Reversal Candle Patterns
A candle pattern can be a single candlestick line or multiple candlestick
lines, seldom more than five or six. In Japanese literature, there
is occasional reference to patterns that use even more candlesticks,
but they will be included in the chapter on candle formations. The
order in which the candle patterns are discussed does not reflect their
importance or predictive ability. They are listed based upon the number
of days or periods required for each pattern, with the one-day
patterns first. Generally, within each category the patterns are then
arranged based upon their frequency of occurrence.
Most of the candle patterns are inversely related. That is, for each
bullish pattern, there is a similar bearish pattern. The primary difference
is their position relative to the short-term trend of the market.
The names of the bullish and bearish patterns may or may not be different.
So that this chapter can serve as a reference, each pattern set
will be covered using the same basic format. Some patterns retain
their Japanese name while others have been given English interpretations.
A few are identical in construction, but have different names.
Any differences will be dealt with in the individual discussions.
Three small vertical lines will precede the pattern drawing. These lines only show the previous trend of the market and should not be
used as immediate reference to pattern relationships.
REVERSAL VERSUS CONTINUATION PATTERNS
Reversal and continuation patterns have been separated into different
chapters. This covers the reversal patterns and further will
covers the continuation patterns. This separation was done to add
convenience and simplify future reference. This is mentioned here
because the determination of bullish or bearish implications has to
do only with continued price action and not with previous action.
Previous price movement helps to determine only the pattern, not its
ability to foresee or anticipate future price movement. Whether a
reversal pattern or a continuation pattern, investment and trading
decisions still need to be made, even if it is the fact that you decide to
do nothing. Next will deals with this concept at length.
There is a normal expectancy to have a bullish pattern or situation
prior to a bearish counterpart. That tendency will continue here, except
when one counterpart tends to exhibit greater prevalence; then it
will be covered first. Many were created to serve as a complementary
pattern to those that only had a bullish or bearish version,
but not both. In those cases, the original is always presented first.
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