Japanese Candlestick Analysis
- trend sentiment If the candlestick or candlestick formation has intrinsic
sentiment, then it logically follows that:
■ (^) If it is in agreement with the existing or predominant trend sentiment, it will
generally be regarded as a continuation pattern.
■ (^) If it is not in agreement with the existing or predominant trend sentiment, it
will generally be regarded as a reversal pattern.
Trend sentiment augments the reversal and continuation expectations associated
with the candlesticks and candlestick patterns. Trend sentiment represents the sentiment
or expectation associated with a reversal or continuation pattern occurring within the
context of a trend. The further a reversal pattern occurs along in a trend, the greater
the trend sentiment or expectation that it will potentially reverse. This is because trend
sentiment is affected by the behavioral phenomenon of overextension in the markets.
The more prolonged the trend, the greater the chance it will be overextended or ap-
proaching overextension and hence the greater will be the level of trend sentiment
or expectation associated with it. Trend sentiment may be bullish, bearish, or neu-
tral. With overextension, a bullish trend sentiment begins to become potentially more
bearish, whereas a bearish trend sentiment begins to become potentially more bullish.
As a general guideline, the greater the trend sentiment, the stronger will be the
potential reversal. This is why shooting stars, hammers, engulfing formations, dark
cloud cover, and piercing lines represent stronger reversal patterns when located fur-
ther along in the trend. Harami formations represent reversal patterns if there is suf-
ficient bearish trend sentiment. Harami formations located within tight or narrow
consolidations have very little associated trend sentiment and will not normally
be regarded as reversal patterns. In fact, all candlesticks and candlestick patterns
(including rising and falling windows, which represent common gaps within a
figure 14.7 Intrinsic Sentiment Augmented by Extrinsic Factors.