Japanese Candlestick Analysis
figure 14.3 Creating Larger‐Interval (Higher Time‐Period) Japanese Candlesticks.- Use the highest‐high (H) and lowest‐low (L) price within the range of the
smaller‐interval candlesticks as the highest and lowest price of the larger‐in-
terval composite candlestick.
See Figure 14.3.multi‐timeframe based Candlestick Confirmation
We may also look for additional evidence of bullishness and bearishness by ac-
cessing higher time‐period candlesticks. There is a higher probability of a potential
reversal occurring if the higher timeframe candlestick is in agreement with the bull-
ish or bearish sentiment indicated on the lower timeframe candlestick formation. It
is a form of multi‐timeframe corroboration of candlestick sentiment. For example,
Figure 14.4 shows a dark cloud cover formation on the hourly chart of Icahn En-
terprises occurring on February 15, 2013. The probability of this bearish formation
following through with the expected downside move increases if there is higher
timeframe formation that supports this bearish sentiment. This is because larger or
higher timeframe formations have greater influence on price action.
In Figure 14.5, we observe a similar daily dark cloud cover formation on
February 15, providing additional bearish evidence for a probable downside move
on the hourly chart.strengths and Weaknesses of Japanese Candlestick Charting
The strengths of candlestick charting include the following:■ (^) It allows for clearer visualization of price action.
■ (^) Candlestick patterns are extremely popular and are heavily traded by market
participants, thus making them more reliable via the effect of the self‐fulfilling
prophecy.