Japanese Candlesticks

Ron William
Technical Analyst
Email: rwilliam@investorsintelligence.com
investorsintelligence.com
 Brief History
• Market timing, charting, behavioural finance
& quantitative analysis.
• Methodology dates back to 1600s, originally
used by Japanese rice farmers to monitor and
forecast crop prices.
• Famous trader named Homma (aware of
supply/demand links), realised the markets
were strongly influenced by emotions.
• Introduced to the west in 1990 by Steve Nison,
a leading expert in candlestick analysis.
Constructing the Candle
Line
Bullish Candle Bearish
White Real Candle
H
Body Black H
Real
igh Upper Body
igh
Clos Shadow O
e pen

Real
Body

O Clos
pen Lower e
Low Shadow Low
The Real Body is the essence
of market psychology
 Basic Candles

Long Day Doji Spinning Top High Wave

Strong buy/sell Open and close 1. Small real body 1. Small real body
are narrow/same 2. Colour not imp. 2. Colour not imp.
Midpoint used as 3. Long shadows
support/resistance Market is tired Prior trend weak
Indicates confusion
 Doji

Criteria: Open and close are

narrow or the same
Psychology: Market is “tired”
 Doji
Silver (Weekly Chart) Doji hints
market is
“tired”

3
4

1 2
Doji in box range
USD/ZAR (Daily Chart)

Series of doji
within box range
merely sets tone
 Single Line
Hammer Shooting Star

1. Lower Shadow 2X 1. Upper Shadow 2X

length of Real Body length of Real Body
2. RB at upper end, 2. RB at lower end,
colour not important colour not important
3. No/very small upper 3. No/very small lower
shadow shadow
4. Confirmed with a 4. Confirmed with a
strong bullish day strong bearish day

Hammering a base Trouble overhead

 Hammer
GBP/USD (Daily Chart)

Support
Shooting Star
Risk? Wheat (Weekly Chart)

Selling on close
implies risking
Sell?
the pattern high

Preferred Sell
 Dual Line
Engulfing Dark Cloud Cover Piercing Line

1. Downtrend evident
1. Large RB wraps 1. Uptrend evident
2. Session opens <
around small RB 2. Session opens >
prior low
2. Opposite colours prior high
3. Bullish RB closes
3. Up/Down trend 3. Bearish RB closes
>50% into bearish RB
> 50% into bullish RB

Arresting control Sentiment reversal Sentiment reversal

 Bullish Engulfing
Kuwait Stk Mkt (Weekly Chart)
 Dark Cloud Cover
Palladium (Weekly Chart)
Midpoint

Sell
 Three Line
Morning Star Evening Star 3 White Soldiers 3 Black Crows

1. Downtrend evident 1. Uptrend evident 1. Three bullish RB’s, 1. Three bearish RB’s,
2. Bearish session 2. Bullish session all of similar size all of similar size
is followed by is followed by 2. Prior trend is down 2. Prior trend is up
indecision. indecision. 3. Each session opens 3. Each session opens
3. Bulls close > 50% 3. Bears close > 50% with recent RB & with recent RB &
into prior Bear RB into prior Bull RB closes near high closes near lows

Upside reversal Downside reversal Uptrend Downtrend

 Western charting

Optimises and confirms

Price targets
 Support and Resistance
 Trend-lines
 Price Patterns
 Moving Averages
 Oscillators
 Elliott Wave
 Moving
Averages
Gold (Weekly Chart)

Hammer
Piercing Line

High-wave

70-week
average

Piercing Line
 Price Patterns
Soybean (Daily Chart)

3 White
Soldiers
Shooting Star

Shooting Star

3 White
Soldiers

Morning Star Bullish

Engulfing

3 White
Soldiers
(variant)
Confluence
EUR/USD (Daily Chart)

61.8%

50%
Measured Objective

38.2%
 Relative Strength
Index
CRB (Weekly Chart)
 Bollinger Bands
Oil (Daily Chart)

Bearish
Engulfing

Hammer Hammer

Dark Cloud
Dark Cloud Cover
Cover
Bullish
High-Wave Engulfing

Hammer
 Elliott Wave
Gold (Daily Chart) (3)

(4)?

(1)

(2)
 Corrective Wave
(4)?
Gold (Weekly Chart) (3)
Dark Cloud
Hanging
Cover
Man

Piercing Hammer (4)?

Line
 Trading Rules
 Wait for the session’s close to confirm
 DO NOT use candles in isolation
 Always consider Risk/Reward ratios
before placing a trade with a candle
signal
 Candles DO NOT offer price targets
 Remember the importance of stops
 Human Emotion
Drives the Market
Candle Analysis
Unrivaled in Gauging
Market Psychology

Presentation slides
designed by Ron William