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Japanese Candlestick Charting UBS FORMATION
Japanese Candlestick Charting UBS FORMATION
Japanese Candlestick Charting UBS FORMATION
Taso Anastasiou
Director: FX/PM Global Technical Strategy Group
UBS Investment Bank
♦ Interpretation
♦ Timing trades with candlestick patterns
♦ Money management – identifying risk levels
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Candlestick History
♦ Early records show charts were first used in Japan in the early 16th
Century to record price fluctuations on feudal Japan’s rice
exchanges
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Candlestick History (continued)
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The Different Types Of Chart
Close Open
Open Close
Close Open
o
Open Close
o
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What is a Candlestick Chart?
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Candlestick Components
Close
Close
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Candlestick Composition
H
“Uwakage” O Upper shadow
• Upper Shadow
• Real Body
• Lower Shadow
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Candle / Bar Chart Comparison
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“Jittai”—The Real Body
♦ The Real Body represents the area between the opening and
closing prices
♦ The closing price is the most important piece of information since
it concludes the sessions trading and provides an insight into
market sentiment
♦ Most technical indicators use the closing prices as the basis for
their calculations
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The Real Body
♦ The size of the real body can provide useful clues regarding
prospective corrective / reversal points
Close
Open
Close
Open
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Impact of opening vs previous closing
Danger—reversal
Normal—continuation
Neutral—correction
Danger—reversal
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“Uwakage–Shitakage”— Shadows
Short
covering
“TAKURI”—
and buying
Testing the Water
Critical support pressure
off this level
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The 50% level—Market Profile©
Sellers Close
Fair
value Fair price
area Point of control
Buyers
Extremes
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The dynamics of a candle line
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The dynamics explained
♦ The smaller the real body, the weaker the line. Typically this
reflects consolidation when uncertainty exists and traders square
positions looking for a potential reversal or correction
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The classification and single candle lines
SECTION 2
The classification
The original eight
1 2 3 4 5 6 7 8
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A new perspective
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1. The standard line
(+)
(–)
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Standard lines
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2a. The Koma—spinning top
(+/–) (+/–)
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Koma
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2b. The star—“Hoshi”
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Hoshi
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3. The Doji—reversal
♦ The Doji represents the area where Bulls and the Bears meet.
Opening / closing prices are equal. Doji means ‘same as’, in
Japanese
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3a. The Rickshaw man—“Juji”
Juji
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The Rickshaw man—“Juji”
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3b. The Gravestone Doji—“Tohba”
Tohba
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Doji—NIKKEI
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3c. The dragonfly Doji—“Tonbo”
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3d. The Doji Star
‘Ku’
“Hoshi”
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Doji Star
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4. The Umbrella—“Karakasa”
Takuri
Takuri
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4. “Karakasa”—Umbrella reversal
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4a. The Hanging Man
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The Hanging Man (continued)
Shooting Star
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4b. The Hammer
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Hammer
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Karakasa
Shoulders Reversal
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Hammer
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5. Inverted Hammer—reversal
Shooting Star Inverted Hammer
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Shooting Star
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Shooting Star
Shooting Star
Shooting Star
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6/7. The Bozu Line
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8. The Marubozu
50% level
critical
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The Long Standard line
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The Long Standard line
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The classification
1 2 3 4 5 6 7 8
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The classification (continued)
1 2 3 4 5 6 7 8
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The classification (continued)
1 2 3 4 5 6 7 8
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The classification (continued)
1 2 3 4 5 6 7 8
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The classification (continued)
1 2 3 4 5 6 7 8
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The classification (continued)
1 2 3 4 5 6 7 8
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The classification (continued)
1 2 3 4 5 6 7 8
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The classification (continued)
1 2 3 4 5 6 7 8
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“Sandome no shojiki”
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Reversal patterns two-day lines
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Gyakushushen
Counter attack lines
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1. The Tsutsumi line
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1a. The Bearish Engulfing line—Tsutsumi line
Tsutsumi line
Close ♦ The Engulfing Line is one
of the strongest reversal
patterns and is an effective
method for identifying
changes in market
sentiment
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1a. The Bearish Engulfing line—Tsutsumi line
Tsutsumi line
Open ♦ The next period opens
higher than the previous
close, creating a gap or ‘Ku’,
Gap (in section 1 we saw this
phenomena is usually a sign
of market weakness)
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1a. The Bearish Engulfing line—Tsutsumi line
Tsutsumi line
♦ The close of the current
Open candle line is lower than the
previous session open—
engulfing the whole of the
last real-body
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1a. The Bearish Engulfing line—Tsutsumi line
Tsutsumi line
♦ The open of the first day
and close of the second
day would result in the
entire session resembling
a, Tohba or Shooting Star
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1a. The Bullish Engulfing line—Tsutsumi line
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The Tsutsumi line
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2. The Kabuse line
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Bearish Deaisen
Major support
♦ The Bearish meeting line is
found at the top of a
trending market
Gap
♦ Price action initially gaps
away from the previous
close but closes into the real
body of the previous session
2/D,C
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Examples
Hammer
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2. Dark cloud cover—Kabuse line
2/D,C
Kabuse line
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Kabuse
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Counter attack lines—Deaisen
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Kirikomi
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3. The Piercing Pattern—Kirikomi line
Kirikomi Line 2/D,C 2/D,C 2/D,C
Standard
Tonkachi Bozu line
50%
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5. The Harami line
Support Support
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5a. The Bearish Harami line
♦ The Harami similar to an
2/D,C inside day with the body of
a session contained within
the previous sessions real
body
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5b. The Bullish Harami line
♦ Trading strategy—
Resistance
exercise extreme caution
when you see one of
these patterns, adjust
your stop-loss level
accordingly. If expecting
a full trend reversal it is
imperative to seek
confirmation prior to
Tonkachi acting.
3070446L.ppt 79
5c. The Harami Cross—Harami Yose Sen
Also known as
the Doji cross
♦ Because the last line is a Doji this pattern is much more significant
than the standard Harami line
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Harami
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6. The Doji Star—Doji bike
2/D,C 2/D,C
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7. The Separating line—Iki Chigai sen
♦ The basis for this line starts in
a trend when (as in the
example) the market closes
higher as expected. The next
opening creates a huge gap
on the open – however price
action closes lower on the
day near the previous days
close.
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Separating line vs Meeting line
Meeting lines Separating lines
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8a. Tasuki
Support Resistance
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Tasuki
Bullish Tasuki
Bullish Tasuki
Bullish Tasuki
Piercing Line
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7b. Tasuki Gap
Support Resistance
♦ The Tasuki Gap is a form of star, but rather than a spinning top or
Doji the gap is part of a Standard line. The Ambush line is the
third Confirmation line which closes the window and forces the
change in the trend and sentiment
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Tasuki and Tasuki Gaps
Aggressive Sellers
below 0.8389
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Reversal patterns
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Three line reversals
Sandome no Shojiki
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8. The Morning and Evening Star
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8a. The Evening Star
Evening Star
♦ The market has to be trending
♦ The second session is a small
star that has gapped away
from the price action
2
♦ The third session is always the
opposite colour of session 1
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The Morning Star
Morning Star
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8b. The Doji Star
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8b. Sute Go – Abandoned baby
1
3
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Upside Gap 2 Crows
Shita banare niwa garasu
Upside Gap Two Crows
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Unique 3 River Bottom
Sankawa Soko Zukae
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10. Three White Soldiers
Aka Sanpei
3
♦ The sessions all open roughly
in the middle of the previous
real body and close higher as
bearish sentiment falters
2
♦ No confirmation is required
Aka Sanpei
1
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Advance Block
Saki zumari
♦ This pattern is potentially a bearish
reversal and certainly defines
weakness in the current trend
♦ Confirmation is required
1
Saki zumari
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11. Three Black Crows
Saki zumari
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12. The Harami age and Harami sage
1 Confirmation of a Harami pattern
2
Support Resistance
2
3
1
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13. The Tsutsumi age and Tsutsumi sage
1 Confirmation of an Engulfing pattern
Support
Resistance
1
Tsutsumi sage Tsutsumi age
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14. The Tweezers Top & Bottom—Kenuki
♦ Tweezer tops or bottoms are more effective when they form part
of a reversal pattern.
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15. High Wave Warning—Takane nochiai
5 6
3
2 4
Trend Support
7
8
1
♦ This usually occurs after a strong rally, the high wave is made up
of a series of spinning tops, doji’s and umbrellas
♦ There are lots of clues to the direction of the breakout, but seek
a confirmation line
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15. Tower Tops and Bottoms—Ohtenjyou
Trend Support
1 2
♦ This pattern would equate to a double top and the break below
the support following the second tower and bearish engulfing
pattern gives ample warning of the trend reversal
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Identify The Patterns
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Identify The Patterns
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Identify The Patterns
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Bibliography and References
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Disclaimer
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