description
The homing pigeon is the same as the harami (see bullish harami and bearish harami signals), except for the color of the second day’s body. The homing pigeon is composed of a two-candle formation in a down trending market. Both candles are the same color as the current trend. The first body of the pattern is a long body and the second body is smaller. The open and the close of the second day occur inside the open and the close of the previous day. When a homing pigeon present itself it indicates that the trend is over.

Criteria for Homing Pigeon:

• The body of the first candle is black (or red) and the body of the second candle is black (or red).
• The downtrend is evident for a good period of time and a long black (or red) candle occurs at the end of the trend.
• The second day opens higher than the close of the previous day, and closes lower than the open, but still above the closing price of the prior day.
• Unlike the western inside day, just the body needs to remain in the previous day’s body. Please note that the inside day requires both the body and the shadows to remain inside the previous day’s body.
• For a reversal signal, further confirmation is required to indicate that the trend is moving up.

Signal Enhancements for the Homing Pigeon
The higher the second candle closes up on the first black (or red) candle, the more convincing it is that a reversal occurred.

Pattern Psychology
After a strong downtrend has been in effect and after a long black (or red) candle, the bulls open the price higher than the previous close. The shorts get concerned and start to cover. The price finishes lower for the day but not as low as the previous day. This is enough support needed so that the short sellers take notice that the trend is violated. A strong day following would convince everyone that the trend is reversing. Usually the volume is above the recent norm due to the unwinding of short positions.

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

The matching low candlestick pattern is similar to the homing pigeon candlestick pattern. The exception is that both days of this two-day pattern’s close are at the same low level. Since both day’s black (or red) candles close at the same level, this matching low signal indicates that the bottom is hit after a long downtrend. See criteria for matching low candlestick pattern below.

Criteria for Matching Low

• The body of the first candle is black (or red) and the body of the second candle is black (or red).
• The downtrend is evident for a good period of time and a long black (or red) candle occurs at the end of the trend.
• The second day opens higher than the close of the previous day and it closes at the same close as the prior day.
• For a reversal signal, further confirmation is required to indicate that the trend is moving up in direction.

Pattern Psychology Behind the Matching Low
After a strong downtrend is in effect, and after a long black (or red) candle occurs, the bulls open the price higher than the previous day’s close. The shorts get concerned and start to cover; however, the bears still have enough control to close the price at the low of the day. Again this low is the same low as the close of the previous day. The psychological impact for the bears is that the second day couldn’t close below the previous day’s close and it causes concern that this is a support level.

Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method.

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.

Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.