The image on the right side shows a table at the top which shows open, close, high and low values for 5 periods. The Bar chart and the Candle chart for this data are shown below this table.

The bar chart for a period has a vertical line which shows the high and the low values for the day. The horizontal line on the left-side of the vertical line shows the open and the horizontal line on the right of the vertical line shows the close.

The white candle - when the close value is greater than the open value then this is depicted as a white candle.

This is also called bulls.

The black candle - when the open value is greater than the close value then this is depicted as a black candle.

This is also called bears.

Trend reversal means that the prior trend is about to end. This is shown in the figure on the right side of this section. The indicators have indicated that the upward movement is about to end. And now one of the three situation may happen:

• The price will continue to move up a bit and then it will move down.
• The price will move down and after reaching a point, it will rise again.
• The price will fall and continue to fall.

Trend reversal is just a caution indicator. The market's psychology is in transformation. The same is applicable for downtrend as well.

• Candles with long lower shadows and small real bodies (black or white) near the top of the range. These are called umbrella lines because they look like umbrellas.
• These umbrella lines can be either bullish or bearish according to the market environment. The character of umbrella lines changes based on the prevailing trend before the umbrella lines.
• If an umbrella line emerges during a downtrend, it is a signal that the downtrend should end. In such a scenario, this umbrella line is labeled a hammer, as in "the market is hammering out" a base.
• The actual Japanese word for the hammer is takuri. The hammer line looks like a hammer with its head and handle. The hammer's long lower shadow and the close at, or near, the high of the session graphically relays that the market sold off sharply during the session and then bounced back to close at, or near, the session's high. this could have bullish ramifications. This aspect of closing at or near highs is why the hammer should have no, or a miniscule, upper shodow. If there was a long upper shadow, this would mean the market closed well off its highs, which is an important criterion for the hammer. A lower shadow is necessary because it would display that the market had been pushed downsharply lower during the session, but by the end of the session, there was a "kamikaze fight" as the bears lost controls is depicted by the fact that the market closed at, or near, its session highs.
• One interesting aspect, a very long shadow hammer means that by the time the hammer is confirmed (we need to wait for a close to confirm the hammer), the market could be well off its lows. Buying at the close of such a hammer may not present an attractive risk/reward since the market may retrace back to the lows of the hammer before, potentially, resuming an upward course. A high-volume hammer decreases the chance for a correction to the hammer's low. Therefore, one may be more aggressive about buying on the hammer's close if it is a usually high-volume hammer than one would if the volume didn't give the same forceful confirmation.
• If either of lines emerges after a rally, it is a potential top reversal signal called a hanging man. The name "hanging man" is derived from the fact that it looks like a hanging man with dangling legs. It has the same shape as the hammer. The only difference is that a hanging man comes after an advance. A close beneath the hanging man is preffered. It is advisable to wait for bearish confirmation after a hanging man.
• The colour of the the real body does not make any difference.

The hammer and hanging man can be recognized by three criteria:

1. The real body is at the upper end of the trading range. The colour of the real body is not important.
2. It has a long lower shadow that should be at least twice the height of the real body.
3. It should have no, or a very short, upper shadow.

There are three aspects that differentiate the hanging man from hammer- trend, extent of the move before the candle line, and the confirmation.

• Trend: A hammer must come after a decline. A hanging man must come after a rally.
• Extent of the move before the candle line: A hammer is valid even if it comes after a short-term decline, but a hanging man should emerge after an extended rally, preferably at an all-time high.
• Confirmation: A hanging man should be confirmed, while a hammer need not be.

The longer the lower shadow, the shorter the upper shadow; the smaller the real body, the more meaningful the bullish hammer or bearish hanging man.

• Most candle signals are based on combinations of individual candle lines. The engulfing pattern is the first of these multiple candle line patterns.
• The engulfing pattern is a major reversal signal with two opposite colour real bodies composing a pattern.
• Another name for the engulfing pattern is a "hugging line".
• The figure shown on the right (above) of this section shows a bullish englufing pattern. The market is falling. And then a white bullish real body wraps around, or engulfs, the prior period's black real body. This shows buying pressure has over-whelmed selling pressure.
• The figure shown on the right (below) of this section shows a bearish engulfing pattern. Here the market is trending higher. A white real body engulfed by a black real body is the signal for a top reversal. This also shows that supply has overwhelmed demand.
• The significance of the bearish engulfing pattern will increase if there is a lighter volume on the first candle (the white) and a heavier volume on the second candle (the black).

There are three criteria for an engulfing pattern:
1. The market has to be in a clearly definable uptrend (for a bearish engulfing pattern) or downtrend (for a bullish englufing pattern), even if the trend is short term.
2. Two candles comprise the engulfing pattern. The second real body must engulf the prior real body (it need not engluf the shadows).
3. The second real body of the engulfing pattern should be the opposite colour of the first real body. The exception to this rule is if the first real body of the engulfing pattern is a doji. Thus, after an extended fall, a doji engulfed by a very large white real body could be a bottom reversal. In an uptrend, a doji enveloped by a very large black real body could be a bearish reversal pattern.

Some factors increasing the likelihood that an engulfing pattern could be an important turning signal are:
1. If the first day of the engulfing pattern has a very small real body (i.e., a spinning top) and the second day has a very long real body. The small first real body candle reflects a dissipation of the prior trend's force and the large second real body proves an increase in the force behind the new move.
2. If the engulfing pattern appears after a protracted or very fast move. A fast or extended move creates an overextended market (either overbought or oversold) and makes it vulnerable to profit taking.
3. If there is heavy volume on the second real body of the engulfing pattern.

• It is a reversal pattern. It is a dual-candle pattern that is a top reversal after an uptrend or, at times, at the top of a congestion band.
• The first day of this two-candle pattern is a strong white real body. The second day's price opens above the prior session's high (that is, above the top of the upper shadow). However, by the end of the second day's session, the market closes deeply within the prior day's white body.
• The greater the degree of penetration into the white body, the more likely this is a top. Some Japanese technicians require more than a 50-percent penetration of the black session's close into the white real body.
• If the black candles does not close below the halfway point of the white candlestick, it may be best to wait for more bearish confirmation following the dark-cloud cover.
• In some cases it is considered as a dark-cloud cover even if the open is over the prior session's close instead of the prior session's high.
• The rationale behind this bearish pattern is readily explained. On the first session of the dark-cloud cover, the market is ascending with a strong white candle. This is followed by a gap higher on the next session's opening. Thus far, the bulls are in complete control. But then the whole technical picture changes as, on the second day of this pattern, the market closed not only beneath the prior close, but well within the prior day's real body, offsetting much of the gain of the first session. In such scenario, the longs will have second thoughts about their position.
• Those who were waiting for selling short now have a benchmark to place a stop at the new high of the second day of the dark-cloud cover pattern.
• Just as a bearish engulfing pattern can be resistance, so too the highest high of the two sessions that formed the dark-cloud cover should be resistance.

• The dark-cloud cover's counterpart is the bullish piercing pattern. The piercing pattern is composed of two candles in a falling market.The first candle is a black real body day and the second is a white real body. This white candle opens lower, ideally under the low of the prior black day. Then the prices rebound to push well into the black candle's real body.

• The piercing pattern is similar to the bullish engulfing pattern. In the bullish engulfing pattern, the white real body engulfs the entire previous black real body. For the piercing pattern, the white real body pierces, but does not wrap around, the prior black body.
• In the piercing pattern, the greater the degree of penetration into the black real body, the more likely it will become a bottom reversal. An ideal piercing pattern will have a white real body that pushes more than halfway into the prior session's black real body. The psychology behind the piercing pattern is as follows:
• The market is in a downtrend. The bearish black real body reinforces this view.
• The next session the market opens lower via a gap. The bears are watching the market with happiness.
• Then the market surges toward the close, managing not only to close unchanged from the prior day's close, but sharply above that close. The bears will be second-guessing their position.
• Those who are looking to buy would say new lows could not hold and could view it as an opportunity to buy.
• The piercing pattern signal increases in importance based on the same factors 1 through 4 as with the dark-cloud cover, but in reverse.
• With the dark-cover we would like to see the black real body closing more than midway in the prior white candlestick. But there is some flexibility to this rule. There is less flexibility with the piercing pattern. The piercing pattern's white candlestick should push more than halfway into the black candlestick's real body.
• The reason for less latitude with the bullish piercing pattern than with the bearish dark-cloud cover pattern is the fact that the Japanese have three other patterns called the on-neck, the in-neck, and the thrusting pattern.
• All three have same basic formation as the piercing pattern. The difference among them is in the degree of penetration by the white candle into the black candle's real body.
• The on-neck pattern- The on-neck pattern's white candle (usually a small one) closes near the low of the previous session.
• The in-neck pattern- The in-neck pattern's white candle closes slightly into the prior real body (it should also be a small white candle).
• The thrusting pattern- The thrusting pattern should be a longer white candle that is stronger than the in-neck pattern, but still does not close above the middle of the prior black body.
• The general concept that one should view a non-ideal candle pattern by:
  1. How it was formed
  2. Within the overall market picture
  These two factors will help us gauge if the less-than-perfect pattern could have the same implications as a more classicly defined candle pattern. It is the subjectivity that makes computer recognition of candle patterns so difficult.
• With the piercing pattern, we would like to see lighter volume on the black candle and heavier volume on the white candle. This would serve to reinforce that the bears are loosing force and the bulls are gaining a strong foothold. This volume scenario also increases the odds that the piercing pattern will hold.

• A star is a small real body (white or black) that gaps away from the large real body preceeding it.
• In other words, the star's real body can be within the prior session's upper shadow. All that is needed is that the real bodies don't operlap (there are some exceptions to this rule, which are addressed later in this section).
• If the star is a doji instead of a small real body, it is called doji star. The star, especially the doji star, is a warning that the prior trend may be ending.
• The star's small body represents a stalemate between the bulls and bears. The bulls are obviously in charge in a brisky ascending market.
• With the emergance of a star in such an environment, it is a signal of a shift from buyers being in control to a deadlock between the buying and selling forces. This deadlock may have occurred either because of a diminution in the buying force or an increase in the selling pressure. Either way, the star tells us the rally's prior power has slightly dissipated. This means the market is vulnerable to a setback.

• The morning star is a bottom reversal pattern. Its name is derived because, like the morning star (the nickname for the planet Mercury) that foretells the sunrise, it indicates higher prices. There are three candle lines comprising this pattern:
• Candle 1: An extended black real body. This pictorially proves that the bears are in command.
• Candle 2: A small real body that doesn't touch the prior real body (these two lines comprise a basic star pattern). The small real body means sellers are losing the capacity to drive the market lower.
• Candle 3: The concluding candle of the morning star is a white real body that intrudes deeply into the first session's black candle. This is the indication that the bulls have seized control.
• The lowest low of the three lines that form this pattern should be support as hown by the dashed line.
• An ideal morning star would have a gap between the second and the third bodies. Although, a lack of gap does not seem to weaken the power of this formation. The decisive factor is that the second candle should be a spinning top and the third candle pushes well into the black candle.
• A limitation with the morning star is that since this is a three-candle pattern, one has to wait until the close of the third session to complete the pattern. As is usually the case, if this third candle is a tall white one, we would get the signal well after the market already had a sharp bounce. In other words, the completion of the morning star may not present an attractive risk.reward trading opportunity. An option is waiting for a correction to the morning star's support area to start cautiously from the long side.

• The evening star is the bearish counterpart of the morning star pattern. It is named so because the evening star (the nickname for the planet Venus) appears just before darkness sets in. Since the evening star is a top reversal, it should be acted upon if it arises after an uptrend.
• Three lines compose the evening star:
  • The first is a long white body.
  • The next is a star. The star is the first hint of a top.
  • The third line corroborates a top and completes the three-line pattern of the evening star.The third line is a black body that closes sharply into the first period's white real body.
• Evening star pattern is analogous to a traffic light. The traffic light goes from green (the bullish white body) to yellow (the star's warning signal) to red (the black real body confirming the prior trend has stopped).
• An evening star should have a gap between the first and the second real bodies and then another gap between the second and the third real bodies. But, this second gap is rarely seen and is not necessary for the success of this pattern. The main concern should be the extent of the intrusion of the third day's black real body into the first day's white body.
• Some factors increasing the likelihood that an evening or morning star could be a reversal would include:
  1. If there is no overlap among the first, second, and the third real bodies.
  2. If the third candle closes deeply into the first candle's real body.
  3. If there is light volume on the first candle session and heavy volume on the third candle session. This would show a reduction of the force for the prior trend and an increase in the direction force of the new trend.
• The highs of the evening star become resistance as displayed by the dashed line.

• The evening doji star is a distinctive form of the regular evening star. It has a doji instead of a small real body as the second candle.
• If there is an evening doji star in which the bottom shadow of the doji session does not overlap with the shadows of the first or third candles (that is, the shadows do not touch), it is considered a top reversal signal known as an abandoned baby top. Thus pattern is very rare.

• The morning doji star has a doji as star portion. This type of morning star can be a menaingful bottom.
• If there is a doji that has a gap before and after it (where the shadows do not touch), it should be a bottom. This pattern is referred to as an abandoned baby bottom. It is also extremly rare.

• The shooting star- has a small real body at the lower end of its range with a long upper shadow. We can see how this line's name is derived. It looks like a shooting star with its long tail blazing across the sky. The Japanese say that the shooting star shows trouble overhead.
• Since it is one session, it is usually not a major reversal signal as is the bearish engulfing pattern or evening star. The shooting star does not shows resistance unlike the bearish engulfing pattern or evening star.
• The shooting star is a bearish reversal signal, it must come after a rally. An ideal shooting star has a real body that gaps away from the prior real body. Nonetheless, as will be seen in several chart examples, this gap is not always necessary. A lack of rising gap is more of a reason to be negative on the shooting star. The trend could be turning less bullish if the shooting star has no gap.
• When we get signal after signal at the same price level, it reinforces that resistance area. The occurrence of multiple shooting stars increases the likelihood that this would be a reversal.
• If a shooting star-shaped candle line comes after a downturn, it could be a bullish signal. Such a line is called an inverted hammer. Although the inverted hammer has the same form as a shooting star, it is not a star pattern.

• Spinning tops (that is, small real bodies) are components in certain formations. The harami is one of these formations (the star, examined earlier, is another). The harami pattern is a small real body that is contained within what the Japanese call "an unusually long black or white real body."
• "Harami" is an old Japanese word for pregnant. The Japanese nickname for the long candle is the "mother" candle and the small is the "baby" or "fetus". The second candle of the harami can be white or black. If, for example, both the first and second candles of the harami are white, it would be expressed as "white-white harami".
• The Japanese will say that with a harami the market is "loosing its breadth". The bearish harami displays a disparity about the market's health. Specifically after a bull move, the long white real body's vitality is followed by the small real body's uncertainity. Additionally, the small real body opening and closing within the prior open-close range is another indication that the bulls' upward drive has weekened. Thus, a trend reversal is possible.

• The regular harami has a tall real body followed by a small real body. Yet, there are no rules as to what is considered "small" candle. This, like many other charting techniques, is subjective. A the general principle, the more diminutive the second real body, the more potent the pattern. This is usually true because the smaller the real body, the greater the ambivalence and the more likely a trend reversal. In the extremes, as the real body becomes smaller as the spread between the open and close narrows, a doji is formed. Doji preceded by a long blackreal body during a decline (or a tall white real body during a rally) is distinctive type of harami reffered to as a harami cross.
• The harami cross, becasue it contains a doji, is viewed as a strong reversal signal than the regular harami pattern by the Japanese. The harami cross is sometimes referred to as the petrifying pattern. The best way to justify this name is that the preceeding trend has been frozen or petrified in preparation for a reverse move. A harami cross occuring after a very long white candle is a pattern a long trader ignores at his or her own peril. Harami cross can also call bottoms, but they seem more efffective at tops.

• Tweezers are two or more candle lines with matching highs or lows. They are called tweezers tops and tweezers bottoms because they are compared to the two prongs of a tweezers. In a rising market, a tweezers top is formed when the two or more consecutive highs match. In a falling market, a tweezers bottom is made when two or more successive lows are the same. The tweezers could be composed of real bodies, shadows, and/or doji. Ideally the tweezers should have a long first candle and a small real body as the next session. This shows that whatever force the market had on the first session (bullish force with a long white candle and bearish force with a long black candle), it was dissolving with the following small real body with the same high (for a tweezers top) or same low (top a tweezers bottom). If there is a bearish (for a top reversal) or a bullish (for a bottom reversal) candle signal that is also a tweezers top, it adds more importance to the pattern.

• Tweezers top and harami cross- shows how, during an ascent, a long white line is followed by a doji. This two-candle pattern, a harami cross with the same high, can be a significant warning.
• Tweezers Top and Hanging Man- The figure illustrates a tweezers top formed by a long white candle and a hanging man line. If the market opens, and especially closes, under the hanging man's real body, odds are strong that a top has been reached. This two-line mixture can also be considered a harami. As such, it would be a top reversal pattern during an uptrend.
• Tweezers Top and Shooting Star- illustrates a tweezers top joined with the second period's bearish shooting star line.
• Tweezers Top and Dark-Cloud Cover- an ideal tweezers would have as its second session not only the same high, but also a small real body. In the figure, the second candle is not a small real body. However, this second session completes a variation on the dark-cloud cover (the second day opens above the prior day's close instead of above the prior day's high). The black candle session's high also just touches the prior period's high and then falls. Because of this last fact- i.e.m both sessions have the same highs- it adds more negative impact to this variation of the dark-cloud cover.

• Tweezers Bottom and Hammer- The figure shows a hammes session that successfully tests the prior long black candlesticks's lows. The hammer, and the successfullytest of support, proves that the sellers are losing control of the market. This two-line combinationis also a harami. This would be another reason to view this action as support.
• Tweezers bottom and piercing pattern- In the figure shown, while it doesn't have a small body for the second candle, does complete a variation on the bullish piercing line. (A true piercing line would open under the prior day's low. Here it opened under the prior day's close.) Because of this I view it also as a tweezers bottom.
• These examples of tweezers are not inclusive. They are representative of how top and bottom tweezers should be confirmed by other candlestick indications so as to be valuable forecasting tools.

• The belt-hold is an individual candle line. The bullish belt-hold is a strong white candle that opens on the low of the session (or with a very small lower shadow) and closes at, or near, the session highs. The bullish belt-hold line is also called a white opening shaven bottom. If it is at a low price area and a long bullish belt-hold appears, it forecasts a rally.
• The bearish belt-hold is a long black candle that opens on the high of the session (on within a few ticks of the high) and continues lower through the session. If prices are high, the appearance of a bearish belt-hold is a top reversal. The bearish belt-hold line is sometimes called a black opening shaven head.
• The longer the height of the belt-hold candle line, the more significant it becomes. The actual Japanese name for the belt-hold is a sumo wrestling term, yorikiri, which means "pushing your opponent out of the ring while holding onto his belt".
• A close above a black bearish belt-hold line should mean a resumption of the uptrend. A close under the white bullish belt-hold line implies a renewal of selling pressure. Belt-hold lines are more important if they confirm resistance or other belt-hold lines or if they have not appeared for a while.

• An upside-gap two crows (shown in the adjecent figure) is very rare. The upside-gap refers to the gap between the real body of the small black real body and the real body preceding it. (The real body that precedes the first black candle is usually a long white one.) The two black candles are the "crows" in this pattern. They are analogous to black crows peering down ominously from a tree branch. Based on this portentous (bombastic) comparision, it is obviously a bearish pattern. An ideal upside-gap two crows has the second black real body opening above the first black real body's open. It then closes under the first black candle's close.
• The rationale for the bearish aspect of this pattern is as follows:
  • The market is in an uptrend and gaps higher on the open.
  • The new highs fail to hold and the market forms a black candle.
  • But the bulls can take over some support in hardship, at least, because the close on this black candle sesion still hlds above the prior day's close.
  • The third session paints a more bearish portrait with another new high and another failure to hold these highs into the close. More negative, however, is that this session closes under the prior day's close. If the market is so strong, why did the new highs fail to hold and why did the market close lower? Those are the questions that the bulls are probably nervously asking themselves. The answers might be that the market may not be so strong as they would like. If prices fail to regain high ground the next day (that is, the fourth session), then expect lower prices.

• The upside-gap two crows consists of two black candles. If there are three declining consecutive black candles, it is called three black crows pattern. The three black crows indicate lower prices if they appear at high price levels or after a mature advance. Three crows are also sometimes called three-winged crows. The Japanese have an rxpression, "Bad news has wings".
• This is an appropriate saying for the three-winges crow pattern. The three crows are, as the name implies, three black candles. Likened to the image of a group of crows sitting ominously in a tall dead tree, the three crows have bearish implications. The three lines should close at, or near, their lows. Ideally, each of the openings should also be within the prior session's real body.
• The three black crows would likely be useful for longer-term traders. This is because this patter is completed on the third black candle. Obviously, by the tim this occurs the market has already substantially corrected.

• The opposite of the three black crows is three advancing white soliders or, more commonly, three white soliders. Like much of the candle terminology, this pattern has a military association. It is a group of three long white candles with consecutively higher closes. If this pattern appears at low price area or after a period of stable prices, then it is a sign of strength ahead. The three white soliders are a gradual and steady rise with each white line opening within or near the prior session's white real body. Each of the white candles should close at, or near, its highs. It is a healthy method for the market to rise (although if the white candles are very extended, one should be catious about an overbought market).

• If the second and the third or just candle shows signs of weakening, it is an advance block pattern. This means the rally is running into trouble and longs should protect themselves. Be especially cautious about this pattern during a mature uptrend. Signs of weakening could be progressively smaller white real bodies or relatively long upper shadows.
• If the last two candles are long white ones that make a new high followed by a small white candle, it is called a stalled pattern. It is also sometimes called a deliberation pattern. The bulls' strength has been at least temporarily exhausted after this formation. This last small white candle can either gap away from the long white body (in which case it becomes a star) or it can be, as Japanese express it, "riding on the shoulder" of the long white body (i.e., be at the upper end of the prior long white real body). The small real body discloses a deterioration of the bulls' power.
• Although the advance block and stalled patterns are not normally top reversal patterns, they can sometimes precede a price decline.The advance block and stalled patterns should be used to liquidate or protect longs, but usually not to short. They are generally more consequential at higher price levels. These patterns can be at low price area or during a rally.
• There is not much difference between the advanced block and stalled pattern. The main factor to consider with three white soliders is that it is most constructive for each of the three candles to close at or near its highs. If the latter two white candles shows signs of hesitation, either with small real bodies or uppper shadows, then it is a clue that the rally is losing force.
• It id found that on corrections, the first or second white candle that started hte three white soliders is often support.
• The market sometimes correct after the three white soliders. We should expect support as the stock gets to the second, or especially the first, white solider.

• There is a group of longer-term topping and bottoming pattern that include the three moauntain, three rivers, the three Buddha tops, inverted three Buddha, dumpling tops, fry-pan bottoms, and tower tops and bottoms.
• Three mountain top is supposed to represent a major top. If the market backs off from a high three times or makes three attempts at a high, it is deemed a three mountain top. The high point of the final mountain ideally should be confirmed with a bearish candle indicator (for example, a doji or dark-cloud cover). If the central mountain of a three mountain top is the highest mountain, it is a special type of three mountain called a three Buddha top. The reason for this name is because, in Buddhist temples, there is a large central Buddha with smaller Buddhas (i.e., saints) on both sides. This is the same pattern as the West's head and shoulders top.
• Although the three Buddha top is analogous to the Western head and shoulders pattern, the theory about the japanese three Buddha pattern was used over a hundred years before the head and shoulders was known in America. (The earliest reference seen to a head and shoulders pattern in the United States was by Richard Schabaker in the 1930s).
• It is intriguing how market observers from both the West and the East have come up with this same pattern. Market psychology is the same around the world, or, as a Japanese proverb expresses, "The tone of a bird's song is the same everywhere".
• The three river bottom pattern is the opposite of the three mountain top. This occurs when the market tests a bottom level three times. The peak of the troughs should be exceeded to confirm a bottom. The equivalent of the Western inverted head and shoulders bottom is called, not surprisingly, an inverted three Buddha.
• The peaks of each mountain were almost the same. This is not necessary. It is still considered a three mountain top if the three price peaks are not exactly at the same highs. If A, B, and C are three peaks where B and C are slightly higher levels. This would still be considered a three mountain top.

• Counterattack lines are formed when opposite coloured candles have the same close. The best way to describe this pattern is by discussing the illustrations on the right-side of this section. The figure above is an example of a bullish counterattack line. This pattern occurs during a decline. The first candle of this pattern is usually a long black candle. The next session opens sharply lower. At this point, the bears are feeling confident. The bulls then stage their counterattack as they push prices back up to unchanged from the prior close. The prior downtrend has then been suspended.
• The bullish counterattack is comparable to the bullish piercing line. If you remember, the piercing line has the same two-candle configuration as that shown for the bullish counterattack pattern. The main differnece is that the bullish counterattack line does not move into the prior session's white real body. It just gets back to the prior session's close. The piercing pattern's second line pushes well into the black real body. Consequently, the piercing pattern is a more significant bottom reversal than is the bullish counterattack line. Nonetheless, as shown in same examples below, the bullish counterattack line should be respected, since it proves that there is a change in the flow of direction of the market.
• The figure below is the bullish counterattack line is the bearish counterattack line. The first candle, a long white one, keeps the bullish momentum going. The next session's opening gaps higher. The longs are happy then the bears come out fighting and pull prices to the prior day's close. The bulls' tide of optimism on the second day's opening probably turned to apprehension by the close. As the bullish counterattack line is rlated to the piercing line, so the bearish counterattack line is related to the dark-cloud cover. The bearish counterattack line is realted to the dark-cloud cover. The bearish counteratack, like the dark-cloud cover, should ideally open above the prior day's high. Unlike the dark-cloud cover, though, the close does not go into the prior day's white candle. Thus, the dark-cloud cover sends a stronger top reversal signal than does the bearish counterattack line.
• An important consideration of the counterattack lines is that second session should open robustly higher (in the case of the bearish counterattack) or sharply lower (for the bullish counterattack). The idea is that on the opening of the second day of this pattern, the market has moved slightly in the direction of the original trend. Then, by the close, it moves back to unchanged from the prior session. In doing so, it changes the market's texture in one day.
• A mentioned in the secion of three black crows, becasue we need to wait for three black candles for the completion of that signal, much of the move may be lost bt the time the third candle of the three black crows unfolds. In this case, however, eith the first black candle's counterattack line, we would have received an early tirning signal in one session that was further confirmed with the three black crows.

• The dumpling top is a top reversal that usually has a small real bodies as the market forms a convex pattern. Confirmation of the dumpling top is when the market gaps down. This pattern is the same as the Western rounded top. The only difference is that the dumpling top has the extra bearish kicker of a gap lower. (A gap down is called a "falling window" in candle terminology.)
• The market is ascending with higher highs and goes into a period where the highs are the same, and then goes to lower highs. As such, the pace of the rally is slackening. Then when you have a gap down to complete the dumpling top, it just puts another nail in the bulls' coffin.

• The frypan bottom reflects a market that is bottoming and whose price action forms a concave design and then opens a gap to the upside (i.e., a rising window). It has the same appearance as a Western rounded bottom, but the Japanese frypan bottom must have a gap higher to confirm this pattern. With the frypan bottom, the market goes from lower lows to the same lows and then higher lows.
• This pictorially proves that the bears are losing a foothold. Then, when you add a rising gap to this scenario, it gives even more proof that the bears have lost control of the market. The Japanese will say that with a frypan bottom the parket becomes "immune to bad news". As such, if a market builds a frypan bottom- especially in spite of bearish news- it would be very impressive.

• The tower top unfolds at high price levels. During a rally, there is a short-term lull (pause) after one or more white candles. Then one or more large candles emerge. This creates a top with a white and black "tower" on either side of the small real bodies. That is, long candles on the way down and long candles on the way up.
• Sometimes tower tops send out a signal late in the move (since we have to wait for a black candle).

• The tower bottom occurs in a descending market in which one or more tall black candles keep the bearish momentum intact. Then some small real bodies lessen the bearish tome and finally a tall white candle finalizes the tower bottom.
• The closest Western comparison to the tower top and bottom would be the spike, or V, reversal. In the spike reversal, the market is in a strong trend and then abruptly reserves to a new trend.
• The tower top and bottom, like some other candlestick signals such as three black crows, may be most useful for longer-term traders since the tower is often finalized late in the move.
• The tower bottom is analogous to the frypan bottom while the tower top is similar to the dumpling top. The main distinction between these two patterns is that long black and white candles are needed for the towers and there is no gap required. The dumpling top and frypan bottom require gaps.

• The Japanese refer to what we call in the West a gap as a window. Whereas the Western expression is "filling in the gap", the Japanese would say, "closing the window". There are two kinds of windows, one bullish and other bearish.
• A rising window is a bullish signal. There is a price vacuum between the prior session's high (that is, the top of the upper shadow) and the current session's low (e.g., the bottom of the lower shadow).
• It is said by the Japanese technicians to "go in the dirrection of the window". This is because windows are continuation signals. Consequently, with the emergence of a rising window, one should look to buy on dips, and with a falling window to sell on bounces.
• It is also said by the Japanese that "corrections stop at the window". This means windows can become support and resistance areas. Thus, a rising window (the entire window) should also be a zone of support on pullbacks. If the pullback closes under the bottom of the window, the prior uptrend is voided. In the rising window figure, the market got under the bottom of the window, but since it didn't close under this area, the rising windows support remains intact.
• The entire rising window becomes a potential support zone. The disadvantage with a large window is that the whole zone is potential support. Consequently, we don't have so tight a support (with a rising window) or resistance (with a falling window) as one would have with a very small window.
• If there are two windows. Window 1 and window 2, window 2 being at higher price levels. After window 2 is breached, the window 1 becomes support. If a window support is broken, look for another window under the one that was broken as next support area.

• Falling window is a bearish signal in which there is a gap between the prior sesion's low and the current session's high.
• Likewise, a falling window implies still lower levels. Any price rebounds should run into resistance at this falling window (the entire window). If the bulls have enough force to close the market above the top of the falling window, the downtrend is done.
• There is a belief in the West that a gap is always filled. But as we have seen that corrections stop at a window, once prices try to fill a gap we can then consider buying (in a rising window) or selling (in a falling window).
• There is a common misunderstanding with windows that the real bodies don't touch. In case the shadows overlap, it is not a window. So, no overlap between shadows is the main criteria for window. No matter how large the "gap" between the real bodies, it is not a window unless there is a space between the shadows.
• No matter how tiny a rising window, that window should be potential support. The same is true with a falling window as resistance.
• Size doesn't matter with windows. Although the rising window's support zone before bouncing. Therefore, if you are aggressively bullish as a market approaches the rising window, you can consider buying as a market approaches the rising window, you can consider buying even if it gets close to the top of the window. How one uses a window is dependent on trading style and aggressiveness. There should be a stop (mental or otherwise) if the market clsoes under the bottom of the rising window.

• The tasuki are a specific combination of two candle lines that gap higher or lower.
• The upward gapping tasuki is made of a rising window formed by a white candle and then a black candle. The black candle opens within the white real body and closes under the white candle's real body. The close on the black candle day is the flight point. If the market closes under the bottom of the window, the bullish outlook of the upward gap tasuki is voided.
• It is the window itself that is critical. All one needs to remember is that if there is a rising window (such as the upward tasuki), it is bullish signal and the window should be support. It does not matter what the candle lines look like after the rising window. The main concern is looking at that rising window as support based on the close.

• The same concept is true in reverse for a downward gapping tasuki. The market opens a falling window with a black candle followed by a white candle. The two candles of the tasuki should be about the same size. Both types of tasuki are rare.
• Since the downward gapping tasuki has a falling window, the window should be resistance. A close over the top of the falling window would void the bearish implications of the downward gapping tasuki.

• It is normal after a sharp advance for the market to consolidate the gains. Sometimes this consolidation is by a series of small real bodies.
• A group of small real bodies after a strong white session tells us that the market is undecided. These small real bodies, while changing the trend from up to neutral, are in a sense healthy since, by treading water, the market is then relieving its overbought condition.
• If there is a rising window from these small real bodies, it is a bullish signal. This is the high-price gapping play pattern. It is called this because prices hover near their recent highs and then gap to the upside.

• A low-price gapping play is the bearish counterpart of the high-price gapping play. The low-price gapping play is a downside window from a low-price congestion band. This congestion band (a series of small real bodies) initially stabilized a steep decline. At first, this group of small candles gives the appearance that a base is forming. The break to the downside via a window dashes these bullish hopes.

• In a rally, an upward-gapping white candle followed the next session by another similar-sized white candle with about the same opening is a bullish continuation pattern. This two-candle pattern is refered to as upgap side-by-side white lines.
• It is the window that is critical. The combination and colours of the candle lines after a rising or falling window pattern aren't important. A falling window puts the trend up with the windows as support or resistance.

• There are rarer side-by-side white lines that gap lower. These are called downgap side-by-side white lines.
• In the figure, we can see that inspite of the dual white candles, it is still considered a bearish signal because of the falling window. These white lines are viewed as short covering. Once this short covering evaporates, prices should move lower. The reason the downgap side-by side white line pattern is especially rare is because black candles, not white candles, are more natural in a declining price environment.
• The candle lines that make the gapping side-by-side white candles are not critical to remember. What is important is the rising and falling windows that are part of these patterns.
• The pattern has minor consequence if there are two white candles (as with the side-by-side patterns) or a black and white (as with the tasuki) after the window. It is the window itself that gives us the trend and the support or resistance area.
• In the downgap side-by-side white candles, it is not surprising that this is a bearish signal in spite of the two white candles. Thisis because it is the falling window of that pattern that defines the trend (in this case, down). It would take a close over the top of the falling window to neagte the bearish outlook of the downgap side-by-side white lines.

• The three methods include the bullish rising three methods and a bearish falling methods. These are both continuation patterns. That is, the trend before the bullish rising three methods should continue higher once the bullish three methods is completed. Likewise, a bear trend remains in effect after the bearish falling three methods.
• The rising three methods is composed of:
  1. A long white candle.
  2. The white candle is followed by a group of falling or lateral small real body candles. The ideal number of small candles is three but two or more than three are also acceptable if they hold within the long white candle's high-low range. Think of the small candles as forming a pattern similar to a three-day harami pattern since they hold within the first session's range. (For this pattern, that would include holding within the shadows; for a true harami they would have to hold with the real body.) The small candles can be either colour, but black is most ideal for this pattern.
  3. The final day should be a strong white real body session with a close above the first day's close. The final candle line should ideally also open above the close of the previous session.
• This patttern resembles the Western bull flag or pennant formation. Yet the concept behind the rising three methods is from the 1700s. The three methods pattern is considered a rest from trading and a rest from battle. In more modern terms, the market is, with the group of small candles, "taking a breather".
• The ideal rising three methods has three small black real bodies within the entire trading range of a white real body.
• The challange we have with the rising three methods is from a risk / reward aspect. By the time the rising three methods is completed, a stock might be far from its most recent lows. In such a secnario, buying on the completion of the three methods may not offer an attractive trade. As such, one should think of the potential profit once the rising three methods is completed compared to its risk (the risk being low of the white candle that stated the rising three methods).
• This pattern helps define a turning point from a sell-off.

• The falling three methods pattern is the bearish counterpart of the rising three methods pattern. For this pattern, the market should be in a downtrend. A long balck candle is followed by about three small rising candles whose real bodies hold within the first candle's range (including shadows). The final session should open under the prior close and then close under the first black candle's close. This pattern resambles a bear flag or bear pennant formation.
• The ideal version of this pattern has the small real bodies as the opposite colour of the first long real body. That is, for a bullish rising three methods, there should be small black real bodies; and for the bearish falling three methods, three small white real bodies. Nonetheless, two and up to five small real bodies work fine. Also, the small real bodies can be any colour.

• The separating lines have the same open as the previous opposite colour candle. The separating line is a continuation pattern. It is easy to see why. During a market rise, a black real body (especially a relatively long one) would be a bull's cause for concern. The bears might be gaining control. However, if the next session's opening gaps high enough to open at the previous black session's opening price, it impressively proves that the bears have lost control of the market- especially if that session closes as a white candle. This is the scenario that unfolds with the bullish separating line as shown in the figure (in this section). The white line ideally should also be a bullish belt-hold (that is, open in the low of teh session and close at, or near, the high of the session).
• The opposite would be true with a bearish separating line in the figure (shown in this section). This is viewed as a bearish continuation signal. Separating lines are rare. While most of us would like to see an ideal version of a particular candle pattern, even variations of these patterns can also prove useful.
• Although the bullish separating lines are rare, they normally appear during a rally. There are a few instances, however, where a bullish separating line can help signal a bottom.

• The Japanese say that with a doji after a tall white candle, or a doji in an overbought environment, that the market is "tired". That is a wonderfully appropriate way to view doji. A doji may not mean an immediate price reversal. The doji shows us the market is vulnerable, and may be at a transition point. A doji, in a single session, means the trend may be in the process of changing. A doji is a session in which the bulls and bears are in complete balance. The doji indicates that there is something very different on that day (in which the open and close are the same) from the preceding candle lines where the closes were well above the openings.

• As shown in the figure above in this section, some doji have nicknames depending on the open / close (i.e., the horizontal components of the doji) is at the low or high of the session or if there are unusually long upper and lower shadows on the doji.
• A candle line with long upper and lower shadows and a small real body is called a high-wave candle. If such a candle line is a doji instead of a small real body, then it is called a long-legged doji. It also has the nickname rickshaw man.
• The doji portion of the long-legged doji shows the market is at a transition point. The long upper shadow shows the market had rallied during the session, but by session's end had backed off from these highs. The extended lower shadow visually depicts a market that had sold off during the session; by session's end it had been able, by the close, to recoup some of its lost ground. In other words, the market rallies, sells off, rallies, etc. It is a confused market. These long shadows hint, as the Japanese say, "The market has lost its sense of direction." As such, a long-legged doji is an indication of a market separating from its trend.

• The gravestone doji is another distinctive doji. It develops when the open, low, and close are at the low of the day. This line is an example of how visually intuitive candles are. Even if you never saw an explanation of the gravestone doji, just by looking at it, would you think it was a bullish or bearish signal? Of course, the answer is bearish. With its extended upper shadow and close at the low of the session, we can graphically see that at some time during the session the stock had rallied and by session's end the bears dragged this stock down to the lows at the close. It can be viewed as the ultimate shooting star. The shooting star has a long upper shadow and small real body. If the shooting star's real body becomes a doji, then we have a gravestone doji.
• The gravestone's forte is in calling tops. The shape of the gravestone doji makes its name appropriate. As we have discussed, many of the Japanese technical terms are based on military analogies. In Japanese candlestick literature it is said that the gravestone doji represents that gravestone of the bulls that have died defending their territory.
• As omnious as "gravestone" sounds, it does not imply a large move lower. While the gravestone doji, because of its extended upper shadow and close at the session low, does increase the chances for a turn, it does not forecast the extent of a potential decline. Canlde signals are unexcelled for spotting the early reversals, not to predict the extent of a move.

• The dragonfly doji is the bullish counterpart of the gravestone doji. The dragonfly has the open / close at the highs of the session. This means the market had touched much lower lows during the session, but had impressively managed to close at, or very close to, the highs. This is like a hammer, but the hammer has a small real body where the dragonfly doji has no real body since it is a doji.

• The general concept with doji (and for all candle signals) is that one should look at what happened before the signal. For instance, a doji in a rally is a potential reversal. Therefore, there needs to be a rally to reverse. This means that doji have little forecasting implications if they are in a trading range environment since there is no trend to reverse. The Japanese appropriately call a market that is locked within a range a "box".
• The doji in the figure (Doji in a Box Range) is reflecting on a micro scale what the trading range environment on a more macro aspect is showing: The market is undecided. With no trend to change, the doji in this figure has no forecasting implications, except for the fact that it is confirming a trendless environment. An exception to this is if a doji, while still in a trading range, is at the top or bottom end of a range. As such, it is conforming resistance or support and could be a useful signal.

• The tri-star is a very rare reversal pattern. As shown in the figure (Tri-Star Top and Bottom), the tri-star is formed by three doji lines at a new high for the move.
• The ideal tri-star top has three doji with the middle doji higher than the first and second doji. While this pattern greatly increases the chances for a top reversal, it does not forecast the extent of the potential decline.

• Rising support line is obtained by connecting two, and preferably three, or more reaction lows. In rising support lines on candle charts, the bottom of the lower shadows are connecting points. This ascending line demonstrates that buyers are more aggressive than sellers since demand is stepping in at higher lows.
• There is a saying that there are more buyers than sellers. Since a trade requires both a buyer and seller, I prefer to think of it as not more buyers than sellers, but more aggressive buyers than setters.
• A regular rising support line, since it is ascending, is considered bullish.

• A falling support line is shown in the figure in the right (Falling Support Line). The traditional support line is derived by connecting higher lows. The line joins lower lows.
• The falling line's usefulness comes into play because there there will be many instances in which prices rebound from this descending line. This line gives us a potential support area when none may exist. A situation where there may be no evident support is when a market makes either a low for the move or an all-time low.
• The falling support line, because the market is making lower lows, can be considered as a bearish support line. As such, bounces from this line are likely to be only marginal and temporary. Yet, it can be an area to consider buying, especially if there is a convergence of technical indicators at that line.

• The figure on the right shows (in this section) a falling resistance line. It is derived by joining at least two reaction highs; Three or more would make the line more meaning full(sense). It shows that sellers are more aggressive than buyers as evidenced by the sellers' willingness to sell at lower highs. This reflects a market that is trending lower. With a resistance line on the candle charts, we connect the tops of the upper shadows.

• A regular resistance line is made with a series of lower highs. But what if the market is at at all-time high and there are no former highs from where we can get a clue of a potential resistance area? In this instance we can use a rising resistance line. As shown in the figure on the right in this section, this is built by linking a series of higher highs (instead of the falling resistance line's lower highs).

• A spring develops when market breaks under a horizontal support area and then springs back above that previously broken support. In other words, new lows could not hold. Once a spring is formed, we get a stop-out area and a price target.
• As shown in the figure on the right-side (in this section), when a market gets back above a recently broken support area, one can consider buying. If the market is solid, it should not get back to the most recent lows. That would be a stop level (preferably on a close). The target for the spring is either its high before the spring was made or the top end of its trading range.
• It will be more bullish for a spring if the break of support is on light volume and the subsequent rebound above the recently broken support is on heavier volume.

• An upthrust is shown on the right (in this section). This is when there is penetration of a horizontal resistance area and then bulls fail to sustain these new highs. There is another way of saying a false bearkout. To use an upthrust for trading, when the maeket gets back under its former resistance area, one can consider selling. If the market is indeed weak, it should not return to the most recent highs. A downside target is its most recent low or the bottom of a recent trading range.
• The likelihood of an upthrust successfully working should be increased if the break over the resistance is on low volume and the consequent return move under the old resistance is on high volume.

• Old support becomes new resistance and old resistance becomes support. This is called "change of polarity" principle.
• The concept behind the change of polarity principle (although not traditionally called that) is an axiom discussed in many books on technical analysis. Yet, it is an underutilized gem.

• Market usually do not trend straight up, nor do they fall vertically down. They often retrace, or correct, some of their advance, or decline, before resuming the prior trend.
• Some of the more popular retracement levels are the 50% level and the Fibonacci figures of 38% and 62%. The popular 50% correction is also a Fibonacci is also a Fibonaaci ratio. The 50% retracement is probably the most widely monitored level.
• While retracement levels can become support or resistance, it not not recommended to buy or sell at a retracement area unless it is confirmed by a candle pattern.

• Most of the time, the markets are not in a trending mode but rather in a lateral range, what the Japanese call a box range. On such accasions, the market is in relative state of harmony with neither the bulls nor the bears in charge. The Japanese word for tranquility and calm is "wa". Markets that are bounded in a box range as being in a state of "wa".
• When a market is in a box, it is like a coiled spring ready to unwind when the surrounding pressure is released. We can use this potential pent-up energy. When a breakout from box range unfolds, the market has good potential continuing in the dirrection of the breakout.
• As shown in the exhibit (the figures on the right-side of this section), a move outside the box implies a move at least equal to the vertical height of the box (bullish breakout), one takes the vertical measurement from the bottom end of the box (the support area) to the top end of the box range (the previous resistance). The distance is shown as A-B. We derive a target by adding this A-B range onto the prior resistance area. As an example, an upside breakout from a $50-$53 box range would give a $56 target.
• The opposite would be a penetration of ths box range's support (shown as a bearish breakout in the exhibit in this section). If we used the same $50-$53 box range, a bearish break of this support at $50 would provide a $47 target.

• The theory behind the swing target (shown in the exhibit on the right side) is that if market advances, or declines, vigorously, and then there is a retracement of this move, the next leg of the move should be at least equal to the move of the previous channel.
• This is shown in the figure on this right of this section where the height of the first leg is a rally from A to B. There is then a correction to C. Once the market ascends from C, we would "swing" the initial channel height of A to B onto the corrrection low at C. Hence, the name "swing target".

• Swing targets are very similar in concept to flags and pennants. The major difference is that corrections in a swing target are more substantial than flags or pennants. As shown in the exhibit, flags are lateral, ar small countertrend, moves after a clearly defined sharp advance or decline. This congestion band serves to relieve an overbought (in a rally) or oversold (in a decline) condition. If, after this short-term correction, the market resumes its prior trend, we then have a flag or pennant pattern.
• The difference between flags and pennants is that in a flag, the "flag" portion is a horizontal box range. In a pennant pattern, the "flag" portion (i.e., the congestion band) looks like a pennant because it has lower highs and higher lows.

• Exhibits Bull Flag and Pennant & Bear Flag and Pennant show the measurements of the bull and bear flag and pennants. Their measuring implications are built on the same concept as that of the swimg target. For the flag or pennant pattern, we use the vertical height of the initial advance or decline - nicknamed the "flagpole".
• In the Exhibit Bull Flag and Pennant we see bull flag and pennant's price targets are derived by adding the height of the initial sharp advance (the flagpole) from A to B onto the bottom end of the congestion band (which is either a flag or pennant shape). The more traditional method is adding this flagpole's height to the top of the flag or pennant. We may want to make a mistake by exiting too early rather than missing the last few few ticks. As such the measurement starts from the bottom of the flag or pennant rather than the top.
• As shown in Exhibit Bear Flag and Pennant, the bear flag or pennant objective is forecasted by substracting the flagpole (A-B) range from the top of the congestion band. (Again, this is a subjective conservative target - others will use the more classic measurement from the bottom of the congestion band).

• There are many types of triangles in Western technicals: symmetrical triangles, wedges, and so on. As shown in the Exhibits, there are ascending and descending triangles.
• The ascending triangle has a horizontal resistance area tested numerous times. Moves down from this resistance are at sequentially higher lows. This exemplifies that, although there is supply at the resistance line, demand is getting more aggressive as the market pulls back from this resistance area. If the bulls can then push the market over the horizontal resistance, we have an ascending triangle. The measuremant is the height from the horizzontal resistance area (A) to the widest part of the triangles (at B) added to the just-broken resistance area.
• The descending triangle is a pattern wherein a horizontal support area is successfully defended, but each rally from there meets with successively lower highs. These lower highs rflect how the bears are keeping the bulls well in check. With a penetration of support, we take the wildest point of the descending triangle and add that measurement from the prior support line.