Archives for May 2012

The upside gap two crows is a three-day pattern that is created between a long white or green candle at the top of an uptrend and a small black or red candle on the second day. The black or red candle gaps open and it pulls back before the end of the day. Even though it has pulled back it did not fill the gap. The third day opens above where the first black or red candle opened. It cannot hold at these levels so it pulls back before the end of the day. It engulfs the small black or red candle’s body and closes lower than the previous day. It is important to note, however, that it still did not close the gap from the white or green candle.

Criteria for Upside Gap Two Crows:

• A long white candle continues the uptrend.
• The real body of the following day is black or red while gapping up but not filling the gap.
• The third day opens higher than the second day open and closes below the second day close. This produces a black or red candle that completely engulfs another small black or red candle.
• The close of the third day is still above the close of the last white or green candle.

Pattern Psychology for The Upside Gap Two Crows Pattern:
The atmosphere is bullish after a strong uptrend has been in effect. The price gaps open but it cannot hold the gains. Before the end of the day the bears step in and take the price back down, however the gap up from the white or green candle was not filled. The following day the bulls try again but they open the price higher than the open of the previous day. Again, they cannot hold the price up and so it backs off and closes lower than the previous day. This has now taken all of the steam out of the bulls. At this point, you want to see the bears really stepping in the following day to confirm the reversal. Please note that the upside gap two crows is not as bearish as the two crows pattern.

Candlestick signals identify where money is flowing in and out of stocks/sectors. Being able to identify and understand the investor psychology that creates the candlestick signals produces a huge advantage. It allows an investor to participate in stock investments that have an extremely high probability of moving in the right direction.

Candlestick patterns are created by common sense investment practices. Please continue to learn about the additional secondary candlestick signals.

Two Crows Pattern

The Two Crows Pattern is a three-day top reversal pattern. The two crows pattern is a gap pattern just like the upside gap. This pattern is created between the long white or green candle at the top of an uptrend, and the small black or red candle on the second day. The black candles gaps open and pulls back before the end of the day, but even though it has pulled back, it did not fill the gap. The third day opens in the body of the small black or red candle. The Bears maintain control and move it lower as they are able to fill the gap and close the price within the white or green candle body. Since the gap is filled so quickly, it eliminates any expectations from the bulls.

Criteria

1. A long white or green candle continues the uptrend.
2. The real body of the following day is black or red while gapping up and not filling the gap.
3. The third day opens within the second day’s body and closes within the white or green candle’s body. This produces a black or red candle that fills in the gap.

Signal Enhancements
If the third day closes more than halfway down the white or green candle, it would form an Evening Star Pattern.

Pattern Psychology
The atmosphere is bullish after a strong uptrend was in effect. The price gap opens but cannot hold the gains. Before the end of the trading day the bears step in and take the price back down. The gap up from the white or green candle was not filled however, and the following day the price opens slightly higher within the body of the previous black or red candle. The bulls are not as boisterous and cannot keep the momentum going. Prices go lower and close in the white or green candle range. The gap up from the bullish exuberance of the previous day is very quickly wiped away. Again, the further the third day closes into the white or green candle body the more bearish the implications are.

Please continue to learn how to identify the different candlestick patterns as well as what the patterns indicate is occurring in the markets.

Description

The Three Identical Crows pattern has the same criteria as the Three Black Crows pattern. The difference is that the opens are at the previous day’s close. The three identical crows is one of the secondary candlestick patterns. The secondary signals are titled as such because they do not appear as frequently as the 12 major signals. That does not negate the effectiveness of these signals for identifying reversals. Be aware of the implications of these signals and it will provide you with additional opportunities during the course of your investment decisions.

Criteria for Three Identical Crows

1. Three long black or red bodies occur and all are either close to or equal in length
2. The prior trend should have been up.
3. Each day opens at the close of the previous day.
4. Each day closes near its low.

Pattern Psychology

After an uptrend is in effect a long black or red candle forms, however the selling is more severe. There does not appear to be any buyers at the following day’s open. There are three long black or red candles that have a stair-stepping pattern to them and this indicates a much greater motivation to get out of the position.

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.

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.
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.

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

The three black crows pattern resembles three crows looking down from their perch, hence their name. This pattern is one of the secondary candlestick patterns because it does not appear as frequently as any of the 12 major signals. The three black crows pattern occurs after a strong uptrend and it indicates that the crows are looking down or in other words that lower prices are to come. It is the opposite of the three white soldiers signal which will be reviewed in future blogs.

Criteria

• Three long black or red bodies which are all close to or equal in length
• The prior trend is up
• Each day opens within the body of the previous day
• Each day closes near its low

Pattern Psychology for Three Black Crows Pattern

A long black or red candle forms after an up-trend and this up-trend has reached levels where the sellers have now started to step in. The first long black or red candle body is followed by two more long black or red candles and each candle opened in the previous day’s body. This indicates that buying was occurring early each day but that the bears continued to force the prices down by the end of each day. Consistent selling provides for a stronger potential for a downtrend to occur rather than a rapidly overselling period.

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 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.

The secondary signals are titled as such because they do not appear as frequently as the 12 major signals. That does not negate the effectiveness of these signals for identifying reversals. Be aware of the implications of these signals and it will provide you with additional opportunities during the course of your investment decisions.

Continue your candlestick analysis education and read more about the major and secondary candlestick patterns.

The Tri-Star pattern is considered one of the secondary candlestick patterns because it does not appear as frequently as any of the 12 major signals. Please note however that this does not negate the effectiveness or the importance of these secondary signals when identifying reversals. You are provided with additional opportunities during the course of investment decisions when you are aware of the implications that the secondary signals can have.

The Tri-Star pattern is relatively rare however it is a very significant reversal indicator. It is comprised of three dojis and the three-day period illustrates indecision.

Criteria for Tri-Star pattern

•  All three days in the three-day time period are dojis
• The middle day gaps above or below the first and third day and the length of the shadow should not be excessive in length. This is especially true when viewed at the end of a bullish trend.

Signal Enhancements

• A stronger reversal move is indicated the greater the gap is away from the previous day’s close.
• The chances that a significant reversal will occur, is increased by large volume on one of the signal days.

Pattern Psychology

After an up-trend or a downtrend has been in effect the appearance of the first doji reveals there is now indecision in the bull’s and the bear’s camp. The following days gaps in the same direction as the existing trend and forms the second doji. This reveals that there is no certainty in either direction. The third day opens opposite the previous trend’s direction and forms another doji for that day. At this point any investors that had any convictions will now most likely reverse their position. Due to the rarity of the Tri-Star pattern investors should double check the data source to confirm good data.

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. In consulting with money management and energy trading firms, he has successfully combined conventional research methods with Candlestick analysis to greatly enhance investment returns. His implementation of statistical analysis with the Japanese Candlestick methodology has produced some unique successful trading programs.

Continue your candlestick analysis education and read about the three black crows pattern.