Japanese candles. Trend change signals

Japanese candles: Introduction and trend change signals

HISTORY OF JAPANESE CANDLESTICKS

Japanese candles (or candlesticks) is a technique of graphs and analysis used in the economy. It arises in the Japan in the 18th century in the rice market with a few principles very similar to technical analysis used in the West whose bases were exposed in the Dow theory.

The development of Japanese candles and all your theory are attributed mostly to Homma, wholesaler of natural rice of Sakata, Japan. While the beginnings of Homma were very basic, if compared with the techniques of candlesticks today, were the bases so they are as we know them. Candlestick analysis is one of the oldest and most used in the world technical analysis categories.

WHAT ARE THE JAPANESE CANDLESTICKS?

Analysis technical Japanese, is based on the study of patterns or models of candles, is useful for anyone wishing to have another tool at your disposal. Candlestick charts are currently one of the most commonly used in technical analysis since in many cases in each of your candles we can interpret the psychology of the market and have more information of the price of the asset for example: opening price, price locking, minimum and maximum price, etc.

Candlestick analysis is responsible for the effect, not the cause of the psychology of the markets. Why is considered the analysis of Japanese candlesticks within the categories of technical analysis.

Markets are influenced by the emotions of investors involved in it; therefore we must use some methods of technical analysis to look at the behavior of these psychological factors. The candlesticks are the interaction of the actors involved in a market.

The home of candlestick analysis is the beginning of the analysis of this type. The different types of candles have different meanings, and the Japanese have defined different primary candles based on the opening prices, maximum, minimum and close relationship. The understanding of these basic candles is the beginning of the analysis of this type of graphic

THE UTILITY HAVE THE CANDLESTICKS?

If we compare the analysis of Japanese candlesticks with a graph of bars, etc., we can see that a particular trading day is represented in any type of chart, but its use and interpretation are easier on the candlestick chart. To have more practice and familiarize yourself, graphics of Japanese candlesticks (candlestick) will become an essential part of your analysis, and most will never traditional bar charts.

Information is similar to the one of other graphics, but they are visually easier to interpret.

SIGNS OF CHANGE FROM UPTREND 

There are different patterns, or signs of Japanese candlesticks that can give us an indication of a possible change of trend from bearish to bullish. It should take into account that these are not 100% safe or infallible.

The following is a classification of Japanese candlesticks which suggest a change from uptrend with a high degree of probability.

• Morning star or Morningstar (Morning Star).

Their reliability depends among other things determine a trend clearly bearish, mature and important support area. If after bearish factors occur as those mentioned above and also appear the formation "Morningstar" or as "morning star", we could have a trend change signal. His name is very representative of this bullish pattern because it symbolizes the awakening of the rises in prices.

It is figure consists of 3 candles: the first is a big red candle. It occurs in a defined downward trend. The second candle opens with a gap and has small real body whose opening and closing below the previous to being able to be a green or red candle candlestick. The third candle is large and opens with gap upward and closes within the levels of the first candlestick's body.

• Morning star doji or Lucero of the Doji Alba (Morning Doji Star).

Tiene las mismas características de la figura de “estrella de la mañana”, la diferencia está básicamente en que en este caso, si la segunda vela es un doji, toma el nombre de “estrella de la mañana doji” y tiene implicaciones alcistas más fuertes que la anterior pauta, siendo paralela su interpretación. Si el precio del activo cae por debajo de los mínimos de esta figura de tres velas, se descartan sus efectos al alza.

• Kick or bullish Coz (Kicking).

The figure of kick or bullish Coz is composed of two large candles without shadows (Marubozus). This is one of the formations of candles that does not require a prior guideline in any sense. It requires no bullish or bearish trend but is his strength alone.

The first candle is a red candle and the second is pure reflection of a "bullish kick" because there is a gap, and while shadow, draw a green candle with a clasp, is which is above the opening and Maxima. It is a very bullish pattern, since after a fall and minimum closure occurs something that launches it upward. If you want greater reliability you can expect a third candle and verify that the close is higher than the previous day. The gap is essential in this guideline.

• Baby abandoned bullish (abandoned baby).

This is a figure consists of 3 candles that can be bullish or bearish. Bullish abandoned baby is a figure of three sails similar to the Morningstar doji, with the particularity that the central doji is "abandoned" and its bull-market effects are stronger. The abandoned term refers to the doji is isolated from the other two sails, i.e. occurs surrounded by gaps. The first candle is black and occurs after a downtrend. The second candle is a doji that opens with gap and closes below the minimum of the previous candlestick as well as its maximum which is also less than the minimum of the first candle. The third candle is green is always above the doji. This third candle opens with gap and closes within the body of the Red candle. The doji is a level that suggests a support and its effects would be eliminated if the quote does rupture of such support.

• Small hidden swallow (swallow baby skin).

In this this figure all guideline candles are red, it is a pattern of changing trends of bearish to bullish.

This training will occur in a bearish trend which produces two red candles without shadow, i.e. two sails down with closures in minimum. The third candle opens with bearish gap but closes with inverted hammer that can mean an attitude. The fourth candle opens with an upward gap above the maximum of the previous candlestick. Opens more up but loses strength and ends up closing in what could be a support. The asset continuously visits those levels of support, but without violating them. To confirm such guideline is need that the active closing above the candle above and with a rebound strong.

• Three white soldiers (Three White Soldiers).

It is a formation of trend from bearish to bullish. This figure is made up of three sails, which reproduces the graphic. There should be a trend defined downward before making this figure. It is a very strong change formation and is contrary to 3 "black crows" training.

Much better if the bodies of candles are great since more bullish is considered. The reliability of the figure increases if the shadows of the second and third candle are very small or non-existent, i.e., that the closing occurs at the highs to close. Support area is marked by the minimum of first candle.

• Three upward Interior candles (three inside up).

It is a figure of changing trends of bearish to bullish composed of three bulls Interior candles. It is opposite figure of three sails Interior bearish. There is a downward trend and shows a big red candle and followed a smaller candle in which is contained the body and shadows within the previous candlestick.

In this guideline, he is confirmed by a third white candle that necessarily would have to close above the close of the second but he acquires stronger predictive if the close is above the previous peak. The color of the second Candle may have variants in its color and its size, being most important to change the trend that is a doji. If in addition, the third candle is presented with a gap to the upside and closes above the maximum of the previous candles acquires much more importance in the change of trend.

• Three Bull outdoor candles (Three Outside Up).

It is a pattern of trend reversal, which occurs after a clearly downward trend. Also called "envelope bullish confirmation". It is formed by three Bull outdoor candles. The first candlestick is red and is then given a bullish surround candle in the following which is finally confirmed with the third candle that closes above the previous closing.

It is confident of trend reversal if this pattern if the movement is accompanied by loud or a bullish gap. It can be either at the end of a downtrend as a correction of an uptrend.