Archives for October 2012

The Three-Line Strike, also known as the fooling three soldiers, is a four-line pattern that occurs during a defined trend. This pattern represents a resting period, but unlike most resting periods, the three-line strike occurs all in one day and it ends up looking like an extended three white soldiers pattern. The criteria required for the three-line strike pattern is pretty simple and is explained below.

Criteria for the Three-Line Strike

• The three white soldiers pattern appears as three white (or green) candles that are continuing the uptrend
• The fourth day opens higher, however it then pulls back to close below the open of the first white (or green) candle

Pattern Psychology
As explained above, the three white soldiers that preclude the fourth day’s black (or red) candle indicate the trend is continuing. The fourth day opens in a manner that resembles the previous days; however, profit-taking sets in so that the fourth candle continues until the close is below the open of the first white (or green) candle. The black (or red) candle body completely negates the rise of the past three days. As a result, the short-term pullback sentiment is out of the way and the uptrend continues on from this point.

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.

As you learn how to utilize the candlestick signals correctly you will 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.

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.

The Mat Hold Candlestick Pattern is similar to the “Rising Three Methods” pattern. The Mat Hold Candlestick Pattern has the look of an “Upside Gap Two Crows” pattern except that the second black (or red) body (third day) dips into the body of the large white (or green) candle. It is followed by another small black (or red) body that dips a bit further into the white (or green) candle body. The final day gaps to the upside and it continues its up-ward movement to close higher than the trading range of any of the previous days.

The implication of the Mat Hold Candlestick Pattern is that the trend has not stalled. This is a good point to add to positions. The Mat Hold Candlestick pattern is a stronger continuation pattern than the “Rising Three Methods.” During the days of “rest,” unlike the “Rising Three Methods,” the price stays close to the top of the white (or green) candle’s upper range.

Criteria

• An up-trend is in progress and a long white (or green) candle forms
• A gap up day, that closes lower than its open, creates a small black (or red) candle
• The following two days form small candles somewhat like the Rising Three Method.
• The final day gaps up and closes above the trading ranges of the previous four days.

Pattern Psychology

The Mat Hold Candlestick Pattern does not pull back as much as the Rising Three Method and it is easier to identify. The pull-back days are less concerning and the relatively flat rest period does not create the same amount of concern that the Rising Three Method creates. There are three days in which the bears are not able to knock the price down to any great degree and as a result the bulls step back in with confidence.

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 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.

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

“Lki chigai sen” is defined as “lines that move in opposite directions.” The separating lines candlestick pattern occurs when there is an uptrend in the market and when there is pullback as well. The separating lines candlestick pattern is exhibited by a long black (or red) candle; however, the following day opens back up to the same level as it opened the previous day. This pattern has the same open and is the opposite color. This is the exact reverse of the Meeting Lines pattern. In other Japanese circles, this is also known as “Furiwake” or in other words “Dividing Lines.”

Criteria

• An uptrend is in progress when a day then occurs that is the opposite color of the current trend.
• The second day opens at the open of the previous day.
• The second day should open on its low for the day and then proceed to go higher.

Pattern Psychology
During the uptrend a black (or red) body occurs. This causes some concern to the bulls, but the following day the prices gap back up to the previous day’s open. This gives the bulls confidence that the trend still has movement so they jump back in and move the prices higher. Confidence is renewed, and the trend continues. The bearish Separating Line candlestick pattern works the exact same way in the opposite direction.

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.

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.

Continue to learn about more candlestick patterns to see how it can greatly improve your profits! Primary candlestick patterns should be understood first (such as the doji and hanging man patterns). Once you have a basic understanding of the primary signals, move onto the secondary candlestick signals and then eventually the continuation pattern such as this upside tasuki gap pattern.

The side-by-side white lines are found during an up-trend and it is important to note that this pattern is a very strong continuation pattern. Two white (or green) candles form side-by-side after a gap up from the previous white (or green) candle. Narabi in Japanese means “in a row” which also means “whites in a row.” Side-by-Side Lines, whether black or white, indicate a pause or stalemate when they are observed alone and they occur after a gap in the trend’s direction.

SIDE-BY-SIDE WHITE LINES (BULLISH AND BEARISH)

Criteria for the Side-by-Side White Lines

• An uptrend is in progress and a gap occurs between two candles of the same color.
• The color of the first two candles is the same as the prevailing trend.
• On the third day, a candle opens at the same open price or near the open price of the previous day.
• The third day closes near the close of the previous day.

Pattern Psychology Behind the Side-by-Side White Lines
During an up-trend, a white (or green) candle gaps up from the white (or green) candle of the previous day. The following day opens at the open of the gap up; however, it is persistent in maintaining the up-ward move again. This indicates that the bears are trying to turn the trend around, but instead they lose to the bulls almost immediately. This side-by-side white lines pattern is somewhat rare, however its meaning is clear. It is also important to note that the bearish side-by-side white lines pattern is even rarer than its bullish counterpart. It indicates that a short covering is occurring and when the sellers step in again, even more short covering occurs. Finally when the short covering is over, the downtrend continues.

The psychology built into a major candlestick signal is simple common sense investment philosophy. When you learn how to utilize the candlestick patterns 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.

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.