CLASS: How to interpret JAPANESE CANDLESTICK PATTERNS? | TRADERS
Do you know what a Bullish Harami, an Evening Star or a Reversed Hammer is!? In this class Roberto Moro teaches us the main patterns of Japanese Candlesticks and gives us some tools to interpret them when trading.
We are going to see the main guidelines for interpreting Japanese candlestick patterns in trading. Actually, a candlestick chart tells me the same thing as a bar chart. It is exactly the same. What happens is that aesthetically, the candle is telling me many more things. For example, let me see the ...
Read moreWe are going to see the main guidelines for interpreting Japanese candlestick patterns in trading. Actually, a candlestick chart tells me the same thing as a bar chart. It is exactly the same. What happens is that aesthetically, the candle is telling me many more things. For example, let me see the gaps at the start. But, above all, the good thing about candlestick charts is that depending on where they appear one, two in a row or three in a row, they are indicating some behavior guidelines. Nowadays it continues to call my attention that due to the fact that a bullish harami has appeared, it will go up and it happens, it goes up. Even the most disbelievers of technical analysis end up incorporating it as the best tool to operate because it works. Let's see the Japanese candles in trading
We are going to see the main guidelines to know how to interpret Japanese candlestick patterns. I like to say that this of the guidelines, if they are of a candle, of a single candle, like a hammer, or if they are of two candles or if they are of three candles I compare them with the movies these war we are in defcon. In the Pentagon in the US, the alert levels are called defcon and range from 1 to 5, from less to more. Defcon 1 should be like total chill, defcon 2 something begins to move, with defcon 3 you have to be alert because something is happening, with defcon 4 it should be the bomb and defcon 5 is nuclear war. I like to buy the defcons with the candlestick charts. A Doji, which is a candle, closes where it opened. If it appears to us within an important trend it may be the first symptom of uncertainty, but it can hardly be compared with a defcon 2. A pattern of a candle, a hammer, for example, that would be a defcon 3 and a pattern of two candles, a harami, that would be a defcon 4 and a morning star with three candles would be a defcon 5. I say this because of the alert levels and the feeling that each one of them has to convey to us. Because based on verifying that it works you say: I have to believe it! Within the guidelines of a candle we have hammers; that is, when we come from a downtrend and an inverted hammer appears. When we go up, in an uptrend, aesthetically we find the same thing, but here instead of being called a hammer it is called a hanging man, and if it is the opposite we would call it a vanishing star. Two-candle charts, we see the engulfing patterns appear a lot and force you to act. I am not telling you that from the first moment we see a pattern of this type we have to get short, but if we come long it is a strong enough signal to stop being long. If the next day it opens with a hole to the downside then if I go short and the same is an upward engulfing pattern. Dark cloud cover is also a bearish pattern. A harami is the exact opposite of an enveloping pattern. However, does not the signal seem much more forceful than provides an enveloping pattern than a harami? because the repercussions are the same. We must detect them aesthetically and act accordingly whether we believe it or not. Within the guidelines of three candles that of course there are more, we are going to see the ones that seem most interesting to me, those that imply a corrective scenario; In other words, it goes from being bullish to bearish, which is an evening star, we come from an uptrend the next day it opens with an upward gap and closes, with that same upward gap; that is to say, if we put it to examine the market at the close of this day there is absolutely nothing that indicates that this can pull down, I have no criteria that indicates it to me. But, when the next day not only does it not continue, but it opens with a hole to the downside and closes below 50% of the last white candle, a tremendously bearish signal.
Although supposedly all the tools of technical analysis work exactly the same regardless of the temporality that we are operating, it is not true. For example, and this is my feeling, a product of my experience, for me an RSI does not work, not nearly as effectively, that it works on three or five minute charts on a chart on a daily chart not far from Fibonacci. works infinitely better on daily charts than on 3 minute charts.
Less
