Trading Candlestick

Engulfing Candlestick Pattern

2012-10-23T06:50:00.002-07:00

Enulfing pattern is candlestick pattern that formed by two candlesticks with different color, this could be black candlestick and white candlestick or white candlestick and black candlestick.
Engulfing candlestick pattern formed by black candlestick and white candlestick is called Bullish Engulfing candlestick pattern. Engulfing candlestick pattern that formed by white candlestick and black candlestick is called Bearish engulfing candlestick pattern.
Color of the first candlestick in engulfing pattern represent of the preceded trend. If Engulfing candlestick pattern is preceded by bullish trend or uptrend, the first candlestick is white and if the emergence of engulfing pattern is preceded by bearish trend or downtrend , then the first candlestick is black.
The second candlestick always has longer body than first candlestick body. Body of the first candlestick is within the coverage area of the second candlestick body. The length of the upper and lower shadow is not important.
In the Japanese language, Engulfing pattern is also known as Tsutsum and Daki which means humiliating. Why ? because the length of the second candlestick body seemed to swallow the first candlestick body and it looks hopeless / humiliate the first candlestick to maintain the preceded trend.

Evening Doji Star

2012-10-23T06:48:00.002-07:00

Evening Doji Star ( Bearish )
Evening Doji star formation is vice versa of Morning Doji Star candlestick pattern, this candlestick formation builds by two candlestick , where the first candlestick has long white body or white marubozu ( with its combination ) , and the second candlestick is Doji candlestick pattern.
The emergence of Bearish Evening Doji Star candlestick pattern can be describe as follows:
1. Evening Doji sar is preceded by a bullish trend or uptrend
2. The first candlestick is long white candlestick pattern or White Opening Marubozu / White Closing Marubozu.
3. The second candlestick is Doji candlestick pattern ( Four Price Doji / Long legged Doji / Dragonfly Doji or White closing Marubozu candlestick )
4. The bottom level of doji candlestick is above closing price of the first candlestick. This level is also become resistance level of trend bearish.
The emergence of Long White Candlestick pattern / White Marubozu on the first day makes investor confidence about trend bullish continuation in the market, but this confidence will be disappear when doji candlestick and gap up pattern occur on the second day.

Morning Doji Star

2012-10-23T06:45:00.001-07:00

Morning doji star formation is a formation that is formed by two candlesticks, where the first candlestick is long black candlestick pattern or black marubozu pattern (with its combination: opening black marubozu / closing black Marubozu and marubozu ) while the second candlestick is a doji formation (also with its combination : four price doji, gravestone doji, or long legged doji).
The emergence of a morning doji star formation is preceded by a down trend, which is essentially the information contained by the morning doji star formation reflects the failure of the first candlestick (black or black candlestick Marubozu) to continue the downward trend, why? because of the emergence of a long black candlestick or black Marubozu at the end of a down trend, technically this indicates the emergence of a bearish trend continuation, but an indication of a bearish trend continuation is ignored by the emergence of a doji formation which is an indication of doubt that is upon market conditions, as we have discussed earlier, the market will be skeptical about the trend bearish continuation which indicated by the long black candlestick formation and black Marubozu before.
Hesitancy of the market about trend bearish continuation strengthened by emergence of Doji candlestick formation in the gap down position which body candlestick ( open and close ) of doji is below closing price of long black candlestick pattern and black marubozu candlestick which appear earlier.
Gap Down in morning Doji Star formation could lead the market psychology suspect that the target to reduce the price of the down trend before been realized since there has been a downward leap / gap down.
A complete characteristic of Morning Doji Star formation can be written as follows
1. Morning Doji Star is preceded by a down trend
2. The first is a long black candlestick candlestick or black / black opening / closing Marubozu black
3. The second candlestick is a doji (four price doji / long legged doji / dragon fly doji / gravestone doji)
4. The highest point of the Doji candlestick body is under the close price of the first candlestick. This

Doji Star

2012-10-23T06:32:00.001-07:00

In previous articles we have discussed the various types of doji candlestick pattern begins with four price doji, long legged doji, dragonfly doji and gravestone doji. Now we are back to discuss doji pattern called doji star, in an earlier article we identify a doji formation using only one candlestick, then the identification doji star formation we need two candlesticks, one doji candlestick before the emergence of patterns and doji itself.
Ideally, we use four price doji for identifying doji star formation, but this is not an absolute, because gravestone, dragonfly or long legged doji can also be used in the identification of this formation.
There are two types of formations known doji star candlestick analysis, the morning doji star and the evening doji star. Morning doji star is a doji star formation which indicates the possibility of a bullish trend (uptrend) while evening doji star is a doji star formation which indicates the possibility of a bearish trend (downtrend).

Two Candlesticks Formation

2012-10-23T06:27:00.002-07:00

In this article we will discuss the various formations formed by two candlesticks. There are 24 formations that we will discuss in this paper, the two candlesticks formation are :
1. Doji star
a. Morning bullish doji star
b. Evening bearish doji star
2. Engulfing
a. Bullish engulfing
b. Bearish engulfing
3. Harami
a. Bearish harami
b. Bullish harami
4. Harami cross
a. Bullish harami cross
b. Bearish harami cross
5. Homing pigeon
6. Inverted hammer
7. Kicking
a. Bullish kicking
b. Bearish kicking
8. Meeting lines
a. Bearish meeting lines
b. Bullish meeting lines
9. On neck
10. In neck
11. Thrusting
12. Piercing line
13. Bearish thrusting
14. Separating lines
a. Bearish separating lines
b. Bullish separating lines
15. Bearish shooting star
16. Dark cloud cover
17. Bullish matching low

Long Legged Doji

2012-10-23T06:25:00.000-07:00

Long Legged Doji
Long Legged Doji is formed by a Doji that has a Medium / Long upper shadow and lower shadow. This formation indicates that although the market was characterized by strong action between buyers and sellers (who form the Long / Medium Upper and lower shadow), but the market remains closed on the position of indecision, where none of the parties that believe in what's supposed to happen. The next market’s indecision creates reversal opportunity from the preceded trend.

Gravestone Doji

2012-10-23T06:20:00.000-07:00

Gravestone Doji
This formation is formed by a doji that has medium or long upper shadow with no lower shadow (if any lower shadow, the size will be very short). The longer of the upper shadow of a Gravestone Doji, the more powerful the effect of this formation. This formation is called the Gravestone because of its shape like a tombstone on the grave

Dragonfly Doji

2012-10-23T05:49:00.001-07:00

This formation is a doji that have a medium / long lower shadow but has no upper shadow (if available its upper shadow would be sized very short).
Psychologically, the pattern of dragonfly doji similar to hammer pattern and hanging man pattern, but an indication of bullish generated is stronger than the hammer or hanging man pattern. Remember that candlestick body on dragonfly doji formation is shorter than candlestick body in the formation of hammer / hanging man equally as basing the analysis on the confusion of the market conditions in which in candlestick analysis, the shorter of candlestick body then the more powerful it reflects confusion conditions that appear. It is therefore then an indication of bullish / bearish that generated by doji formations is stronger than the indication bullish / bearish that generated by hammer / hanging man formation.
The same with the formation of hammer / hanging man information / recommendations that generated by the dragonfly doji formation will also depend on the trend that preceded it.

The emergence of dragonfly doji formation preceded by uptrend is an indication of the chances of the bearish trend, while the emergence of dragonfly doji formation preceded by downtrend is an indication of the chance of bullish trend emergence.

Four Price Doji

2012-10-21T07:17:00.000-07:00

Four Price Doji formation identified when the length of the candlestick body is equal to or not or very short, there is no upper shadow (if available then its size is very short) and there is no lower shadow (if available then its size is very short).
Although doji pattern like this is rare enough, but this pattern clearly reflects the total hesitancy condition and uncertainty that happen in the market that gives rise to the potential for the direction of trend reversal.
However, we must be extra careful in dealing with the emergence of this formation, because of the emergence of this pattern could have occurred because the object being analyzed is very illiquid. Moreover, first make sure the data source you used, as this formation can also occur due to an error of retrieving/sending of data.
Because the four price doji reflects the hesitancy condition that emerge in the market, then it can be concluded that this formation would reflect potential bullish trend if its emergence is preceded by a downward trend and on the contrary this formation would indicate the chance of the emergence of bearish trend if preceded by uptrend.

Doji

2012-10-19T21:41:00.000-07:00

Ideally, doji is a candlestick pattern that is formed by the opening price is in the same position or at least nearly equal to the closing price. Doji can has various combinations of shadow patterns, either short upper shadow and long lower shadow, long upper shadow and no / very short lower shadow, no / very short upper shadow and no / very short lower shadow and etc.

Although the shape of the doji is very diverse, but the information contained in the various types of doji are essentially the same, namely the emergence of market hesitancy, and Psychologically if emerge the hesitancy on the market then that hesitancy will spread out and the market will begin to question the sustainability of the trend that has occurred before, its emergence of hesitancy then made doji as an indicator of the chances of a trend reversal.

Since the emergence of a doji reflects hesitancy in the market of the continuity of the trend previously occurred that resulted in a potential trend reversal, then to be able to infer the direction of the trend that is going to happen, of course, we must first know about the trend of what has happened before the emergence of a doji itself. Therefore, in the analysis doji should also be conducted trend analysis that preceded before the emergence of the information of doji itself.

Things to be considered in the analysis of doji is that if doji formation is discovered after preceded by some small real body of previous candlestick, then doji will not bring significant meaning. While if the pattern of doji is found after some candlestick that have long real body, then the doji will bring the significant meaning and will be crucial for analysts to get ready to take action.

Hammer and Hanging Man

2012-10-19T21:38:00.000-07:00

If spinning tops made up of a short candlestick with medium or long upper and lower shadow, then hammer (in the Japanese language this formation is called takuri, which means test the depth of the water with a sense of bottom) and hanging man (in Japanese is called kubitsuri) formed by a short body candlestick with a medium or long lower shadow of very short or long upper shadow.

If we refer to the above explanation actually candlestick on hammer and hanging man pattern has the same shape, we can only distinguish hammer and hanging man by seeing the trend that preceded it.

If its emergence is preceded by the uptrend then we will get a hanging man pattern, while if its emergence is preceded by downtrend then we'll get the hammer pattern.
Before the emergence of hammer patterns the condition in the market looks pessimistic (bearish). on the day the formed hammer pattern to a half of the trading session the market is actually still looks pessimistic. Still its pessimistic of market to until a half of trading session on the day of forming of hammer that showed from price movement continues to move away below the open price level. The price decline until a half this session actually shows that the downward trend is still in control.
But entering the next half session or before closing the pressure of buying into action and take over the game. So buying action then change coloring the trading and bring the price to move up and succeeded to force the price to close at a level nearly to open price.

Although buying is not able to force price to move too far above the open price, but buying pressure towards the end of the session creating market hesitancy of viability bearish trend that happened before, it gives a bullish potential on the next day.
On the day the forming of hanging man formation up to a half of the trading session apparently selling pressure would have ended the bullish trend that occurred before because till to a half of the trading session the price continue to be forced to move down away from the open position.

The market will then assess that the upward price movement in a half last trading session is not strong enough and did not have enough power to continue uptrend, while the position of the lower shadow which is quite far from the position of the open show the creation of the potential power to push the price in the next period, it is which in turn led the market to believe that the bearish trend has the potential to occur in the next period.

Spinning Tops

2012-10-19T20:56:00.000-07:00

If long body reflects the strong condition of excess of demand or supply that occurs, then the information contained within a small body candlestick is a reflection its weak of excess of demand of supply that happen. The weakness of excess of demand of supply reflects situation of indecision or doubt in the market, where the holder of the long position is not so sure of the uptrend resumption and short position holders are also not sure of the downtrend resumption.

There are some candlestick formations formed by small bodied candlestick such as doji, hammer, hanging man, and spinning tops. For clarity, we will now discuss in advance with so-called spinning tops.

spinning tops are a candlestick formation that formed by a small / short body candlestick with a long upper and lower shadow.

The length of the upper and lower shadow, which joined with its short body in the spinning tops pattern reflects market conditions that are closed with the hesitancy after the previous session of trading, the market is colored with action of attraction between sellers and buyers. However, at the end of trading session, either the buyer or the seller there is no one that sure about what will happen in the next, so the price closed back at the level that almost the same as the opening price.
There are two kinds of spinning tops patterns known in candlestick analysis, namely white spinning tops pattern and black spinning tops pattern.
Due to the length of the body of candlestick in the spinning tops formation is very small then, in identifying the existence of spinning tops tops formation we will not pay much attention to the color of its constituent body, although on the other hand some books explain that white spinning tops will have a stronger bullish information than the black spinning tops, while the black spinning tops reflect bearish indication more stronger compared with white spinning tops.

Because of spinning tops reflect the market hesitancy with the direction of the trend that occur, then the bullish and bearish interpretations generated by a spinning tops formation will depend on the trend that preceded it. The emergence of a spinning tops formation that preceded by an uptrend is an indication of potential occur trend reversal to downtrend with his upper body as resistance.

Conversely, the emergence of a spinning tops that preceded by downtrend indicates the possibility of the occurrence of an uptrend with the tip of the lower body as a limitation support. Because of indication of uptrend or downtrend that generated by a spinning tops formation is strongly influenced by the direction of the trend that preceded it, then in the spinning tops analysis, you will also must perform trend analysis that preceded its emergence.

White and Black Marubozu Candlestick Formation

2012-10-18T05:23:00.000-07:00

White and Black Marubozu

Ideally Marubozu is a candlestick with no upper shadow and lower shadow, however, there are Marubozu formations that have upper shadow without lower shadow and on the contrary, Marubozu that has only a lower shadow without upper shadow. With regard to the color of the candlestick body, there are two types of Marubozu, namely black and white Marubozu.

In candlestick analysis, Marubozu is including one candlestick indicators that quite strong its influence, either white or black Marubozu. In addition the require to not having upper and lower shadow as above, a candlestick just can be categorized as a long Marubozu if the body of candlestick in long body category (equal to the body length when we identify the existence of long white / black candlestick)

Information mirrored by Marubozu is the occurrence of movement in one direction. So it is different with other candlestick formation that reflects the action of the attractive price between buyer and seller, then in the formation of Marubozu there is no action attraction between the seller and the buyer, but only movement in one direction only.

White opening Marubozu is a Marubozu that has long white body without lower shadow but has a short or very short upper shadow. White opening Marubozu also reflects the creation of a strong positive sentiment, but still there is little selling pressure as reflected in the position of closing price slightly lower than the highest price. While white closing Marubozu is a long white candlestick without upper shadow but still has short or very short lower shadow.

Black opening Marubozu is a long black candlestick without upper shadow but still has short or very short lower shadow. While black closing Marubozu is a long black candletick with short or very short upper shadow without lower shadow.
Black Marubozu generally provide information that occurs fairly strong negative sentiment, so causing price continue to decline from opening until closing. Thus it is clearly the highest price will be equal to the opening price and the lowest price will be equal to the closing price.

White Marubozu on the other hand, reflects the creation of quite positive sentiment so causing price continue to arise from opening to closing, so that the lowest price will be equal to the opening price while the highest price will be equal to the closing price.

Indications that produced by Marubozu formation equal to indication that generated by long candlestick, thus, the bullish or bearish indications and limitations of support and resistance that prevail in the long candlestick analysis is also applicable in the analysis of black and white Marubozu, while the difference between the long candlestick and Marubozu is lies in the strength / validity side of the information it contains, where bullish or bearish indication that generated by the Marubozu formation is stronger and better than the indication generated by long candlestick formations. This is happen because if in the long white or black candlestick still occur the action attraction between the seller and the buyer, then in the formation Marubozu indication of attraction is not visible, or there is movement in one direction only. Thus, it is clear the information of direction of trend would be happen from Marubozu information would be more powerful than the same information generated by the formation of long candlestick pattern.

Due to the nature of Marubozu candlestick pattern equal to long candlestick, then the same too with the long candlestick analysis we must also do trend analysis that precedes the emergence of Marubozu formation of a candlestick pattern by applying the formula calculation of candlestick.

Long Black and Long White Candlestick

2012-10-18T04:58:00.000-07:00

As we've discussed before, the existence of long white candlestick is indicate the occurrence of excess of demand that quite strong in observation period.

A long white candlestick will be more significant its impact if its emergence is accompanied by an increase of volume of transactions.

In the formulation, the emergence of long white candlesticks can be identified as follows;

Long White candlestick
if candlestick body >= mlt* Average candlestick body
and
upper shadow <1/{mlt)* Average candlestick body
and
lower shadow <1/{mlt)* Average candlestick body
and
upper shadow <> 0
and
lower shadow <> 0
and
close price > open price

Long black candlestick
if candlestick body >= mlt* Average candlestick body
and
upper shadow <1/{mlt)* Average candlestick body
and
lower shadow <1/{mlt)* Average candlestick body
and
upper shadow <> 0
and
lower shadow <> 0
and
close price < open price

Long white candlestick is a candlestick with the closing price (close) larger than the opening price (open) and has a body length greater than or equal to the multiplier that multiplied with the averages of body length with upper and lower shadow is short or very short (upper / lower shadow are smaller than 1/multiplier * the averages of body length). Upper and lower shadow should have the value or not equal to zero.

Long black candlestick is a candlestick with the closing price (close) smaller than the opening price (open) and has a body length greater or equal to the multiplier that multiplied with the averages of body length with the upper and lower shadow which short or very short (upper / lower shadow are smaller than 1/multiplier * the averages of body length). Upper and lower shadow should have the value or not equal to zero.

Well, now we have been able to do identification the emergence of long black or long white candlestick pattern, now the question is whether the recommendations can be generated by a long white / black candlestick pattern? What is thus for example the emergence of the long white candlestick than we can see an indication that the price will continue to rise in the next period?

Since the emergence of a long white candlestick is a description of the situation of excess of demand than its emergence in general will give indication the possibility of occurrence of uptrend or bullish trend any kind of that preceded, either if the emergence of the long white candlestick begins with downtrend, uptrend or sideways. The emergence of a long white candlestick, which is preceded by uptrend would be an indication of bullish trend continuation.

The emergence of a long white candlestick, which is preceded by a downtrend would be a bullish indication, while the emergence of long white candlestick which is preceded by sideways trend would be a bullish indication with special conditions, namely if the close price of the long white candlestick in question can penetrate the resistance point of the sideways trend that formed.

In general, the point of support of a long white candlestick information is at:
1. If the emergence of a long white candlestick is preceded by a uptrend or downtrend then support point will be at:
a. Close price of the long white candlestick concerned
b. The midpoint of the long white candlestick body concerned
2. If the emergence of a long white candlestick preceded by a sideways trend, then the support point will be at the limits of the level resistance of sideways trend that preceded it.

If the long white candlestick is a bullish indication or uptrend, then the emergence of a long black candlestick is contain information with the opportunity of emergence of decreasing trend (if long white candlestick is an indication of excess of demand, then long black candlestick is an indication of excess of supply). Hence, whatever the type of trend that preceded it, the emergence of a long black candlestick would be an indication of the creation of trend bearish or downtrend.

The emergence of a long black candlestick on the end of an uptrend indicates the occurrence of bearish trend. The excess of supply that arising from the emergence of long black candlestick formation at the end of a uptrend due to profit taking by investors who have been holding a long position in advance.

Furthermore, the emergence of a long black candlestick that preceded by downtrend will be an indication of bearish trend continuation. While the emergence of a long black candlestick, that preceded by the sideways trend would be an indication of bearish with special conditions if the close price of the long black candlestick concerned is able to penetrate the point of support of the sideways trend that preceded it.
In general, the point of support of a long white candlestick formation is at:

1. If the emergence of a long black candlestick preceded by uptrend or downtrend then the resistance point will be at:
a. Close price of the long black candlestick concerned.
b. The midpoint of the long black candlestick body concerned.
2. If the emergence of a long black candlestick preceded by sideways trend, then the resistance point will be at the limits of support level of sideways trend which is preceded it.

Despite bullish or bearish indications generated by long white or black candlestick is not affected by the trend that preceded it (long white candlestick is always indicate bullish and long black is always indicate bearish). However, to complete the analysis, we still have to do the calculations and identify to the trends that preceded primarily associated with interpretation bullish or bearish trend regarding the emergence of a long candlestick formation that preceded by sideways trend.

One Candlestick Formation

2012-10-18T04:17:00.000-07:00

In candlestick analysis there are some forms of a single candlestick which important to know because these forms is often used in analysis. If these forms of single candlestick which important coupled with the information from the trend that precede its emergence then we can just use it as an indicator of candlestick analysis. Further more from it all, basically the forming of various of candlestick formations that formed by two or more candlesticks is actually use combination of the single formations. The forms of single candlestick which important are consist of: 1. Long white and long black candlestick 2. short candlestick 3. doji 4. Marubozu 5. spinning tops

Candlestick Calculation Formula

2012-09-04T06:25:00.002-07:00

In some candlestick books, there are some general rules that I identified can used as a basic guide of qualification method of candlestick body, especially to identify a long candlestick.

The rules of procedure of long candlestick introduction I conclude as below:
1. If Abs (C0 - O0)> = 3 * abs (C1 - O1), long body. So if the length of body (the absolute difference of open and close values on one day is greater or equal to three times of the length of body in the previous period then the body of the candlestick is called long candlestick. The method is called as method 1 by us.
2. If the body of candlestick > = 1,3 times of the averages length of the length of body in a certain period (usually 10 days), so the body is called long body of candlestick. This method is called as method 2 by us.
3. If abs (O-C) / (H-L) > 60% so the body is called long body. This method is called as method 3 by us.
4. If Abs (O-C) / (H-L) > 60% and the length of body of the candlestick > = 1,3 of the averages length of body so it is called as long body. This method is called as method 4 by us.

Which method are the most appropriate? it is certainly very depend on your preference. Although the above formulations are quite representative, but unfortunately, these rules can only identify the existence of long candlestick body, so that based on this thing, further, I developed the special formations that can identify the presence of candlestick formation.

Furthermore, I also developed the specific methods by myself to identify the long of body of the candlestick that I produced from a combination of all the methods above, especially Method 1 and Method 2.
But certainly I do not want to say that my method is the most appropriate method and the other is wrong, however, the most appropriate method is the method which can provide the most accurate analysis, so each method has its limitations respectively.

For example is Method 1, by using this method you will find the difficulty to identify the candlestick that consists of several long candlestick alternately. Such as formations of three white soldiers.
In candlestick analysis is known a formations called the three white soldiers that identified by the appearance of the three of long white candlestick that appear alternately with the highest point on the rise. Until this basic understanding maybe it will not cause confusion. But if you look at the ideal formation picture of the three white soldiers you may be confuse. In various books on candlestick, ideal formation of formed from three white soldiers formations of candlestick are described as follows:

Look at the above picture, could you see the gaffe on the above picture by long candlestick identification model with method 1? yes, the above picture is not consistent with the rules of method 1.
In the method 1 has clearly mentioned that the long white candlestick should have a body length > = 3 times of the length of the previous candlestick body. Look at the picture above, what is the candle b has a length > = 3 times of the length of candlestick? no! so by using method 1 is clear that candlestick of b and c may not be said to be a long candlestick. But if you read the various theories about the Candlestick, once again the above picture is an ideal example of the formation of the three white soldiers.

Confuse? The same thing was happened with me when I started to learn the candlestick analysis method. And at that moment I conclude that to identify whether a candlestick can be classified as long, short or doji candlestick, then the length of candlestick body must be compared with the averages size of the previous candlestick.

Therefore, further, I developed a method to identify the length of candlestick body. I developed this method from Method 1 and Method 2.
If at Method 1 the candlestick is identified as a long if its body length > = 3* of previous candlestick body, then I identify a long candlestick with a candlestick with a body length > = 2* the averages length of candlestick body in observation period.

Furthermore, I identify the body of a candlestick as the short candlestick if the length of candlestick body is less than or equal to Â½ of the averages length of the candlestick body in observation period. Moreover to identifying a candlestick body in the observation period. While to identifying a body candlestick as short / doji candlestick, I identified it as a candlestick with the length of candlestick body less than or equal to ½* of the length of the short candlestick body and for candlestick that has a medium body length I identifying with a candlestick with a body length of more greater or equal to ½ * of the averages length of the candlestick body in observation period and smaller than 2* of the averages length of candlestick body in observation period. Mathematically the identification of the length of candlestick body by using the method I developed can be written as follows:

Long candlestick body > + 2* Average candlestick body
½ * average candlestick body < = medium candlestick body < 2* average candlestick body
½ * ½ * average candlestick body < = short body candlestick < ½ * average candlestick body
doji candlestick body < ½ * ½ * average candlestick body
If the method 2 is applied in the rules above, the formula will be
Long candlestick body > = 1,3 * average candlestick body
1 / (1,3) * average candlestick body < = Medium candlestick body < 1,3 * average candlestick body
1 / (1,3) * 1 / (1/3) * Average candlestick body < = short candlestick body < 1 / (1,3) * average candlestick body
doji candlestick body < 1 / (1,3) * 1 / (1,3) * Average candlestick body
Numeral 2 and 1,3 in the equations above, then we call as multiplier where its value will not be rigid and limit to numeral 1,3 and 2 only, because you certainly can just change the value of multiplier according to the nature of the data that you observe, but of course in outline, multiplier value will be greater than 1.
If the multiplier is symbolized with MLT by us, then the above formulation can be transformed into candlestick formula
Long candlestick body > = MLT * Average candlestick body
1 / (MLT) * Average candlestick body < = medium candlestick body < MLT * Average candlestick body
1 / (MLT) * 1 / (MLT) * Average candlestick body < = short candlestick body < 1 / (MLT) * Average candlestick body
doji candlestick body < 1 / (MLT) ^ 1 / (MLT) * Average candlestick body

If previously we have discussed on how to identify the long, medium, short and doji candlestick, so now we will discuss about how we identify the long, medium, short and very short shadow.
Identification of shadow is not less important than identification of the body, however shadow will show the power of attraction of selling and buying action during the trading period.
The principle I used in identifying long / category of the shadow, the same as the previous principle I used in identifying the length of candlestick body, for details see the formula below,
Long shadow > = MLT * Average candlestick body
1 / (MLT) * average candlestick body < = medium shadow <MLT * Average candlestick body
1 / (MLT) * 1 / (MLT) * average candlestick body < = short shadow < 1 / (MLT) * average candlestick body
Very short shadow < 1 / (MLT) * 1 / (MLT) * average candlestick body
Furthermore, considering there are two shadows in a candlestick (upper and lower shadow), so the above formulation can be developed into:
Long upper shadow > = MLT * Average candlestick body
1 / (MLT) * Average candlestick body < = medium upper shadow < MLT * Average candlestick body

1 / (MLT) * 1 / (MLT) * Average candlestick body < = short upper shadow < 1 / (MLT) * Average candlestick body
Very short upper shadow < 1 / (MLT) * 1 / (MLT) * average candlestick body
Long lower shadow > = MLT * Average candlestick body
1 / (MLT) * Average candlestick body < = Medium lower shadow < MLT * Average candlestick body
1 / (MLT) * 1 / (MLT) * Average candlestick body < = short lower shadow < 1 / (MLT) * Average candlestick body
Very short lower shadow < 1 / (MLT) * 1 / (MLT) * Average candlestick body

Where
Upper shadow = high - max (open, close)
Lower shadow = min (open, close) - low
MLT = multiplier (multiplier value that used should be the same with multiplier value used in the identification of body length)

Information
1. MLT / multiplier - the multiplier value can match with the nature of the data that you observe, but ideally the multiplier value must > 1
2. The average candlestick body is the average length of the n body (in accordance with the observation period) previous candlestick that you analyzed

Human Subjectivity vs. Computer Objectivity

2012-09-04T06:14:00.000-07:00

Try to ask for a technical analyst to do identify the head and shoulders pattern in a stock price movement chart. The analyst will quickly show you a formation or even a few formations that he considers the head and shoulders pattern.
Now try to ask him again what mathematical formula is used to find these formations?
Now the answers will begin to be complicated and difficult.

Asking which are the head and shoulders formation to a technical analyst is an easy thing, but ask to answer what is criteria of trend nail that precedes the appearance of the head and shoulders formation, how much the relative height of a head to shoulders, how much the relative distance between the left shoulder and right shoulder, will become more difficult, why? It is because the technical analyst more often use of subjectivity rather than logical or formulation in identifying formations.

The same thing also will happen when you ask an analyst to show you what formations of candlestick contained in the graph.
Therefore, so in candlestick analysis the need of software and computer hardware becomes very important. Why? Just simple, because of the computer is very objective and not have subjective judgment at all.

Forex Candlestick Size

2012-09-04T06:11:00.000-07:00

We already know the basic information about long and short body and long or short upper lower shadow, now the question is how do we know when a candlestick body is classified as long or short body? And when a shadow is classified as long or short shadow?

Regarding the size of the candlestick body, we know four important measures are:

- Long candlestick (white or black)

- Short candlestick (white or black)

- Medium Candlestick

- doji candlestick (candlestick with a very short body or no body at all where the open price is the same as the close price)

For more details, look at the following picture,

Formation A is long candlestick, formation B is medium candlestick, formation C is short candlestick and formation D is doji candlestick.

It is very easy to determine the long, medium, short and doji candlestick based on the picture above, now how are we if faced with images like this.

Can you determine which is called the long candlestick, short candlestick, medium candlestick or a doji candlestick from the picture above?

You certainly could just suppose which the candlestick is included in category of long, which in category of medium, short or doji, but the analysis that you make is still very bias, and highly debatable, why? because of what you are categorized as long may be identified as the short or medium by others and vice versa, why? because of we may just look at the same picture, but we will certainly have a different interpretation. Why this is happen? the answer is simple, because we have not had definite guidelines about what is called the long, short and doji of candlestick.

Upper and Lower Shadow Candlestick

2012-09-04T06:00:00.000-07:00

Upper and lower shadow of a candlestick also provide information that quite important about the body of a candlestick. If the body of candlestick reflects the balance position, the upper and lower shadow provide information about the action of attraction between the seller and the buyer that occurred during the period of candlestick.

The candlestick with short shadow indicates that most transactions are done at a price close to the opening and closing price.
The candlestick with long upper shadow and short lower shadow indicates that initially the action of buying dominated the transaction and bring price increasing, but then the action of selling dominate the trading so that push up the price back toward the open position.

Upper and Lower Shadow Candlestick

On the contrary, candlestick with long lower shadow and short upper shadow indicates that the action of selling at first dominate the transactions so that push the price much below the opening price, but then buying action take control of the market and back to raise the price up to stop and closed at slightly above or below of the closing price.

Identify of Long and Short Body Candlestick

2012-09-04T05:44:00.002-07:00

Basically, it is needed only three basic formations in candlestick analysis, namely:
- length of body
- length of shadow
- color of body

The three basic information are then mixed to produce a variety of information to make decisions in candlestick analysis. The length of the candlestick body is used to describe how strong the excess of supply and demand that occur. The more of the length of the candlestick body, the more powerful its excess of supply and demand that occur, on the contrary, the shorter of the candlestick body, it also more weak the excess of demand and supply that occurs. With the basic assumption that the white candlestick is a condition reflection of the excess of demand and black candlestick as the excess of supply, then the information that reflected from the length and color of the candlestick body can be interpreted as follows:

- Long white candlestick, reflecting the strength of the excess of demand as the result of arise of a strong positive sentiment.
- Long black candlestick, reflecting the strength of the excess of supply as the result of arise of a strong negative sentiment.
- Short white and black candlestick, short candlestick generally reflect the excess of supply and demand that happened are weak. In candlestick analysis this condition is defined as the emergence of doubts of the market, where the buyers start to be unsure of buying what they do and the seller is to be unsure of selling what they do.