20 THE CANDLESTICK COURSE * Retracement * Box range TING ‘The ability to recognize a potential trend reversal 1s one of the mast impor- tant skills you can cultivate. Your ability to read candle ines and patterns will increase that skill many times over. In the sections that follow, we'll delve into specific candle lines and pat- tems and the signals they give in the contexts of uptrends, downtronds and trond shifts, or reversals, At the present, howover, we're going to get a top- down overview. ‘To start with, let's examine the anatomy of a trend reversal. A Japanese proverb states, “Darkness les one inch ahead." You need only watch the finaneial television networks to see the great degree of importance traders and Investors place on foretelling market tops and bottoms to arrive at an early insight on upcoming moves. As you know, the common goal 1s to buy low and sell high or, in the ease of selling short, to sell high, buy low. On charts, Western trond reversal patterns include double and triple taps and hattoms, key reversal days, head-and-shoulders, cup-with-handles, and island tops and bottoms. Although market cycles of alternating uptrends and downtrends inter- spersed with peaks and valleys are inevitable, you shouki remember that trends don't always end abruptly. In fact, trends usually occur slowly, in stages, as the underlying psychology shifts. Remember the old market saying, “The trend is your friend." Succossful trading entails staying on the right side of the trend (although most find this 4s easier said than done), Trend change or reversal signals are the market's way of warming, It means market psychology is n transformation and you neod to adjust your trading style to reflect that environment change. For example, if you see a reversal signal, you might consider initiating a new position only if that signal 1s n the direction of the major trend. Say your stock has been climbing in a strong uptrend. Then, it either consolidates stde- ways for a few sessions or moves down (retraces) to prior support. At this time you get a bullish candle signal. Since the major trend has been up, one can use the bullish candle signal to initiate a long postion. A bullish candle signal in a bear trend should be nsed either to cover shorts or as an alert that