| Traders claim that 'the trend is your friend'. That's | | | | The old trend is clearly broken as the price closes |
| true - until the trend reverses unexpectedly. This is | | | | beyond the midpoint of the first day candle. Why |
| why it's critical for you to understand candlestick | | | | does this move happen? |
| reversal patterns. A surprise change in trend is likely | | | | Value Adjustments |
| to be triggered by news. There will almost always be | | | | Price trends usually change for reasons that are |
| hints or rumors before the information comes out | | | | based on perceived future value. Extreme price |
| publicly. For example, news from one company may | | | | movements need to be justified by fundamentals |
| cause speculation about what is happening to | | | | and estimates of true worth. If an upward trending |
| competitors in the same or related industries. | | | | stock suddenly issues an earnings warning, perception |
| Markets will react or prepare for that anticipated | | | | of future worth abruptly changes. This explains the |
| news based on speculation. Buyer and Seller behavior | | | | diverging pattern associated with the Kicker where |
| actually becomes somewhat predictable at this point. | | | | trading shifts dramatically in the opposite direction of |
| Traders often 'buy on the rumor and sell on the | | | | the former trend. Other, more subtle candlestick |
| news', in an attempt to beat the crowd. | | | | reversal patterns occur when the market needs time |
| Clear evidence that lots of people are "in the know" | | | | to evaluate news. |
| shows up as patterns within multiple trading sessions. | | | | Breakaway Candlestick - This 5 day reversal pattern |
| Candlestick charts can help you be nimble enough to | | | | starts out similar to an Abandoned Baby, except |
| stay one step ahead of whatever major move is | | | | there is slightly more indecision before the major |
| about to occur. You just have to know which | | | | move. In a downtrend, a long black candle forms. |
| candlestick reversal patterns to look for. | | | | The 2nd day gaps down to form a black short day |
| Stars - Trend Exhaustion Signals | | | | called a star. The next 2 days are consecutively |
| The Morning Star and Evening Star are two | | | | lower candles with the 4th day closing lower than the |
| opposite-meaning candlestick patterns. Both indicate a | | | | 2nd. The 5th day opens lower still but trades up and |
| possible change in trend - one up and the other | | | | closes within the gap of the 1st and 2nd days. The |
| down. They tend to be reliable signals when the | | | | bearish form of the Breakaway Candlestick starts |
| trend has been strong for an extended period. There | | | | with the prior trend being bullish instead. The candle |
| is already a sense that it is time for a market | | | | formation is flipped and features colors that are the |
| correction. | | | | opposite of those described above. |
| For example you might have a long candle with very | | | | Ladder Bottom - 5 day pattern. Three Black crows |
| little shadow the first day followed by a Doji (a | | | | form during a downtrend. On the 4th day a short |
| candle that is all shadow with no body) formed on | | | | black body forms as an Inverted Hammer. The 5th |
| the second day. A gap in trading appears between | | | | day is a long white candle that opens above the 4th |
| the first and second trading sessions. The Doji | | | | day body and closes above the opening of the 3rd |
| indicates indecision where the bulls and bears equalize | | | | day. |
| or cancel each other out. The opening and closing the | | | | Three Stars to the South - 3 consecutive black |
| second day are the same price. | | | | candles in downtrend (paradoxically bullish because |
| The third day gaps again with a long candlestick in | | | | shorts in the market have failed to create a new |
| the opposite direction from that of the first day. It | | | | low). The 1st day has a long shadow on the bottom. |
| provides confirmation that a new trend has begun. | | | | The 2nd day is a smaller version of the 1st and |
| This single description actually fits both the Morning | | | | trades completely within the body and shadow of it. |
| and Evening Star candlestick reversal patterns. Each | | | | The 3rd day is short and black with no shadows but |
| predicts a reversal in the opposite direction - but for | | | | trades within the complete trading range of the 2nd. |
| similar reasons. | | | | Tri-Stars - 3 Doji in a row indicate a reversal of the |
| In the case of a Morning Star, the bulls have taken | | | | current trend because of the extended and extreme |
| control of the market and prices continue upward. In | | | | nature of the indecision. Tri-Stars can be bullish or |
| the case of an Evening Star, the bears are firmly in | | | | bearish candlestick reversal patterns. |
| control and prices continue lower on the third day. | | | | |