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Class #13: Candlesticks - Part 3

Star Patterns

A star pattern is created during a trend when a spinning top gaps either up or down.

Morning Star Pattern

The Morning Star pattern is a Bullish Reversal signal. Occurs in a downtrend At or near a support level, the stock gaps down and forms a small spinning top which becomes the star. The following day the stock reverses and moves bullish with a relatively long candle day. Ideally this day would also gap up from the star.

© 2 0 0 9 Tr a d e S m a r t U n i v e r s i t y Foundations of Stocks & Options: Level 2

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Evening Star Pattern

The Evening Star pattern is a Bearish Reversal signal. Occurs in a uptrend At or near a resistance level, the stock gaps up and forms a small spinning top which becomes the star. The following day the stock reverses and moves bearish with a relatively long candle day. Ideally this day would also gap down from the star.

Star Variations

When the star appears as a doji, it creates a morning doji star or evening doji star pattern

© 2 0 0 9 Tr a d e S m a r t U n i v e r s i t y

Foundations of Stocks & Options: Level 2

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3 Black Crows

3 Black Crows is a bearish reversal signal. Occurs in a uptrend At or near a resistance level, the stock shows a dark long day candle. Two more similar candles follow the next two days. When this occurs the strength of this uptrend has certainly become weak. Make sure that too much of the market price has not been given back before entering bearish trades.

3 White Soldiers

3 White Soldiers is a Bullish reversal signal. Occurs in a downtrend At or near a support level, the stock shows a white long day candle. Two more similar candles follow the next two days. When this occurs the strength of the bulls has returned. Make sure other bullish indicators are in place to confirm the longer term validity of the reversal.

© 2 0 0 9 Tr a d e S m a r t U n i v e r s i t y

Foundations of Stocks & Options: Level 2

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Rest After Battle

Rest after Battle is a bullish continuation pattern. Occurs in a uptrend Must be above the 10 day Moving Average as a confirmation of the uptrend Consists of a long white candle followed by two or more days of sideways movement. Pattern is completed when an additional long white candle appears.

Rising Three Method

Rising Three Method is a Bullish continuation pattern. Occurs in an uptrend Often shows up immediately after a reversal pattern as the stock tests the former support to see if it will hold. Consists of a long white candle followed by 3 small spinning tops making lower lows and lower highs but not trading lower than the low of the long day candle. Concludes with a long white candle breakout.

© 2 0 0 9 Tr a d e S m a r t U n i v e r s i t y

Foundations of Stocks & Options: Level 2

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Falling Three Method

Falling Three Method is a Bearish continuation pattern. Occurs in an downtrend Often shows up immediately after a reversal pattern as the stock tests the former support to see if it will hold. Consists of a long dark candle followed by 3 small spinning tops making higher highs and higher lows but not trading higher than the high of the long day candle. Concludes with a long dark candle breakout.

Mat Hold Pattern

The Mat Hold pattern is a continuation pattern. Occurs in a trend Consists of a long candle followed by small gapping candle (similar to a star pattern) with two more small candles hinting at a reversal (like a rising or falling 3 pattern). Concludes with a long candle breakout. This pattern is a variation of the Rising & Falling three patterns.

© 2 0 0 9 Tr a d e S m a r t U n i v e r s i t y

Foundations of Stocks & Options: Level 2

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Three Line Strike

The Three line Strike pattern is a continuation pattern. Occurs in a trend Consists of three strong candles followed by one long candle that completely or mostly engulfs the former 3 days. Continues in the trend This is a "resting" pattern but the entire rest or retracement occurs in one day.

Windows

A window is a continuation pattern. Same as a western gap Occurs when a stock skips a certain trading price completely and creates a "vacuum" where no trades take place. Seen as a strong continuation pattern in both western & japanese technical analysis. The entire window becomes a new support & resistance level.

© 2 0 0 9 Tr a d e S m a r t U n i v e r s i t y

Foundations of Stocks & Options: Level 2

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