Japanese Candlestick Analysis
Description:■ (^) The piercing line is a double candlestick reversal pattern. See Figure 14.37.
■ (^) The second bullish candlestick gaps down below the low of the first bearish
candlestick and subsequently reverses back up to at least the midpoint or
more of the first candlestick.
■ (^) A longer second bullish candlestick is indicative of greater bullishness.
■ (^) It is best found in a protracted downtrend that is beginning to display weakness.
■ (^) Its corresponding bearish version is the dark cloud cover.
Psychology:
■ (^) The piercing line depicts sellers driving prices lower aggressively. Prices
eventually gap down, indicating that the seller may have the upper hand. The
buyers subsequently resume control and drive prices back up to above the
midpoint of the first candlestick. This essentially puts the bulls back in control.
Trigger, Stoploss, and Confirmation:
■ (^) The trigger is at the high of the first candlestick.
■ (^) To confirm the reversal, price needs to close above this trigger level.
■ (^) The stoploss is placed at the low of the second candlestick.
■ (^) A sellstop entry order may be placed at the low of the second candlestick only
if there is evidence that the downtrend is still in effect.
some Candlestick Continuation patterns
In this section we shall examine a couple of popular continuation candlestick pat-
terns. We will be looking at their construction, potential trigger levels, penetration
candlestick, pattern confirmation, and stoploss placement levels. For a summary
of more candlesticks and their properties, refer to Appendix A.
rising three method
figure 14.38 A Rising Three Method Continuation Formation.