The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

ChAPter 14 Japanese Candlestick Analysis

L e a r n i n g O bJeCt i v e s

After studying this chapter, you should be able to:

■ Understand the significance of various Japanese candlestick patterns and how to use

them to pinpoint reversals and breakouts in the market

■ Describe the difference between reversal and continuation candlesticks

■ Identify and differentiate between reliable and unreliable patterns by referencing the 10

important price action guidelines

■ Integrate technical studies to Japanese candlestick charts effectively

■ Identify the three important trigger levels in Japanese candlestick patterns

J

ust as with bar charts, Japanese Candlestick charting represents the study of pure

price action. It takes into account the price range, relative positions of its open, high,

low, and close (OHLC) prices, the location of the price activity, and trend character-

istics in order to effectively forecast potential breakouts and reversals in the market.

In this chapter, we shall be covering various Japanese candlestick formations, their

classifications, price action behavior, and their integration with other technical tools.

14.1 Elements of Candlestick Analysis

Construction and Classification of Japanese

Candlesticks formations

Japanese candlesticks are constructed using OHLC data. They are identical to

standard price bars except for the boxing up of the price range between the open-

ing and closing prices. See Figure 14.1. We refer to the boxed up area as the real

body. Unlike standard price bars, the existence of real bodies provides for better