Japanese Candlestick Charting Techniques Notes

Chapter 1
To the market, nothing matters unless the market reacts to it.

Technical analysis provides the only mechanism to measure the “irrational” component present
in all markets. (Ex. Volume price analysis, oscillators, moving averages)

The markets communicate with us. We can monitor these messages by using the technicals.

Chapter 3: Constructing the Candlestick Lines

In this book, black candles are red and white candles are green

Real body: The range between a session’s open and close

Shadows (Aka wicks): The thin lines above and below the real body, represent price extremes
 Upper shadow (upper wick): The shadow above the real body – high of session
 Lower shadow (lower wick): The shadow below the real body – low of session

If a candle line has no upper shadow, it is said to have a shaven head

 A candle line with no lower shadow has a shaven bottom

 A practical application of the real body is using its size as a barometer of the market’s
momentum. We get a clue that the prior momentum may be losing force as the real body
becomes smaller. Increasing length can signal increasing momentum, shorter length can
signal an upcoming change in momentum and direction.

Spinning top: a small real body

 Spinning tops are components of candle formations including morning and evening
stars, harami, hammers, etc. Color of a spinning top is not important.
 Spinning tops are not always at the top of a chart, it is named after it’s look

Doji: Represent a session when the open and close are the same (or very close to one another)
 Doji have implications as a reversal signal, usually the first sign on a candlestick chart

Large buy or sell orders at the open and close are used to affect these market times. A large
order at the open is called a “morning attack” and a large order at the close is a “night attack.”
 Thoughts: Volume at open can be an indicator of a stock’s direction for the day.
Consider comparing volume on open averages to determine early direction of a stock.

Chapter 4: Reversal Patterns