The Yin & Yang of Candlesticks

Everything in the universe has a balance. And the balance is seen in yin and yang.
So does candlestick. To ease our memory of the patterns in candlestick, we need to understand the concept of yin and yang.

Let's take a look at this candle - irregardless of whether it is a black or white candle - is this a hammer or a hanging man?

Without knowing the previous trend, one would not know but to learn this, it is easiest to learn both together. Even Nison grouped them together in his book Japanese Candlestick Charting Techniques.

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 color of
the real body is not important.
2. A long lower shadow should be twice the height of the real body
3. It should have no, or a very short, upper shadow.

The only difference is one appears on the uptrend, signalling potential downtrend; while the other is the exact opposite - appears on the downtrend signalling potential uptrend.

"What is in a name?" - Shakespeare.
But if you would really want to remember the name, an easy way is visualisation - for example, hanging man - I would visualise that to be hanging, one needs to be on a high position - so hanging man would be hanging on the uptrend, signalling on potential downtrend. Why signal potential downtrend? Well, after being hanged, one would be dead. Kind of obvious isn't it?
And if hanging man and hammer is the exact opposite and one has learnt the hanging man, what would be the hammer? Yeap. the exact opposite. Easy, isn't it?

Now look at the below, what is this - a Shooting Star or an Inverted Hammer?

Again the concept to learn is the same as the above illustration of the Hanging Man and the Hammer.

Hopefully this article would ease one's learning on the Candlesticks. Enjoy!

EBook: Steve Nison

OK, due to popular demand, I am opening a new section - Ebooks.
I hope this blog doesn't get shut down because of it.



Let's start off with Steve Nison's collection:
Japanese Candlestick Charting Techniques
Beyond Candlestick
The Candlestick Course

You are advised to download them soonest possible before the link expires or removed.
I m not responsible of providing fresh links if they are no longer working.
Enjoy!

PS: I m not using the Blisswise Google Group because there seemed to be problems everytime I upload there. Sorry Ben.

Forward Test: Redtone

Ben told me that Seng from Fusion Investor asked about Redtone from TA perspective.
So I decided to dedicate a whole post to it and label it Forward Testing.
Let's see if the market acts like the way I predict it or not. Remember, we make a prediction, but let the market decide. Should the market decide our prediction is wrong, as a TA practitioner, we must concede defeat and accept that the market is always right. You cannot win against 100 people pushing you down, no matter how strong you are.

Redtone
First we look at the weekly chart - overview.

We see bloodshed happenned in 2006. We see that in 2007, it tried to recover but so far to no avail. Volume remained thin throughout with the exception of 2007 where the long green candle marks the jump in price supported with volume. However, we also see a blue line drawn by me, marked as resistance. The blue line, resistance, was not successfully taken, and price falters with volume.


Next we take a closer look - still the weekly chart - zoom.

We note, EMA 50 (pink line) is still above EMA 20 (orange line). This is bearish.
We also note that the last candle rests slightly above EMA 20 weekly chart. This we note as Key support. Further assault on this support would be unthinkable.


Let's now look at Daily Chart - overview

We note that the last candles are now resting on near previous highs in November 2006, December 2006 and January 2007. Previous resistance now has become a support. This would jive with the statement above from Weekly chart that the stock is now at the Key Support. Further assault on its Key Support, would be fatal.


Let's now look at Daily Chart - zoom

This one is interesting.
First, we have long green candle with high volume.
Next candle is a shooting star with high volume.
Following is the bearish engulfing. Though volume is not as high, we must take this as a confirmation that the previous candle is a shooting star indeed.
Follows is another assault - red candle.
Following day, counter opened lower, intraday wise, reached the EMA 50(pink line) but it managed to close slightly above the previous day's closing. This is the Piercing Pattern. Piercing patterns are bullish reversal patterns.
However, the following day, while the counter opened higher, it closed lower. This cannot be regarded as a confirmation to the Piercing Pattern. While it close above the previous day's closing, the open high, close low is always a negative signal. If the bullish sentiment exist, why would a stock open higher to close lower?

This was proven true with the two red candle days. However EMA 50 held.
The following is a green candle that forms a Harami pattern.
However, the following Red Candle does not confirm it, and forms a Dark Cloud Cover.
However this is also not confirmed with the following Green Candle.
And this is followed by a Red Candle.
This is what was described in Steve Nison's books that a reversal does not necessarily happen with Harami, Dark Cloud Cover, Piercing Pattern, Bullish/Bearish Engulfing. It could merely move in sideways.

Thereafter, a sudden breakout occurred. Long Green Candle.
But proved to be a false breakout with the appearance of a Dark Cloud Cover.
The next two candle showed that the counter tried to recover but this is all in vain.

Resistance is futile. Marked with Blue Vertical Line, the Bearish Engulfing on a High Volume marks a whole new beginning to a downtrend of the stock.
Further assaults were made on EMA 20 support (Orange Line) and now the EMA 50 support (pink line).

While the assaults are with low volume, it does not mean that the downtrend is not real. From my personal observations, a rally with low volume is unsustainable. But a downtrend with low volume is very real. Volume could not be used in the same manner to analyse the uptrend and the downtrend. A counter with low volume downtrend, slowly drifts into the death of the stock. OK, I was being dramatic. It drifts and it drifts, until distribution is over.

Conclusion:
The charts look bearish. The general condition of the chart is bearish. Yes, while I use a total 14 indicators, they were all removed from the chart, save the EMAs :P. But, price volume action is the originator of all indicators.
So, general condition is bearish, Redtone is now at its key support point. Any confirmed break on this support, would confirm that we re now looking at the beginning phase of another distribution.


Standard Boring Disclaimer
The above is the personal view of the author based on Technical Analysis. The author disclaims all responsibility whatsoever on the course of action that may be taken.
Also, take note that the author is merely an accountant by profession, previously an investor and now a trader. He is not licensed to give any stock advisory services.

Magic of Doji

Very often we hear the scream of "Doji, doji, doji!" as if it is the end of the world. Or it could be the beginning of sunshine. Depends on the prior trend. But how valid is this excitement?
Let us dwell deeper into this mysterious Doji.

Doji is often touted as the reversal signal. If the prior trend is an uptrend, an appearance of doji to many, signals reversals. Correction is about to ensue.

I would define doji in another fashion. A doji to me merely means neither bulls nor bears are in control. You may view it as uncertainty. If there was a prior trend, it indicates that the trend has hit a pause. It may turn into a reversal or a resumption of uptrend. By looking at only the Doji, we will not know what will happen next. Types of Doji, such as, long-legged Doji, Gravestone Doji, Morning Star Doji, may give an additional strength to the Doji but not conclusive.

There are several categories of Doji. Classification is not mainstream but the idea is. Simply said, the idea is not new and have always been there. I merely simply give these doji names :P

1. Useless Doji

Refer to the chart above. There are so many of them. Is there a meaning to these doji?
Yes, the meaning is these are Useless Doji.

2. Pausing Doji (or commonly known as Failed Doji)
Refer to the chart below. The doji merely create a pause. It does not reverse the previous trend. See how dangerous it is to conclude it is a reversal just based on Doji?
Commonly known also as failed Doji, but personally I dislike the name. It gives a false impression as if a Doji is equivalent to an advance warning of a sure reversal.

3. Reversal Doji
Refer to the chart above. This doji became a reversal. The end of the era of uptrend.



So, how do we differentiate these doji? How do we know which is which? Useless doji are clear cut. But how are we to differentiate the Pausing Doji or the Reversal Doji?

In candlestick study, we always stress on the importance of confirmation. If it is not confirmed, then it is very risky. A Doji could either be a Reversal Doji or a Pausing Doji.

Another method is to gauge the likelihood of whether the Doji is a Reversal Doji. This can be done via the analysis of the position of the Doji. The idea behind this is to combine Doji with Key Resistance/Support.
Say a stock has been on a downtrend for sometime. A Doji appeared at the Key Support area. This is not conclusive, but it greatly enhances the probability that a reversal may be on the way.

There is also another way of interpreting the Doji, and that is via a combination of other methods. Suggested method is via Indicators. We'll cover more on indicators later.

Till then, I hope that Doji alone would be seen as a mere pause that neither bulls nor bears are in control. Nothing more, nothing less. Unless there are other information.