It is possible to use candlestick analysis to discover market turning points—the

tops
and the bottoms. One approach is to look for distinctive, easily seen patterns that
mark a top
or bottom. The other is to examine whether tops and bottoms have predictable
patterns. In
practice, its difficult to make judgments from a single pattern. A single* pattern
may have*
two, opposite, meanings, depending on whether it comes after the market has made a
substantial rise or a substantial fall (in fact, the meaning is the same in that
the pattern
indicates a market reversal, but it means the opposite in the sense of going up or
going
down). The key, therefore, is to examine not only the shape but also the timing of
the
pattern.
Takuri and Hanging Man Shapes
Takuri and hanging man shapes, with a small real body (the rectangular portion) and
an extremely long lower shadow, are often seen at the bottom of the market. Some
examples are found in Figure 4.8. They can be quickly spotted in real charts. The
point to
watch is the lower shadow. The relative size of the real body is not that
important, nor is the
color—white or black—or the presence of a short upper shadow. As long as the lower
shadow is noticeably long, it fits the pattern. Takuri. Strictly speaking, takuri
refers to a black
candlestick that opens low and has a long lower shadow and a small real body, but
it can
also be a white candlestick and can have a bit of an upper shadow or a large real
body, as
long as the lower shadow is substantially longer than the real body. Takuri also
covers doji
shapes like the dragonfly and the hammer, in which the open and close are the same,
as
long as the lower shadow is of sufficient length. Takuri shapes are usually seen
after the
market has experienced a substantial drop, and they represent an opportune buying
signal,
especially if they are accompanied by high volume (see Figure 4.9).
A white takuri accompanied by volume (far greater trading volume than the previous
day's) very likely marks a bottom. The reason for that is quite simple. Consider
the
psychology of investors when a takuri is formed. If the market has been in a
prolonged
decline, investors begin to wonder why it hasn't stopped and when it eventually
will. The
www.rasabourse.com
52
psychology flips back and forth between "Hurry up and stop already!” and "Could the
market
go down any farther?"