Candlestick Terms And Visual Dictionary

The descriptions and illustrations below explain and show ideal examples of what the pattern should be like. These "ideal" patterns rarely unfold, therefore, use this glossary as a guidepost, since some subjectivity is required.

Abandoned baby-a very rare major top or bottom reversal signal. It is comprised cf a doji star which gaps away (including shadows) from the prior and following sessions' candlesticks. The same as a Western island top or bottom in which the island session is also a doji.

Advance block-a variation on three white soldiers in which the last two soldiers (i.e., white real bodies) display weakening upside drive. This weakness could be in the form of tall upper shadows or progressively smaller real bodies. It signifies a diminution of buying force or an increase in selling pressure.

Abandoned Baby

Abandoned Baby

Top Bottom

Top Bottom

Advance Block

Advance Block

Belt-hold line—there are bullish and bearish belt holds. A bullish belt hold is a tall white candlestick that opens on its low. It is also called a white opening shaven bottom. At a low price area, .this is a bullish signal. A bearish belt hold is a long black candlestick which opens on its high. Also referred to as a black opening shaven head. At a high price level, it is considered bearish.

Belt Hold Lines

Bullish Bearish

Candlestick lines and charts —traditional Japanese charts whose individual lines look like candles, hence their name. The candlestick line is comprised of a real body and shadows. See "Real body" and "shadow."

Candlestick Line

Upper /Shadow

Real Body

"Lower

Real Body

"Lower

Counterattack lines—following a black (white) candlestick in a downtrend (uptrend), the rna'rket gaps sharply lower (higher) on the opening and then closes unchanged from the prior session's close. A pattern which reflects a stalemate between the bulls and bears.

Counterattack Lines

Counterattack Lines

Dark-cloud cover—a bearish reversal signal. In an uptrend a long white candlestick is followed by a black candlestick that opens above the prior white candlestick's high. It then closes well into the white candlestick's real body.

Dead crass—a bearish signal given when a short-term moving average crosses under a longer-term moving average.

Deliberation pattern—see "Stalled pattern."

Doji-a session in which the open and close are the same (or almost the same). There are different varieties of doji lines (such as a gravestone or long-legged doji) depending on where the opening and closing are in relation to the entire range. Doji lines are among the most important individual candlestick lines. They are also components of important candlestick patterns.

Doji star—a doji line which gaps from a long white or black candlestick. An important reversal pattern with confirmation during the next ses-

Dark-Cloud Cover

Doji

Grave-Long Stone Legged sion.

Doji Star

Doji Star

Downside gap tasuki—see "Tasukigaps.

Dumpling Top Dumpling tops—similar to the Western rounding top. A window to the downside is needed to confirm this as a top.

Eight or ten new records—after about eight to ten new price highs buying pressure should end. After such an advance, if a bearish candlestick indicator appears, selling is warranted. The opposite occurs after eight or ten new lows.

Engulfing patterns—there is a bullish and bearish engulfing pattern. A bullish engulfing pattern is comprised of a large white real body which engulfs a small black real body in a downtrend. The bullish engulfing pattern is an important bottom reversal. A bearish engulf— ing pattern (a major top reversal pattern), occurs when selling pres— sure overwhelms buying pressure as reflected by a long black real body engulfing a small white real body in an uptrend.

Engulfing Patterns

Evening Star

Evening Star

Evening Doji Star

Evening Doji Star

Engulfing Patterns

Evening star—a major top reversal pattern formed by three candlesticks. The first is a tall white real body, the second is a small real body (white or black) which gaps higher to form a star, the third is a black candlestick which closes well into the first session's white real body.

Evening doji star—the same as an evening star except the middle candle— stick (i.e., the star portion) is a doji instead of a small real body. Because there is a doji in this pattern, it is considered more bearish than the regular evening star.

Falling three methods—see "Three methods."

Fry pan bottoms—similar to a Western rounding bottom. A window to the upside confirms this pattern.

Fry Pan Bottom

Fry Pan Bottom

Gapping play—there are two kinds of gapping play:

1. high—price gapping play—after a sharp advance the market consolidates via a series of small real bodies near the recent highs. If prices gap above this consolidation it is a buy signal.

2. low-price gapping play—after a sharp price decline the market consolidates via a series of small real bodies near the recent lows. If prices gap under this consolidation it is a sell signal.

Gapping Play

Gapping Play

Golden cross-a bullish signal in which a shorter-term moving average crosses above a longer-term moving average.

Gravestone doji-a doji in which the opening and closing are at the low of the session. A reversal signal at tops. Also a reversal signal at bottoms, but only with bullish confirmation the next session. See the illustration under "Doji."

Hammer—an important bottoming candlestick line. The hammer and the hanging man are both the same line, that is a small real body (white or black) at the top of the session's range and a very long lower shadow with little or no upper shadow. When this line appears during a downtrend it becomes a bullish hammer. For a classic hammer, the lower shadow should be at least twice the height cf the real body.

Hanging man-an important top reversal. The hanging man and the hammer are both the same type of candlestick line (i.e, a small real body (white or black), with little or no upper shadow, at the top of the session's range and a very long lower shadow). But when this line appears during an uptrend, it becomes a bearish hanging man. It signals the market has become vulnerable, but there should be bearish confirmation the next session (i.e., a black candlestick session with a lower close or a weaker opening) to signal a top. In principle, the hanging man's lower shadow should be two or three times the height of the real body.

two candlestick pattern in which a small real body holds within the prior session's unusually large real body. The harami implies the immediately preceding trend is concluded and that the bulls and bears are now in a state of truce. The color of the second

Hammer

Hanging Man

Hanging Man

Harami

Harami

Hammer real body can be white or black. Most often the second real body is the opposite color of the first real body.

Harami cross-a harami with a doji on the second session instead of a small real body. An important top (bottom) reversal signal especially after a tall white (black) candlestick line. It is also called a petrifying pattern.

Harami Cross

High Waves

High Waves

In-Neck

In-Neck

High wave-a candlestick with a very long upper or lower shadow and a short real body. A group of these can foretell a market turn.

High-price gapping play—see " Gapping plays."

In-neck line-a small white candlestick in a downtrend whose close is a slightly above the previous black candlestick's low of the session. After this white candlestick's low is broken, the downtrend should continue. Compare to on-neck line, thrusting line, and piercing pattern.

Inverted hammer—following a downtrend, this is a candlestick line that has a long upper shadow and a small real body at the lower end of the session. There should be no, or very little, lower shadow. It has the same shape as the bearish shooting star, but when this line occurs in a downtrend, it is a bullish bottom reversal signal with confirmation the next session (i.e., a white candlestick with a higher close or a higher opening).

Inverted Hammer

Inverted Hammer

Inverted three Buddha pattern—see "Three Buddha pattern."

Long-legged doji—a doji with very long shadows. This is an important reversal signal. If the opening and closing of a long-legged doji session are in the middle of the session's range, the line is called a rickshaw man. See illustration under "Doji."

Low-price gapping play—see " Gapping plays."

Lower shadow-see "Shadows."

Mat-hold pattern—a bullish continuation pattern. A white candlestick is followed by a small black real body which gaps higher. Then there are two small black candlesticks which are followed by a strong white candlestick (or a candlestick which gaps open above the last black candlestick).

Mat Hold

Mat Hold

Morning star—a major bottom reversal pattern formed by three candlesticks. The first is a long black real body, the second is a small real body (white or black) which gaps lower to form a star, the third is a white candlestick that closes well into the first session's black real body.

Morning doji star—the same as a morning star except the middle candlestick is a doji instead of a small real body. Because there is a doji in this pattern it is considered more bullish than the regular morning star.

Morning Star

Morning Star

Morning Doji Star

Morning Doji Star

Morning attack—the Japanese expression for a large buy or sell order on the opening that is designed to significantly move the market.

Night attack—the Japanese expression for a large order placed at the close to try to affect the market.

On—neck line—a black candlestick in a downtrend is followed by a small white candlestick whose close is near the low of the session of the black candlestick. It is a bearish continuation pattern. The market should continue to move lower after the white candlestick's low is broken. Compare to an in-neck line, a thrusting line, and a piercing pattern.

Petrifying pattern—another name for the harami cross.

Piercing pattern—a bottom reversal signal. In a downtrend, a long black candlestick is followed by a gap lower during the next session. This

On-Neck Line

session finishes as a strong white candlestick which closes move than halfway into the prior black candlestick's real body. Compare to the on-neck line, the in-neck line, and the thrusting line.

Rain drop-see "Star."

Real body-the thick part cf the candlestick line. It is defined by the closing and opening prices of the session. When the close is higher than the open, the real body is white (or empty). A black (or filled in) real body is when the close is lower than the opening. See the illustration under "Candlestick lines and charts."

Rickshaw man—see "Long-legged doji."

Rising three methods-see "Three methods."

Separating lines—when, in an uptrend (downtrend) the market opens at the same opening as the previous session's opposite color candlestick and then closes higher (lower). The prior trend should resume after this line.

Separating Lines Bullish Bearish

Separating Lines Bullish Bearish

Shadows-the thin lines above and below the real body of the candlestick line. They represent the extremes of the day. The lower shadow is the line on the bottom of the real body. The bottom of the lower shadow is the low of the session. The upper shadow is the line on top of the real body. The top of the upper shadow is the high of the session. See the illustration under "Candlestick lines and charts."

Shaven bcttcm—a candlestick with no lower shadow.

Shaven head-a candlestick with no upper shadow.

shooting star Shooting star—a candlestick with a long upper shadow with little, or no ¡"I lower shadow, and a small real body near the lows cf the session that j ^ I arises after an uptrend. It is a bearish candlestick signal in an

Side-by-side white lines-two consecutive white candlesticks which have the same open and whose real bodies are about the same size. In an uptrend, if these side-by-side white lines gap higher, it is a bullish continuation pattern. In a downtrend, these side-by-side white lines

Glossary A: Candlestick Terms and Visual Dictionary 297

gapping lower are bearish since they are viewed as temporary short covering. Gapping side-by-side lines are very rare.

Side by Side White Lines

I I Bearish

Spinning top-a candlestick with a small real body.

Stalled pattern—a small white real body which is either above the prior long white real body or near its top. Sometimes there is a short white candlestick before the long white one. At the emergence of the stalled pattern, the market's rally should stall. Also called a deliberation pattern.

Star—a small real body (i.e., a spinning top) which gaps away from the previous long real body. A star reflects a diminution of the force of the trend preceding the star. Sometimes a star following a long black line in a downtrend is called a rain drop.

Stars

Stars

Stalled Pattern ni

Tasuki gaps—there are downside and upside tasuki gaps. The downside gap is formed when, in a declining market, a black real body gaps lower. This candlestick is followed by a white candlestick, of the same size, which opens in the black session's real body and then closes above the black's real body. It is a bearish continuation pattern. The upside tasuki gap is a bullish continuation pattern. It is formed when a white candlestick which gaps higher is followed by a black candlestick of about the same size which opens within the white real body and closes under the white's real body. Tasuki gaps are rare. Tasuki Gaps

Side by Side White Lines

I I Bearish

Three Buddha patterns—A three Buddha top is the same as the Western head and shoulders top. In Japanese terms, the three Buddha top is a three mountain top in which the central mountain is the tallest. An inverted three Buddha is the same as the Western inverted head and shoulders. In Japanese terminology, it is a three river bottom in which the middle river is the longest.

Three Buddha

Inverted

Three crows—three relatively long consecutive black candlesticks which close near or on their lows. A top reversal at a high price level or after an extended rally.

Three gaps-if a bearish (bullish) candlestick indicator appears after three gaps higher (three gaps lower), buying force (selling pressure) should be exhausted.

Three methods—there are two types. The first is the falling three methods which is a bearish continuation pattern. It is comprised of five lines. A long black real body is followed by three small, usually white, real bodies which hold within the first session's range. Then a black candlestick closes at a new low for the move. The second is the rising three methods which is a bullish continuation pattern. A tall white candlestick preceded three small, usually black, real bodies that hold within the white candlestick's range. The fifth line of this pattern is a strong white candlestick that closes at a new high for the move.

_Three Methods_

Falling , Rising

Three mountain top-a longer-term topping pattern in which prices stall at, or near, the same highs. It is also sometimes viewed as three waves up.

Three Mountain Top

Three river bottom—when the market hits a bottom area three times. When the peak of the intervening valleys is exceeded by a white candlestick or with a gap it is confirmation that a bottom has been put in place.

Three white or three advancing soldiers—this is a group of three white candlesticks with consecutively higher closes (with each of the closes near the highs of the session). These three white candlesticks presage more strength if they appear after a period of stable prices and at a low price area.

Thrusting line-a white candlestick which closes in the prior black real body, but still under the middle of the prior session's real body. The thrusting line is stronger than an in-neck line, but not as strong as a piercing line. In a downtrend, the thrusting line is viewed as bearish (unless two of these patterns appear within a few days of each other). As part of a rising market it is considered bullish.

Towers—there is a tower top and tower bottom. The tower top, a top reversal formation, is comprised of a tall white candlestick followed by congestion and then one or more long black candlesticks. It is a pattern which looks like it has towers on both sides of the congestion

Three River Bottom

Three White Soldiers

Thrusting Line

Towers

Bottom

Bottom

Unique Three

River Bottom River Bottom

Upside Gap

Two Crows Two Crows band. A tower bottom is a bottom reversal pattern. A long black candlestick is followed by lateral action. Then the market explodes to the upside via one or more long white candlesticks.

Tri-star—three dojis that have the same formation as a morning or evening star pattern. An extraordinarily rare pattern and a major reversal signal.

Tweezers top and bottom—when the same highs or lows are tested the next session or within a few sessions. They are minor reversal signals that take on extra importance if the two candlesticks that comprise the tweezers pattern also form another candlestick indicator. For example, if both session's of a harami cross have the same high it could be an important top reversal since there would be a tweezers top and a bearish harami cross made by the same two candlestick lines.

Unique three river bottom-a rare type of bottom comprised cf three lines. The first is a long black real body, the second is a hammer like session with a black real body which makes a new low, and the third candlestick is a small real body.

Upper shadow—see "Shadows."

Upside gap tasuki—see "Tasuki gaps."

Upside gap two crows—a three candlestick pattern. The first line is a long white candlestick which is followed by a black real body that gaps higher. The third session is another black real body which opens above the second session's open and closes under the second session's close. It is a top reversal signal.

Window—the same as a Western gap. Windows are continuation patterns. When the market rallies and opens a window, there should be a pullback to that window. The window should be support. If a win-

Tweezers

Tops

Bottoms

Tops ll

Windows

In an Uptrend

In an Uptrend

In a Downtrend dow opens in a selloff, there should be a rally to the window. The window should be resistance. The Japanese expression is that "the market goes to the window."

Yin and yang—the Chinese name cf the black (yin) and white (yang) candlesticks.

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