Encyclopedia of Candlestick Charts also includes chapters that contain important discoveries and statistical summaries, as well as a glossary of relevant terms and a visual index to make candlestick identification easy. Thomas N. Bulkowski is a successful investor with over twenty-five years of experience trading stocks. On May 16, , I went shopping for a stock to buy and found one in the diversified chemicals aisle of the market.
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Encyclopedia of Candlestick Charts also includes chapters that contain important discoveries and statistical summaries, as well as a glossary of relevant terms and a visual index to make candlestick identification easy. Thomas N. Bulkowski is a successful investor with over twenty-five years of experience trading stocks.
On May 16, , I went shopping for a stock to buy and found one in the diversified chemicals aisle of the market. What caught my eye first was a consolidation pattern called a descending triangle. Figure I. Descending triangles have a flat bottom and a downward-sloping top. I was looking for an upward breakout. The next pattern I noticed was the Big W. Eve bottoms are wide, rounded turns, unlike Adam bottoms, which are narrow, often pointed—a single spike or two wide.
Eve can have spikes like that shown at B, but the spikes are shorter and more numerous than what you see on Adam. The theory behind a Big W is that the right side will mimic the left and price will climb after that. The pattern that sealed the deal was the morning doji star candlestick. That candle pattern ended the day that price closed above the top of the descending triangle.
My research said that the morning doji star is a highly reliable candle formation. Combined with additional analysis I did on the company, both fundamental and technical, the stock was a buy only if it gapped open higher. Because the next day the company was holding a conference call before the market opened to discuss earnings. A higher open would mean the market liked its story. Most was from acquisitions or currency translation.
That means trading with the trend as soon as possible. The next day, I watched the stock open and price took off. In the first minute, it shot from the prior close of That left a tall white candle on the chart. Again, my research and knowledge of candles said that the body of a tall candle is often a support zone. So, I placed a buy order halfway down the body, at Sure enough, price turned down and nailed my buy order, filling most of it before moving up again.
I had trouble fitting through the door because the smile on my face was so wide. Five minutes later, the remainder of the order filled. The next day a brokerage firm upgraded the stock and price moved higher still, this time up another 1. The following day price coasted upward 33 cents D. Exit time. The height of the candle lines was diminishing, suggesting a trend change. In other words, upward price momentum was slowing.
The candle pattern at D also resembled a shooting star, with a tall upper shadow and small body after an upward price trend. The day after D, I vowed that if the stock opened lower, I would sell. I thought of selling it all at the open but the futures market suggested a higher open for equities, so I decided to wait and see. Volume was thin in the stock but it opened lower, just as I expected. I timed the exit as best as I could and got out just before price plummeted.
The candle that printed on the chart was a hanging man. That suggested more upside. If you want to replicate this trading setup, look for: Good industry relative strength. If the stocks in the industry are doing well, then the chances improve that this stock will do well, too. Better than expected earnings. Only price can tell you how much the market likes the results, so watch the stock after the announcement of earnings. If price gaps upward, buy immediately or wait for a retracement and then buy.
A reason to buy the stock from a technical or fundamental perspective. Even if price does not explode higher at the open, it should do well in the coming weeks based on your analysis.
I used an upward breakout from a descending triangle with a morning doji star inside a Big W pattern. The combination worked well but will be almost impossible to duplicate. What Are Candlesticks? The line a single price bar on the left is a white candle.
This one shows the relative positions of the open, high, low, and close. Notice that the closing price is higher than the opening price. When that occurs, the body is white. On the right, the candle is black because price closed below the open. The upper shadow is hair growing from the top of the candle, and the lower shadow is a single leg dangling from the bottom of the candle.
It may help to think of shadows as wicks. The key concept to remember is that a black candle shows a close below the open and a white candle shows a close above the open. A black candle does not show price closing lower than the previous day, nor does a white candle show a higher close than the day before. With this candle definition, you can have a stream of white candles in a declining price trend, and black candles forming a rising price trend.
Multiple candle lines along with variations in shadow and body length make up the many candle patterns. The Data I wrote a computer program to recognize all of the candlestick patterns in this book. With nearly five million candle lines to explore for each of over candle patterns, doing it manually was not an option. From the standard database I derive the frequency rank and prorate the number of times a particular candlestick pattern is found to determine whether it appears more often in bull or bear markets.
Together they comprise almost five million candle lines price bars. I removed any duplicated candles between databases, and all four contain split-adjusted, clean data. The Price Trend Many candles have a defined price trend that leads to the start of the candle pattern.
For example, a hanging man appears in an upward price trend, and a hammer appears in a downtrend. How do you determine the trend? I use a day exponential moving average as a starting point and season it with special rules to allow price trends of a day or two to override the result. The method is a bit complicated but it works well. It is, however, not perfect, but the large sample size I use helps compensate.
Candle Performance How do you measure candle performance? Since candlestick patterns often lead to short-term moves, I used the closest minor high or low swing high or swing low , depending on the breakout direction, to gauge performance. The statistics in this book should be used to compare results from candle to candle, not as benchmarks of how well you will do trading… Get Thomas N.
Bulkowski's Candlestick Patterns
Commodities Flap copy The Encyclopedia of Chart Patterns, recognized as the premier reference on chart pattern analysis, extends its lead with this Second Edition. This definitive text includes new bull and bear market statistics, performance sorted by volume shape and trend, more than a dozen additional chart patterns, and a new section covering ten event patterns. He also shows you how to trade them and uses reliable statistics to back it all up. It goes where no one has gone before. Bulkowski gives hard data on how good and bad the patterns are. Bulkowski has taken an intelligent and thoughtful approach to producing a practical guide to understanding and trading chart formations.
Encyclopedia of Chart Patterns