Kjju

The
Candleslick
Course
John Wiley & Sons
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The
Candlestick
Course
s'1'1N1i usox
John Wiley & Sons, Inc.
10 9 8 7 6 54 3 2 1
Contents
SECTION
THREE BASICMARKET
STRATEGIES
C.andle Lines
SECTION ONE SPINNING Tops AND HIGH WAVE CANDLES
SECTION TwoTHE DANGEROUS DOJ'
SECTION THREE LONG REAL BODIES, THE CONSUMMATE
STORYTELLERS
'"IRE", The candle Patterns

SECTION ONECLOSE COUSINS: PIERCING, DARK CLOUD
COVER, ENGULFING, AND COUNTERATTACKS
SECTION Two THE HARAMI AND HARAMI CROSS,
MORNING
AND EVENING STARS
SECTION THREE PICTURESQUE STORYTELLERS:
TWEEZERS,
CROWS, AND SOLDIERS
SECTION FOURDISJOINTED CANDLES: RISING AND
FALLING WINLOws
TEE CANDLESTICK COURSE
raking 01 opportunities
SECTION ONECANDLE CHART APPLICATIONS
SECTION Two TRAC*NG GUIDELINES
'Vagemer•.
cwuvrr,R vnv:
sm "ringing n
Conclusion
usual Glossary 01 Candlestick Terms [sed in

Foreword
hen I was a brand-new trader, I Steve NLson' s filSt

tx»k, Jag-mase Cmnciåastick Charting Tce."ißes. As I began
to tum the pages, I mused, "Ah, here is a book that talks amut
charts in a way
I ean undemtand and etuoy!" r d overwhelmed by other books on teehnieal
that threw me into mazes of indicators and oscillators and
parabolic trailing stops. Immersing myself in these tomes Inevitably bmught
on one result. ..
Steve's book was diffeænt. In its pages, I diseovered the world of ean
dlestiekeharting. a teehnique created centunes ago by a Japanese nee trader.
The history of eandlestieks faselnated me, as did the picturesque names of
many of the formations, names sueh as moming star, hanging man, and dark
cloud eover. I learned that these patterns ævealed much mole than their
*Inbolie names. They dtsplwed the traders most Important signal— that of a
priee taend reversal, or change.
Atter ha•vlng stared at and stoie bar chans for months, I the
chance to wplaee them "'ith I quiekW adopted the wpular method of
assignlng and red e0101Y to the positive and negative can dles,
lespec•tiver,'.
I *Jon found that the& storytellels helped me a stocks pnee pattern
rapidly. With the help of other indicators, candlesticks aided me in gaug Ing
a st02k's possible future mmement with a high degree of aceuraey. I felt a
debt of gratitude to Stewe Nison for bÄnØng this powerful information to
the world.
Please æalize that before Japanese Candlestick Charting Tec*niquas
(often referæd to as the "bible of candle eharting") was published in 1991,
candlestick eharting tEn2hniques deeply hidden Ln the East. We are fonunate
that Steve NLson researched this unique chaltlng system and
blought it to and the United States. Hts efforts literally revolutionized
technical analysis of the financial markets.
As a trader or investor, your interest in candle chans "'ill present you with
many benefits. First, even if you ale ælativebr new to technieal analysts,
candlestick patterns are easy and enjoyable to learn. Seeond, as mentioned
earlier, they give an edge on spotting pe«ible pnee r€n•elsals. Next, eom
bined with other Westem indicators, they beeome a potent decision-suppon
tool that ean eonnrm or enhance buy'sell signals Finalh', the ability to read
candle fonnations adds to your efneleney and effectiveness in leading •Tv-
er all markets and trends These t:eneflts should have a Ix_xitive affect on
your trading or investing bottom line.
Some yeals after I beeame a student of I attended a large
trading eonferenee held in Ontario, California. By this time, I had written
my own book, A Beginner's Guide to Dau Tyuding Online, and had another
in pro?e•, A Bcinner's Gwütc to Sho"-rerm Tyudång. A glance at the eonfer
enee pmgram told me Steve was speaking that afternoon. I inuuedl ately
decid«l to attend his worWIop and intao:luee nvself to him.
I enjoyed Steve's lecture, and afterward, elbowed my way tluough the
crowd to the podium. When I introduced myself, he shook my hand, and
smiled. •Toni Turner?" he said. "Oh, yes, I know who you are. I bought your
book on day trading. Its great " I returned his smile and I glowed for the
remainder of the eonferenee.
I am now honored and gratified to say that Steve and I have beeome good
mends. Among the leaders in the financial field, this and savvy gentleman is
held in the highest regard. W'hether he is pæsenting a seminar, Malting a
took, or teaching an online eomv, he LS the eonsunuuate profe•ional. I
espeeially etuoy his jabs of dry humor, which make learning the intric•aeies
of anarvsts pleasurable and dou•mlght fun.
Tlus course book has been designed as an Interaetlve study guide. A
plement to Steve Nison's books, video, and online c•oumcs, it gives you the
framework in which to study and apply candlestiek ehafling techniques Eaeh
ehapter includee lea_mtng obJeetives, key terms, to study, and thought-
promang questions. You' Il find the answers to the questions located at the
end of each section. read those answers in their entirety. They eontain
additional information y:yu will find useful.
I'm eonndent you'll find The Candlesticl: Course an enjoyable, hands-on
tool you will refer to often, even after you've nnished working through its
As a trader or investor, acquiring knowledge and applying it properbr is

one of the most imponant steps you ean take. The time you invest learning
about eandle chans v,-tll serve you well, and should add to your in the
Good luck and good trading!
Toni Turner, author ofA Beginners G"üte to Dau I'mdång On

Line and A Beginners Guide to Short-Term Tmdång
www.toniturner.oom
\bout the Author
teve Chartered Market Technician (CMT), LS President of Can

dleeharts.eom. Mr. the very first to ren•eal the startling strength of candle
chans to the Westem world, is the leading authonty on the subJeet. His
books, Japanase Candlestiel: Charting Techniques and Beyond
Candlest'cks are known as the bibles of candlestick charts.
Nison has presented his trading strategies in 18 oountnes to tradelb
from almost every nnaneial firm, including the World Bank and the Federal
Reserve. His work has been highlighted in financial medla around the world,
including the Wau Street Journal, Worth magazine, and Barron's. He was pre
vtously a senior technieal analvst at Merflll Lynch and senior •vlc•e presi
dent at Daiwa seeufities. He holds an MBA in Financ"2 and Investments.
Candleeha_ltseom offers a ende arrw of s and products that eom plement
this ineluding on-site and Web-based candlestiek
software, sernees, and video
You are invited to sign up for Mr. Nisan's free biweekly educational
enewsletter. Each newsletter details a specific' trading tool or teehnique
using real-world examples. To subserlbe, please go to
uww.eandleehartseom.
Contact Information
Web site: .eandleehalts.eom
E-mail: Lnfo@eandleeharts.com
Telephone: (722)
Fax: (732)
Introduction
s the filSt to reveal Japanese candlesticks to the WSt, I am pleased and

pooud that they haw now bEn•ome an important anar€tieal tool for many
traders and investors. Candlestiek charts, also called candle charts, alp
especialk,' potent for helping to early signals and, when utilized eon•En2tW,
ean help preserve capita] while increasing the per eentage of successful
trades Candle eharts displuv a mole detailed and aecurate map of the market
than bar charts do. This LS candle charts open new avenuc« of analysis and
offer many advantages over bar charts:
Candle eharts pietofially display the supply-demand situation by showing

who is winning the battle between the bulls and the bezus.
2. Like the bar ehart, the candle chart shows the trend of the market, but
candles add another dimension of analysis by also ævealing the foree (or
laek of foree) behind the move.
Bar chan techniques often take weeks to transmit a revel*d signal. How
ever, candle eharts often out elues of imminent reversals in one to thræ
sesions. The æsult ts that candle chans often pmvide the oppor tunity for
more timely trade«
. candle charts the same data a bar chart does (that is, the open, high, low,
and close), all Western technical signals on a bar chart can easibr be
applied to a candle chart. Since eandle« offer many advantages mer bar
chans, using candle chans instead of bar chans is a win-win situation
becau"? you get al] the trading signals used in bar chans "-ith the earlier
æversal signals generated by the eandle«
Por example, sw you have a long stock position. A candle pattern know-
n as dark cloud cover takes shape. In the of onw two sessions, it eom pletes
its reversal signal. At that point you'd be wise to take y our gains off the
table, especialk/ if the1V are other eonnrmatory bearish signals. Othem, who
don't reeognze the pattern, are not so fortunate. They may hold their posiHon
and eventually lose all—of their profits.
Another advantage of candles relates to their effectiveness on charts on a
wide of markets. Futures, bonds, eunpneies and equities, and any chan Ln
which s e«ons inelude a high, low, open, and close ean display ean
Candle lines and pattems also apply to any time frame. Individual and
institutional investors utilize them on weekly charts, swing and
intermediatetenu traders study them on datbr charts, and shon-term and day
traders examine them on intraday eharts
In addition, candles Øve instant pictures of market weholoß'. Early
traders plaeed gleat mith in interpreting the emotions of market
partieipants In today's volatile markets, dllven to empmes by the impaet of
sudden news and events, it's easy to see why awareness of market sentiment
and collective opinion is so important.
Unlike bar eh-arts, in which opinion is not so easily spotted, one Øanee
at a candle chart tells you instantlv how IAjpIe feel about a stock or market.
A candle' s extended real demonstmtE6 de nnite bullish or beansh oontrol.
Conwrsely, a small tval body indicates indecision or a tug-of-war tx•tween
the bulls and bears with no appment winner. (We discuss these aspects in
Chapter Two). Both strong opinion and indeelsion are extremely tmpoflant
signals to market players, and candlestieks broadcast them quickbr and
BOOK
A Japanese pmverb sws, "Like both wheels of a em" This is an apt way to
dex•rlbe this bCOk. The first wheel of this pro•vldes a basic foundation for
those to candle charts or for those who want to reinforce their
understandlng. The wheel eonsLsts of the many questions Interspersed
through out the book. These pmvide a quiek way to gauge the depth of your
understanding and will help solidLhr the eoncepts addressed. It is the ques
Hons and interactive that separate this book from my othelb.
lie Candlest'clc Co use has two main audlenee«: who ale noviees to
candle charts and those who are knowledgeable and want to gauge their
depth of understanding. It on the critical aspeets of candle chans that
are so imponant for s hamessing their power. The goal is not to
«lueate you on all the candle pattems and techniques but to show you how
to reeogniæ and use the mole imponant and v,ldely used candle signals. Most
important, the offeIS a way to quantify your undemtanding of the baste
eoneepts and pnnelples.
Keep in mind that the tools in the course should be only apart
of your analysis. If you have favonte Western tools, sueh as volume or
moving stay with them, and add the candle chamng techniques to your
anaC'sLs.
Each chapter eontains sections that include leanüng goals, key terms,
diS2ussions for handson application, and questions. Plez& use the questions
at the end of each section to cheek your understanding of the material pre
To mmdmize the effeeüveness of this worktEOk, I've a spectrum of
questions, from multiple-ehoiee to exhibits and real-world ehart exam ples.
While the questions nuv shon, many of the answers are lengthy so as to aid
understanding. Dont skim thmugh the answeIN they ale designed to
another avenue of education. The more time you swynd the
diseussions and apprang what you've learned by answenng the questions, the
more effective (think pnzfitabåe) decisions will be in the real financial
Chaptels One, T%T), and Three deseMbe how to r€n20gnize the candle
s ignals , how to use them to gauge if the trend LS changing. and questions
and an swels are given at the end of each section.
Chapter Four has praetieal applleations of the principbx diS2usy•d in the
earlier ehaptem, as well as trading guidelines.
Chapter Five is unique: We take a five-month dalbr chart and that chart
a day, or a few dzws, at a time.
[n Chapter SLY we bitng it all together, with charts and related questions
to provide real-world, hands on praenee.
A visual glo•ary of candlestick tenus appeals at the end of the took
Chapters One to Three Lnelude Side Lights and Key Points. The Side
Lights detail intelvsting facts or added infonuation. The Key Points are an
swelS to the I am mc_6t flequentw asked at nu;
A proverb states, "The depth of the foundation height of the wall Thethe
Candlastäck Couse pmvidE6 a foundation of knowl edge for Lnunediately
harnessing the power of candle charts and 'Mll serve as a foundation for all
your futu1V work with candle charts
C, 11 o 'E
The Essentials
SECTION ONE
Camlles/icK then ietv: Origins
and gasic Applications
he financial markets some of the most exciting and chal

lennng arenas on earth. Thoy• who participate in these markets eon duet
researeh by utillzing two basic types of analvsis fundamental and technical.
Fundamental anabrsts pore 'Tv-er nseal statements and eompany pons, and
teehnieal anarvsts sean charts to asy•ss a market, st02k, or any other finaneial
instnunent
Though the fundamentals are important, the shorter the time frame, the
more important the psychological component of the market And the onb' to
measure the emotional aspeet of the markets ts through teeh Ideal anar€sis.
Indeed, the1V are many times when the emotional conditions of the market
overwhelm the fundamentals. For example, how many time« have we seen
the appearance of a positive fundamental to have that market deseend? Even
if we have a strong stoek based on the fundamentals, what is liker,' to happen
to that stock if the merall market ts dou•n shamb-? Of eoume, the negative
wehology of the overall market will influence that stock Ewen if its
fundamentals didn't change. As Bemard Baruch eoge nth' put it, "What is
important in market fluctuations are not the events
but the human æaetions to events." The most potent way you ean gauge the
emotional state of the market is through candlestick charts
In the pages that follow, you'll leam how Japanese candlestick tech
niques promote efficient and effective analysts. As your proneieney in inter
meting candle chans evolves, the knowledge and its application
should add to your success in the nnaneial markets. Sinc"2 the terms
und&?sticl chans and mndle charts are interchangeablv in the trading com
munity, that is how they are used throughout the book
'his section you .

• Background of candlestick charting teehniquc«
• Markets and time frames in which eandle« are utilized
• Limitations of candle charts
• Importanc»2 of Hskh•e wand
• Signifieanee of other technical tools with candle charts
rot:
The use of eandlestiek ehalts originated in Japan. Sinee little or no

cur æncy standard exLsted during those times , nee a
medium of exchange. Feudal lords would dep«xit it in warehous•s in
Osaka and or trade the eoupon receipts whenever they chose.
Therefore, Hee became the first futmvs market.
In the 1700s , Munehtsa Honuua, a rice trader a wealthy family, stud ted
all aspects of nee trading from fundamentals , such as weather, to market
weholoß'. He subsequently dominated the nee markets and amassed a huge
fortune. Homma's trading teehnlques and pHneipIe6 e ventualkv evolved
into the eandlestiek methodology us2d by tEn2hnieaI analysts with the start
of the Japanese market in the I S70s.
The greatest advantage to using candles on y•ur charts, instead of bus,
is that single candle lines and multiple candle pattems offer more reliable,
earlier, and mole effeetive tvversal signals.
Reversal signals are the meat and potatoes of traders and investors.
Mtuor trend leversals repre&nt the terntory when? the most gains alp poek
eted (and lost). In addition, the ability to identiti powlble reversal signals on
the markets Is invaluable for applying money-management to tm
prove profits and, equallv important, preserve profits.
No single technical indicator, however, the holy grail. Like other
indicators, eandlestieks have limitations.
As will detailed later, the candle line ts from the open, high, low, and
close, whieh ts the same data in bar charts. Theæfore, for a candle line or
pattern to offer a proper signal, you must wait for the see ston's elc& to
eonflrm it. To hasten the reading. hcwever, rather than waitIng for the end
of a dauv session (for a daily ehmt), you ean look at a shorter time frame
(Lea, an intraday Chart) and obtain an earlier signal
Ines say it's midday and you are focusing on a ehart. Your view of the
market is that it be ready to ralk,;. Rather than waiting for the end of the daily
to see if a bullish eandle signal is eonnrming your outlmk, you can sq-itch to
an hourly chart and see if any bullish candle patterns fonued in the morning
on the hourr,' ehart.
aware that although candle signals ean demareate areas of supwrt and
resistance, they do not offer pnee targets. This is why it is so imwrtant to use
ela.«c• Western techniques, sueh as pivot highs and Icws, or trend lines,
sinee these can be to obtain a potential target. Befoæ initiating a trade with
a candle signal, alwws consider the Itsk versus the reward (risk,'reward) of
that trade. 1 repeat: NEVER PLACE A TRADE WITH A CANDLE
SIGNAL UNTIL YOU EAVE CONSIDERED THE RISK,REWARD OF
THE POTENIUL TRADE. For example, if there a bullish candle signal,
such as a hammer, the risk (stop-out level) should be under the low of that
hammer. Now that we have de flnw:l the risk, the next step is defining the
tential target. Defining a target can done in mauv ways, ineludtng a prior
high or a falling æsistanee line. Now we have the risk,'reward parameteIY
demed, onw then should you deeide whether or not to place a trade. Bullish
hammer or not, if the fisk is 82 and the target is also $2 from the hammers
buy *nal (which comes on the of that ion) , this is not a trade that
As a Japanese prcwerb says, "HLs potential is that of the fully draw-n

bow, his timing the release of the trigger. " The timing of the releas• of the
tngger depends on the risk,reward of the trade.
Although eandle lines and patterns may offer excellent sigials, I advise
using them in combination with other teelmieal indicatol& Just as several
strands wound together are stronger than a single fiber, is the oombined
power of vveral indieat01S all giving the &une buy or signal.
Proeeed by answering the following questions. Cheek your answers
against the answers at the end of each SEn2tion. Even If you know the
answer to a question without hesitation, take time to read my explanation.
You'll find additional infonnation in my ans wels that "Ill add to your
knowledge of
In the of this chapter, well cover the eonstruetion of single

candle lines. The baste fonnations are easy to loam. We'll start by placing
em phasts on the length of leal bodies, whether short or long, as well as the
lengths of their accompanying shadmxs. With a little praetiee, Il soon be
able to decipher the imponant signals candles pre&nt.
Ouestions for Chapter One. Section One:

Candle Oveniew
. The eandWiek chan was invent«l by
. the Chinese.
D. the
c. no one knows.
d. the Koreans.
. Candle eharts are to have started
a. Ln the 16COs, in the riee futures markets.
O. in the 1870s, 'Mth the opening of the Japanese stock market.
Ln the US stcn2k market, tn the 1921k
d. Ln China, in the seventeenth eentuw.
. Candlestick chans ean used for which markets?
a. Japanese stock market
O. LT.* stock market
c. Futures markets
d. All of the amve
. What time frames cannot be us•d to constmet a candle chart?
a. Daw
O. Weekly
c. Hve-mLnute chart
d. Tick chart
5. A limitation of candle charts is that
a. they only work with datr,' or longer-tenu chans.
O. they can't be merged with Western technical analysis
c. they need a to eonfinn a candle signal.
d. they only work with st02ks.
6. Another limitation of candle chans LS that they
a. don't Øve reversal sigmls.
O. don't price targets.
c. ean only be used on daily eharts.
d. ean be used on equities.
7 Why ean you Westem teehnteal anabrsts techniques on a candle
a. candlestick charts and technieal analysis evolv«l at the same

time.
O. they both have closing
c. You can't use Westem technieal analysis on candle charts.
d. candlestick charts and bar charts us;' the sarne data.
placing a trade on a candle signal, one should
a. eonsider the weight of other tEn2hnieaI
O. oz•nsider the fisk"reward of the trade.
alwws Icok at a t-mtnute chart.
d. Both (a) and

Answers for Chapter One. Section One: Candle
O•art Overview
1 0. The candlestick chan was invented by the Japanese. The name "can
dlcstiek" or candle chart LS derived from the faet that the line« look like
eandle« with wicks.
O. According to my re&areh, the filSt candlestick charts were used when
the st02k market stalled in the 1870s. However, candlestiek techniques
like W E"volved flum earlier teehnieal methodoloq that started with the
Japanese nee futures market in the 1600s. Back then, traders dealt with
the psycholog of the market mther than speeifle priee patterns. One
author, writing in 17%, said, "When all are beansh, there is cause for
concern This is very similar to eontrary opinion used todw in the trading
eonununity. Even in those dzws, the Japanese understocd the
psychological aspeet of the market.
d. Candle charts ean be us«l in all markets that have open, hiQ1, low,
4. d. Candle charts ean be used thmughout the trading speetnuu, from

weekk,' to daily and intraday eharting. For a weekb' chart, the candle
would be open, the high and low of the week, and
FHday's eloy•. For a daily chart, you would use the open, high, low, and
of the SC—ion. Cm an intraday basis, it would be the open, high,
low, and cloy* for the chosen (Le., hourW) time period. Sinee nek charts
only have elo— we can't use on them.
5. c. Because candle chans use the open, high, low, and elose, we need to
wait for the closing priee to eonnrm the candle signal. However, a valu
able technique is to look at a shoner time frame to obtain an earlier sig
nal. For example, on a dally Chart, we would have to wait for the
of the to eomplete the candle line, or signal. If you shlft to an
intradzw eandle Chan, need only wait for the elc& of that intraday
to get the eandle signal.
6. O. Candle charts cannot give targets (although they can prcMde
potential support and æsistanee levels). TMs is why it is best to combine
them with Westem teehnieal signals that help provlde a target. For
example, a pivot high or a falling reststanee line an upside target onee a
bullish eandlestiek signal LS given.
7 d. Because candle charts and bar chans the &uue open, low, h u and
low pnees, all technical analysts teehnlques ean be com bined with
candle charts. This is why candle chans rep laced bar chans in the I
S7Ce in Japan. Candle charts u•ill likely nyplac•e bar charts in the
Westem world, as well. With bar charts, you receive only bar ehart
signals. With eandle charts, you can use all Westem charting
teehnique« and y:yu have the insights given by candle charts.
d. Although eandle signals pmvide stryng •vlsual warnings of a potential
æversal, a tmder should alwws eonsider whether a trade based on a candle
signal offers an attractive risk,'reward aspeet. A ela.«e candle signal does not
equal a gcod trade. The dEn21sion to plaee a trade should be on
fisWreward anarvsis. As the proverb states, the situation,
then move, " or in the ease of a payr nsWreward,
"Do not move. Another Important market timing aspect in detenuintng a
candle line or pattem Is eonflrmlng another technical signal, such as a
moving awrage or 50K, retracement. Such an 002urrenee improves the
ehanees of a market num. Although intraduv traders may look at 5 -minute
candle chans , in my opinion, one need not look at thE& before placing a
trade (unle• you are trading using 3-mLnute charts).
Japanese proverb states, "Without oars, you cannot cross in a boat.
ThLs "*etion will provide the oaIB you need to build your foundation
of eandle eharts. We will addres the actual of the eandle lines,
whieh have the same eomponents as bars: a high, lcm, open, and elose. We
will also delve into basic candle applications and beØn to harness the of
candle chans.
'his leat"
• How to the components of LndMduaI candle lines
• How to dtseem the difference between leal bodies and shadows
• How to construct a eandle line
I elms to row:
• Real body
• White real body
• Black leal body
• Upper
• Lower shadow
Technical analysts use three baste kinds of charts: Itne charts, bar chans, and
candle chalts. (Point-and-figure chans are an additional alternative, but they
don't show a y•ssion's high, low, open, or elosing prices.) Line charts are
made up of points that usually repr&nt the closing price of a nnanelal

instrument, by a single line.
Just as a bar chan uses the top and of each bar to indicate and low
pnees of the time Wame indicated, so does a eandlstiek, or candle line
(these two terms are interchangeable).
A bar displays a small line on its left to designate the
opemng pnee and another on the nght to show its elosLng pneu When using
candlesticks, however, we draw tn a leal body to the opening and closing
pne« This gives us a quiek and complete picture of the stock s aeHon and
denotes pre valling
The real tutu—the rectangular portion of the candle line—represents the
range between the opening and elosing priees. A white real body tells us that
the close is higher than the open the top of the white real body is the se«on's
elose and the bottom of the white leal to:ly is that y•ssion 's open. A blaek
real Ix»dy shows that the close was lower than the open. The bottom of the
blaek teal body ts the session's el(A?, and the top of the black leal body ts
that session's open. The session can be any time frame, from a mlnute to a
month.
The venteal lines that extend above and below the real body are called
the upper and Icwer shadows. The top of the upper shadow is the s•ssion's
high; the bottom of the lower shadow is the se%lon's low. The candlestick
line the same data as a chart, but the of the candlestick's real body and the
length of the candle line's real body and shadows eonvey a
snapshot of who's Winning the battle between the bulls and the bears. For
lnstance, when the real LS blaek, that means the stcek closed below its
opening pnee. This gives you an instant picture of a positive or negative
close. Those of us who stare at charts for hours at a time find that candle
are not only easy on the eyes, they also convey strong fisual signals
sometimes on bar chans.
Exhibit I. I shows baste eandlestiek formations. In stock XYZ
opens at 30 and cloys at 33, with a high of 37 and a low of 29. In opens at
33, at 20, and again has a high of 37 and Icw of 29.
Candlesticks, like bars, each repreypnt a specified time frame. On a
wækly chart, each candlestick æpæsents one week; on a daiW chart, eaeh
candlestick repæsents one dw; and on a I unlnute Intradw Chan, each ean
dlestiek represents a 15-minute unit of time
One of the most imponant benefits of using eandlc« is that they Øve
instant pieturE6 of how traders and invest01B feel about a eenain stoek or
market. A long. protracted real body translates into very strong opinion,
either bullish or bearish. Conversely, as you will in the chapters that follow,
short real bodies mean that stoek participants have no strong opinion; the
bulls (buyers) hold the pnee up, while the bears (sellers) pres it down.
Notiee the long, white real body in Exhibit I. IA This white real body,
showing the closing pnee multiple points abcqe the opening pnee (tn this
5 points) , indicates extæmeU' positive or bullish In the
High = 87 High= 87
Close
oven
long black real body, "'ith the pnee several below the open, reveals
negative or bearish
The upper shadow in Exhibit I. la tells you that buying pressure pushed
XYZ up to a high of 37. Still, while the stock relativec; high on the ses sion,
buyers weæ unable to hold it at 37 into the close. The lower shadow shows
that selling pæssure foreed the stock to a low of 29. Nonetheless, buy
came in to offer support there and propelled it up to close at 23, 6 points
higher than the lcm.
While we'æ talking about open and elcELng pnees, we know that the
place great Importanee on these critical time penods as they per tain
to the trading day. They believe, as do most Westem anabsts, that the nrst
hour of trading usually sets the tone for the dw. One Japanese swing states,
•The first hour of the morning is the rudder of the day
On opening. the market has absorbed and digested the ewents that took
place s mee the pnor (RVs ebz&. The results are often volatile. The impact
of market leac•tion ean eause radical pnee changes for equities, or e ven
entire industry groups. By the hours end, the flurry of acti•Äty may subside
a bit, and market partieipants have a point of re felvnee u•ith which to work
An Ameriean market adage eontends, "The amateurs open the market,
and the pmfe«onals close it. " Although it's an cwemtatement to assume the
market's open is populated strictly by novices, its tame that the close of the
usually produc« hea•.y emotional Involvement. Dunng the last hour,
many market plzwets adjust their positions. This ts the time when traders,
investots, and institutional manageIB whether or not to hold wsitions
ovemight. Mmgtn calls on the futures markets are ealeulated by their pnee at
the close. No wonder the last hour ean produee volatile pnee swins fueled by
strong emotions and heightened volume.
Sinee both the opening and closing hours ean turbulent penods, if you
choose to take pan, remember to use caution and discipline.
In the next section, we'll one of the mc6t entieal of candle chans: giving
you earw indications that the trend nuv be ehanging Whether a matu1V,
extended trend, or a shorter, intermediate—tenn trend is in place, candle lines
and patterns display powerful elues that a shift In control from bulls to bears,
or 'Ic•e-vema, is in process or could be imminent For a trader, this
infonuation is emeial. For an investor, the& all-imponant signals could make
the difference IA?tween keeping hefty gains or giving them back to the
market. The matenal learned in this will aid in leaming how to interpret these
wtent
VOUR
Revie'\ Ouestions for Chapter One. Section T"O:
Can dlestlck Construction
. What ts the rectangular portion of the ealled?
a. Upper shadow
O. Lower shadow
c. Real body
d. The wiek
2. What the thin line above the leal body of the line called?
a. Upper shadow
O. Lower shadow
c. Real body
d. Lower "-lek
The upper shadow of a black candle line repæsents the range
between the sesion's
a.
O. low and close.
c. open and low.
d. open and close.
. The lower shadow of a white real body eandlestlek represents the range
between the
a. open and close.
O. open and low.
c. close and low.
d. None of the above.
5. A black real body on an hourbr chart nuxtns
a. the close of this hour was under the of the last hour.
b. the close of this hour was lower than the open of this hour.
the close of this hour was higher than the open of the last hour.
d. the open and close of this hour were the same.
On a daily Chan, a white real Ix»dy means that todw' s
a. close is higher than yesterday's close.
D. close is higher than today's open.
c. ts higher than yestE•IxEw's opening price.
d. close is lower than todays open.

What portion of the candlestick line do you think is refemo:l to as the
"ewmee of the prlee nunement"?
a. The upper shadow
D. The lower shadow
The close
d. The leal body
a. The last hour and eloy• of the stc•2k market are important Ix•eause
a. this is the time when market paltieipants, flum individuals to institu
tions, mm' close out existing positions or open new ones.
D. mnd managers su•iteh sectors
c. trade1Y with short positions cover them
d. the bell on the flam-of the NYSE LS rung by a prominent IA-son
9. Using data points in Exhibit 1.2, draw the candlestick
1.2
10. In Exhibit 1.3, for line x, area 3 repæsents the

a. close.
d. high.
Line x Line y
v.w.urr 1.'.1
Por liney in Exhibit 1.4 area g repnxents the

d. high.
Ansuers for Chapter One. Section '1'"0: Can

dlestick Construction
. c. The rectangular of the candle line is eall«lthe real body. The leal body
repæsents the range between the open and elose. When the real Ixxly is
black (i.e„ filled), that means the of the session was lower than the open.
If the nyal body is white (Ye., empty), it shows the was higher than the
open.
2. a. The thin lines above and the real body are shadows shad cms represent
the session's priee extlemes. The shadcw atx)ve the leal body LS called
the upper shadow, and the shadow below the real body is the lower
shadow. Aec•ordingw, the peak of the upper shadow Is the high of the
session, and the mttom of the lower shadow indicates the low of the
sesion.
3. a. When the real body is blaek, it means the was lower than the open.
the top of a black leal body represents the sesion's open. The
range between the top of a black real and the upper shadow represents
the open and high of that session, re61A•tivek/.
4 0. If the real W:xly ts white (i. empty), it means the cloy* was higher than
the open. This means that the bottom of a white real body is the
open, and the lower shadow on a white candle session is the range
between that open and Icw.
O. A blaek real body means that the close is under the y•ssion 's
open. The top of the black real body represmts the open of the hour, and
the bottom of that real body repæsents the e lose of the hour.
6. O. A white real body means that the eumynt closets higher than the current
open. In elaslc Japanese candlestiek charting, when candle
charts were hand drau•n, instead of a white real body , the Japanese
ooloæd it led. However, unless one uses a color pnnter, the red and black
leal bodies would all be printed Ln blaek. This is why we have white and
black real Ixxlies, instead of led and blaek real bodies
d. On Japane& charts, ewen an Indivldual eandle line has meaning.
Therefore, one of the fust clues to the vitality of the market is the size and
eolor of the real body. To the the leal body is the of the prlee mmement.
This is a entic•a] and pmve•llul aspect of eandle charts:
the height and e•lor of the real tx_xly , candle charts show
the rel ative posture of the bulls and the beam
8. • . The is a time of moreonunitment. The is used for many important
calculations. Imagine a ehart in which the elos ing pnee above the
previous week's resistance eould indicate a major breakout in the offLng
The close is also the time when market part:iel pants decide whether to
close out existing positions, hold eun•ent once, or open new ones.
10. a. A white (or empty) real body means that the close is amve the open
Ing. the top of a white real body Is the close of the
11 . D. A black real body means that the eloy• is under the open, and
eonsequenthr the top of the black real body is the opening of the session.
IW•sic Market Slrategies
arly æeognition of potential trend reversals is one of the mcst impor

tant skills a trader}investor can eulüvate. As you study candle charts and
learn to æeognize single eandle lines and pattems, you will preeiate hmv
candles offer an earb' heads up on possible fiend reversals. In fact, most
given by candle formations are revel*d signals
Candle eharts often display levemal signals in a few sessions rather than
over the longer time periods often needed for bar chan reversal signals.
Using candle chans, you]l identify market turns quickly, which should help
you to enter and exit the market "'ith speed and aeeuraey.
In this we pæsent the bastes of trend reversals and how eandl'* play sueh
an important role. Al") are eoneepts inherent to trend changes and
æversals: suppolt and leststanee levels and all-important bleak outs and pnee
ab.me and below those levels.
you
• How candles play a powefful in recognizing early reversal signals
• How candle lines and patterns eon firm support and
• The inu:oltanee of eonfinnation
• Why the closing pnee plays a key role in breaks
resistance and below support letms 'o watch row:
• Trend reversal
• LK:wnuend
Supwrt and resistance
• Box range
S'I'ARI'E»
The ability to æeognize a potential trend reversal LS one of the most impor
tant s kills you ean eultivate. Your ability to read candle lines and patterns
will increase that skill many times
In the that follow, we'll delve into specifle candle lines and
patterns and the they give in the contexts of uptrends, downtrends
and trend shifts, or revel*Us. At the pæsent, however, we're going to get a
topdown overview.
To start with, let's examine the anatomy of a trend æversal. A Japanese
proverb states "Darkness lies one inch ahead." You need only watch the
financial television to see the gleat degree of imponanee traders and
investors place on foretelling market tops and bottoms to arrlve at an earri
insight on upeomLng move« As y:ju know , the goal is to buy low and sell
high or, in the ease of selling short, to high, buy low.
On chans, Western fiend æ•ersal patterns include double and tnple tops
and bottoms, kw æ•ersal days, head-and-shouldem, cup-with-handl+ and
island tops and bottoms.
Although market eyele« of alternating uptavnds and dovvntrends inter
spewed with pea]c and valleys are inen-ttable, should remember that trends
don't always end abmptly. In fact, trends usually •neur slowly, in stages , as
the underlying psycholog shifts.
Remember the old market suving. "The trend is your mend. Sueee•hll
trading entails stwlng on the nght of the trend (although most nnd thls is
easier said than done). Trend ehange or revemal signals are the market's wu
of warning. It means market psyeholoqr is in transformation and you need
to acüust trading style to lefleet that envfionment ehange.
For example, if you see a reversal signal, might consider initiating a new
position only if that signal LS in the direction of the nuuor fiend. Say your
stoek has been elLmbtng in a stlong uptrend. Then, it either oonsolidates
wws for a few sessions or mm-es down (retraces) to pnor suppofl. At this
time y:ju get a bullish candle signal. Sinee the mzMor nend has been up, one
ean use the bullish candle signal to initiate a long pc-eition. A bullish candle
signal in a bear trend should us•d either to shon_s or as an alert that
the market rnw rally and to that rally to stnee the major trend is
Trend leversals or shifts are a modifleation in market wehology. In a

strong uptaend, such as you in Exhibit 1.3A, the bulls are in control.
optimistle bulls tum out in force, buying available
suppri and suppomng ever-fistng pnees of XYZ When a retmcement, or
sidewzws eonsolldation ceeurs (as it do€B from I to 2), the bulls stand aside,
tucking their shares in their l:oekets. The stock rests for a time, then
its climb upward. Three shifts in psyeholoqr took place during each of these
thæe movements in stock XYZ's uptrend.
In Exhibit I. 5B, the &uue bulls propelled XYZ higher with gusto. The
mar ket tops out at g (of eoume, we don't kncw it LS a top until a few
later, when the stock Again, those "-ith long positions may
have
Trend reversal Signal — Trend rgversal signal — trend

rzumes tend breaks dcn-vn after corræton
1.3 Top
taken some or all of their profits. This time, however, the retracement tumed
into a trend ævemal, barely stopping along the way.
Points I, 2, and in Exhibit I are reversals, and, as we don't know the extent
of the mow after the leversal starts, the candles will often be the first clue of
a change in tnynd.
Besides s canning for trend ehanges , another critieal eomponent is
asking. "When? support and leststanee?" Suppon and resistance on a chan
ean take multiple forms It be a pnor high or low depicted in a pnee level or
pattern. It nuv appear as a Western indicator, such as a trend line, moving
average, or as baste as the most æeent high or low.
We laww that a market often tops out at, or near, the same pnee range at
which it pulled back at a pre fius time. It also fall to a prior low pnee, then
bounce off of that support level. If a candle signal eonflnus a support line, it
would the potential bullish implleattons of that candle signal more than if
that eandle signal did not eonnrm support. Convel&ly, if a bear Ish candle
signal emerges at a resistanc•e zone, the ehanees of a turnaround have
As such, the rule is that the more teehnieal s ignals—whether they
are candle or Westem or a of both—the more like W is a vel&d. An example
Is shown in Exhibit 1.6 in whieh a bullish candle signal called a hammer
(diseused later) a support line.
In C)ne of this chapter, we talked about the imponanee of the market's
daily Let's take this a step fiuther. Like most teehnleal anaWsts, the plaee
gleat pnee, especially if that pHC"2
closes above Think of it this way If a
stock, for instance, closes above a prior high, it means market par Helpants
are willing to pay more for it right then , mnd they are willing to hold it
overnight. That means they are eommitted, and eommitnlent is an extremely
important factor in the movement of the finaneial markets. An intra bleak
of suppolt or resistanee not have the same *nifleanee as a sevenng of suppolt
or æsLstanee on a close.
Suv you are studying a daily chart of a stock. Imagine it had mcwed
sidewus in a basing mode tx•tween MO and $30 for the last five weeks or
Suddenly, the bulls oontrol of the market, and the stock closes at $53.
Do you how important that closing priee is? It means people are
willing to buy and hold the stoek at a higher pnee. The market has
establish«l new demand for the st02k.
if a market trades sidewws in a mnge (as the Japanese call
eonsolidation patterns) for penod of time, then down to close below that
support area, it means that buyers welV ums-Illing to step in and hold the
pnee at that lewel. The bems are in control, and that market may fall to lower
prices. If, however, a candle broke pnee sum:olt by dipping below
it, but then closed inside the box range, that is not as This of tells you
that buyers stepped Ln before the close, and dE• mand was strong enouØI to
push the pnee back Into the pnor box range by end.
Now you understand how valuable tool eandle formations am tn the eon
text of trend reversals, along "-ith eomponents inherent in those revel*Us,
supwrt and resistance.
In the next section, you'll leam atout powerful candle lines called spin
ning tope and don and how potent they can be. We'll also dlseu• additional
in-depth market psyehology as revealed by candles. De ciphefing market psy
choloß' accurately is a vital part of your mtun2 succes as a
Review Ouestions for Chapter One. Section Three: Basic

Market Strategies
. Which is most true?
a. All candlestick signals are leversals
O. Mcst signals are *nals
c. All candlestick signals are eontlnuat:ion signals.
d. Mcst signals are eontinuation signals.
Candle charts provide
. early reversal signals.
O. hints of a fals• breakout.
c. hints that the momentum may be chanØng.
d. All of the above.
. Which of the following Wes tem teehnlc•al tools ean be on a candle
. Moving average
O. Volume
c. Oscillators
d. All of the above
In eandlestiek trading. when we talk about a break of resistancæ on a datr,'
ehart, we mean
a. a close above a resistanee mea.
O. an intraday break above æststanee by at least
c. an intraday break above æststanee by at least
d. a close above the pnor y•ssion's real b:ydy.
5. A box range in terminologr is the &uue as a
a. triangular trading range.
O. ascending trianØe.
c. lateral trading range.
c. bull flag
Which is false? Candle charts are best us«l
a. as a stand-alone tml.
O. on dally ehalts.
c. on weekb' ehans.
d. Both b and e.
Ansuers for Chapter One. Section Three:

Basic Market Strategies
1 0. This is a major advantage of candle charts. They often send out rewersal
signals in as few as one, two, or tluve sesions. Some eonünuation sigials
exist, but mcst of the candlestick show bottom or top
d. Among the major advantages of candle eharts ts that we ean use indi
vtdual eandle lines, or combinations of candle Knes (called eandlestiek
pattems), to obtain reversal signals in as little as one, two, or three
sessions. We ean also use the shape of the candle line to see if a breakout
is likebr to be sustainable. For example, a small real body or don at a
new high eould give us a little elue that the bulls are not in eomplete
eontml, and the rally may not be sustainable. We al") use splnmng t01E
to gauge whether the market's trend might in the proeess of ehanØng.
d. One of the most powerful aslA•ts of candle chans is that bEn2ause they
use the same data as bar charts (i.e„ the open, high, low, and all Westem
bar charting teehnique« (i.e., moving volume,
and on) ean be used on candle eharts
4. a. To eonflrm a bleak above often
reeommend a close a resistance mea. Converser/ , to eonnrm a bleak of
support, I like to see a under a suppolt area.
5. c. A box range is the same as a lateral or eonsolidated trading environ
ment, tn Western technic•als. The name ts derived flun the faet that
sueh pnee action resembles a box.
. a. Candlestick chalttng tools are most potent when combined with other
technical tools, sueh as trend lines, moving awrages, and •.01ume.
c, 11
Single
Candle
Lines
SECTION ONE
Spinning Tops and 'ligh Candles
n this very importantehapter, we'll focus on single candle lines. (We IPfer
to one candle as a candle line.) SEn2tion One foeusee on spinning tolB and
high wave c•andle« Seetion Two reveals the potency of the dolt. In Section
Tluve, we'll explore bullish and belt-hold lines.
Many candle signals consist of two and thæe candle pattems, but we can
obtain •volumes of valuable infonnation from single candle lines. Dont let
the of single eandle lines fool you: They compelling signals as to who LS
winning the battle between the bulls and bears.
'his see""" leat" .

• Interpletlng market psyeholoßr, as indicated by real bodies and long
shadows
• Ident1W1ng and distinguishing between spinning tops and waw
• HEW to use spinning tops and high wave eandle« in a box mnge
• How to identißr the hammer and the hanØng man
• The importance of candle signals in the eontext of trends
'erms to rot:
• Spinning tops
• High wave candles
Single
• Hanglng man
• Shooting star
S'I'ARI'E»
Candle chans indicate early fiend revemal, but they also have the advantage
of dlspIMng the force undeminning the move. Since nearly every eandle line
has a story to tell about the market's mood and manner, we'll start "'ith how
to real bodice to gauge the foree of the trend.
You nuv remember from a previous diS2ussion that the Japanese eall the
eandl$s real body the of the priee mcwemenL Indeed, the length of the real
in relation to their shadows, furnishes you with unique insights into the
psyeholoqr of the stoek market. Ob•vlously, a tall white real body reflects a
sexton when the bulls are dominant, whelpas a black real body shows that
the beats have greater control. However, u•hen the leal tody (the real
tx»dy ean be black or white), It is a strong hint that the pnor trend may be
IcsLng steam.
A spinning top Exhibit 2. IA) is the Japanese tenu for a
candle with a small nyal body, either blaek or white. Spinning t01B nuv
have upper and lower none at all The imponant identifying trait of thE&
candle lines is their diminutive real body. Later, you'll leanl how spin ning
tops are eomponents of eandle formations s ueh as morning and evening
tog•s
High
2.1 Spimng
stars, haramt, hanuners, and shooting stam In Two, well talk about a
»inntng top that has no real body, a dolt.
A small real body shows that the bulls and bea1Y are battling it out tn a
tug-of-war, with neither the bulls or bears being able to take dominant eon
trol. prewure (bears) pushes the real body dou•n, but buying pressure (bulls)
keep it flum being a long black real body. In the other for a spinning top,
demand is stepping in but supply ts eounterattaeking and, in doing so, keeps
the market flum forming a tall white candle.
Spinning tops have a of cousin named wave candles. Hig,9
mndlcs also have diminutive real bodies, either white or black. To
qualihr as a high wave , however, these eandle lines must not onw have
small real bod les but also long upper and lower shadcws. The shadows of
the high wave candles need not the &u-ne siæ, but both the upper and
lower shadows have to be unusually long.
[f spinning tops translate into indecision on the part of the bulls and
high wave candles indieate downfight eonfusion. As you ean by
studying Exhibit 2. I B, the long upper shadows mean that some time aner
the open, buying pre—me thrust the security's pnee to an high.
Dunng the same selling pressure drove the pnee to a traeted low. Yet, by the
session's close, the pnee tptumed almost to the open Ing price. That's
eonfusion!
Now, take spinning tops and high wave candles into the eonte>t of an
uptænd or downtrend on a ehart. In a solld uptrend, a market nught rise, but
the shape of the eandle lines during the aseent is an elue about the
sustainability of the advance. Long white real bodies are like a gleen light
Single
showing that the pnor rally is going strongW. However, if there are small
real (either black or white) during an aseent, caution is
the long side. This is becat& the small real bodies impb' that
the bulls have les than full contmI—Ln spite of the advancing prices. Such
spinning tops are a warning not to follow this market from the long side.
Spinning tops beeome Ewen more tn a market that is overextended and
pettiape nearing resistanee A trend shift or reversal Inw be tn the offing.
Convel&ly, if spinning tops nurvlng side in a pattern or range, they are
not signaling a trend reversal or shift. The market ts simpr,' resting until it
breaks up, or down, from that pnee zone. As such, splnmng tops and high
wave candles have no trading implications v,-tthin a range en•nronment.
Three candle lines that contain spinning tops are the hammer, the hang
ing man, and the shooting star. These candle lines are shou•n in Exhibit
2.2. Let's first foeus on the hammer and hanging man, sinee they haw the
same shape. We will then address the shooting star.
The hammer and hanging man candle lines have small real bodies (either
blaek or white), and these real bodies have to be at or near the highs of the
sesion. Another erltefion is that they need very long lower shadcws (at least
two to three times the height of the leal body). of their identical shape, you
identify them depending on where they appear in an uptnynd or downtrend.
As you can in Exhibit 2.2A, a hammer will appear at or near the bottom of a
deeline, either bllef or extended; thus the name hammer, which suggests that
the market Is hanuuering out a The hanging man
Exhibit 2.2B) has the same shape as the hammer, except that it comes
after an uptrend, preferabk/ at a new high for the move. Becaus• of the hang
star
ing man's bullish long lower shadow one must wait for a close under the
hanging man's real before toec•mtng
The shcoting stay is a top reversal line, just like the hanging man. A
shootIng star, however, displws a long upper shadow, and its small real
tx:xly ts at or near the Ious of the We ean see how the name desent:es the
line, as It appears to a shcotlng star, eomplete "'ith long tail, y»aring across
the slw. The Japane& that the shooting star shows overhead. Beeat& of the
shcotlng stars beansh long upper shadow, we don't need as much beansh
confirmation with that line as we do with a hanging man.
As shown in Exhibit 2.2C , the shooting star is a bearish leversal signal,
it must appear during a ralW. Shooting star real bodies ean be either white
or
A shooting star tells you that the market is nsing Ln an uptrend and is
per haps becoming overbought. Finally, the bulls refuse to pay any more.
The shc»ting star forms as the session opens near, or at, what "'ill turn out to
be the low. It but the bulls cannot sustain the demand. Bears cq2,me in and
Single
dfive the priee back down. Remember, a long upper shadow on anu candle
means selling PO' sure.
As you learn and ævtew the different candle formations, you ean see how
each candle line tells a story. With small real indicating indeei sion, long leal
shou•ing definite opinion, and buying and pres sure being revealed by lower
and upper shadows , it's no wonder your skill at reading candle eharts will
add to your as a trader or investor.
In Section Two, we'll talk about a candle sim to a shooting star, called a
gravestone dolt. Its appearance in the context of an extended calk,' LS more
menacing than that of a shooting star. As a matter of fact, don in general
bmadeast extremely Imponant signals.
For now, though, plea&? proee«l with the questions that follow. Don't
forget to read over the answers that follow. They o:mtain infonnation that
v,-tll add to your store of know ledge.
Ouestions [or Chapter Tuo. Section One: Spinning Tops and 'ligh
Wave Candles
. A long lower shadow on a daily chart shows that
. the market pulled by the end of the dw.
O. the market bouneed from its lows by the end of the dRV.
c. the bulls and the bea1Y are in balance.
d. the beals are in «:vntrol.
is another name for a small real tx:xly.
a. eounterattaek pattern
D. shaven head
c. spinning top
d. shaven mttom
3. To be eonsidered a spinning top line, the real body has to be
. white.
D. black or white.
black.
d. no eolor, sinee it's a don.
. What statement biz t defines a high wave candle?
a. The real tx»dy must be black.
O. The real must be white.
c. There must be a long upper and lower shadow.
d. Them must be a large real Ixxly.
. What a high wave candle imply?
a. The market is
O. The bulls are in charge.
c. The bears are in charge.
d. Them is complete balance between bulls and beam
. Which of these are essential for a hammer?
a. A dou•ntrend
D. A long upper shadow
c. A tall white candle
d. Both a and b
. Which statement or statements best a hammer?
a. The has to near the close of the
O. The lower shadow should be no more than one and one-half times the
height of the real to:ly.
c. It must appear in a lateral trading range.
d. Both b and e.
The color of a hammer s real body is
Single
c. plaid.
d. either black or white.
9. What differentiates the hammer from the hanging man ?
a. The color of the real tx:xly.
O. The hanging man has no upper shadow, whereas the hammer ean have
a long upper shadow.
c. The tænd pree«nng the hammer or hanging man.
d. Hammers ean be uy•d in all time frames; the hanging man is used on
W for daily ehmt_s.
10. the following list (a. to k.) to answer the two questions marked A
and
a. The market is in an uptrend.

D. The market Is in a dou•ntrend.
A long upper shadow at least two or thæe tinux the heU1t of the real
d. A long lower shadow at least two or three times the height of the real
e. A black leal body.

L A white real body.
g. Either a black or white real
n. Little or no upper shadow.
i. Little or no lower shadow.
. A long, black real body. k.
A long, white real body.
A Prom the list above, ehcx:•• the four enterta ne«led for a hammer:
B.
11. Why doe« a hannng man need extra tv•ansh eon flrmation?
a. Because of its elC& near the high of the
D. Beeause of a small real body
c. Because of its long lower shadow
d. Both a and e
12. What does a hanging man need for confirmation?
. A higher high during the
O. Dunng the next session, a close under the hanging man's close
c. Dunng the next session, a elc•• above the hanging man's upper
d. Dunng the next session, an opening under the hanØng man's open
13. Which have onæsido:l shadows?
. High wave eandles
D. Shooting stars
d. Both b and c
14. A shooting star has a body.
c. either black or white

d. There is no body, as the shooting star must be a doJi.
13. Piek two enterta for a shooting star:
a. Lowntrpnd and a long upper shadc"
O. Uptænd and long lower shadow
c. Uptænd and long upper shadow
d. IkN,-ntrend long lower shadow
16. If we eombine the shadows of a star and a hammer, we would
a. tall white candle.

O. tall black candle.
c. wave candle.
d. doJL
17. When you see a small real buty at a prior price resistance area, it
indi
a. market participants are undeeided amut whether they will pay a higher
pnee for this some holding long positions nuv choose to take profits.
O. it's a national holid,w.
c. a continuation pattern is in foree.
d. the bulls are in eontml.
18. When a st02k in a strong uptrend slows, and then retrae•' in an orderly
fashion, then fonus a candle with a small leal body , it could mean
a. you ean take that chart off your watch list.
O. the downtrend Inw be losing foree.
Single
you should watch for the se«on's bounce and possible long
entw , as the uptrend may resume.
d. you should enter a short on that stock
Single
22
Use Exhibit 2.5 to answer questions 23 and 24.

23. What eandleetiek signals are they• lines?
O. Shooting stars
c. Hanging man lines
d. High wave candles
24. Which line is a
a. None of them
O. Line I
c. Line 2
d. Line g
23 24
25. In Exhibit 2.6, which ofthese is (are) shooting stars?

a. land2
O. 2and3
26. In Exhibit 2.7, which of these is (alp) hanuuers?
D. gand4
d. land 2
Answers for Chapter Section One: Spinning Tops and 'ligh Wave
Candles
1. D. Candle charts illustrate the aetion betwæn the bulls and Ix•ars dunng that
sesion. A long lower shadow showing on a day's candlestick means the market
sold off dunng the se«on. By the end of the sesion, how ever, it off the lows
This means that one of two scenanos unfolded: Either the bears IVtreated, or the
bulls came back into the market with enough foree to overcome the bears.
2. c. The a dtnunutlve real body a spinning top. A spin ning
top warns that the market losing its momentum. For instance, if the market is at,
or near, a new high—especialbr after a steep emergence of a
spinning top eould a signal that the bulls are having trouble continuing their
ascent. This signal cautions that the prior move is stalling
One small real body doesn't turn the taend from down to up. Still, a senes of
spinning tops in the same suppolt area shows that the bears welV unable to
sustain those lows into the end of the se«ons. This eould the foundation for a
potential ralb'. The same eonæpt would be tme with a senes of spinning tops at
a æsLstanee area. Such a
Single
seenafio would show that each time the market climbed to that priee res
istanee , the bulls were not able to maintain the highs into the This would
be a warning signal to holding long positions.
. O. The spinning top (aka a small real bcdy) ts not dependent on the eolcu•
of the real tx:xly nor on the length of the shadows.
4. c. A candle with a long upper and lower shadow is called a high waw
. a. A high wave candle shows that a standoff between the

bulls and the beam When a high wave candle emerges after a downtrend
or an uptlvnd, the Japanese sw the marftet has lost its of direction. This
laek of market orientation means that the pHor taend ts in Jeopardy.
6. a. The hammer, with its long. lower shadow and a close near or at the
high, is e astri to be a bullish signal. The term hammer denve«
from the fact that the marke t is hammering out a base. It also means that
a bc•ttom is so *31b:' it does not break, even when a hammer knoelß
away at it. A hammer give« a potent signal when it appears after a
signifleant dcwnturn or in an cwel»old market. In other woods, the
hanuuer is a tential bottom reversal indieator. As such, it needs a
downtrend to reverse. Sinee the hammer ts most I&ful after a significant
dou•nturn, it should be noted that there may on a ralbr from the
hammer. Therefore, the first bounce after the hammer may fall, and the
market retuni to test the hammers supwlt.
7. a. The hammer must have a small real body at the top end of the trading
range. Thls shows that the market Initialk,' sold off during the
then bouneEd back by the sesion's end.
d. The color of a hammers real tx:xly ean either black or white.
. c. Three aspects diffelentiate the hanging man from the hammer: trend,
extent of the move tx•fore the eandle line, and eonnrmation.
10. D. . g. n. The hammer ean by four enteMa:
• The real b:ydy is at the upper end of the trading range. The color of
the real body is not important.
• A long lower shadow that should be at least twice the height of the
• It should have no, or a very short, um:v'r shadow.

• The market should be in a downtrend.
10. a. c. g. i. The shooting starean be recognized by four enteria:
The real body is at the bottom end of the trading range. The eolor of the real
body LS not important.
A long upper shadow that should be at least twice the height of the real
It should have no, or a very short, lower shadow.

The market should be in an uptrend.
11. d. The hanging man has a long. lower bullish shadow and a real body at or
near the top end of the trading range. As such, this candle line shows that
the market sold off dunng the but by the end of that session had bouneed
baek to at or near the highs. Although the small real body of the hanging
man eould give a little hlnt that the bulls are losing momentum, its long
lower shadow nonetheless keeps the trend pointlng nonh- Thus, we would
need beansh eonflrmatlon before turning negative on the hanging man line.
12. D. This eonnrmation LS beneath the hanging man's real body. The reason ts
that if the market lower the next dzw, who bought on the elc& of the hanging
man day (and many trades at the alp ncw left "hanØng" with a losing
position. This is why I would also ILke to see the hanging man at an all-time
high, or at least at the high Ln the context of a significant mcwe. In this
seenario, the longs entenng on the hang Ing man are In their position at new
highs, thus making them more nervous. t.hc& longs might decide to baek
out of their now position. That eould easeade into mote selling
13. d. A onesided shadow means that an extended shadow appeals on the top or
bottom of the real body. Theæfore, a candle line with a long lower shadow
(if it meets other criteria) ts a hammer. The candle line with a long. one-
sided shadow above its lea] body would be a shooting star.
14. c. The real body of the shooting star can be either blaek or white. Even if the
shooting star had a white real body, it would still be a close near the low of
the
15. c. Because the shooting star Is potentially a beansh reversal signal, it must
appear in the eontext of an uptrend. A shcoting star should also have an
upper shadow at least two times the height of the leal body.
16. c. Combining a shooting stars long upper shadow and a hammers long lower
shadow above and belcw a shon leal body pmxluee a ean dle line fitting
the definition of a high wave eandle.
Single
17. a. A small real body, whether alone or integrated into a two- or thæecandle
pattern, indic•atE6 as to whether a hi$ler priee will be paid for this
1B. D. When a stock in a stmng uptænd and ætraees in an orderly manner,

you ean wateh for a small real body as a possible clue that the
ment is losing force.
19. c. The hammer and the hannng man have the same shape. What differ
entiates one from another ts that for a hanuner the pnor trend must be
down and for a hanging man, up.
20. O. A hanuuer eomE6 after a decline and has a long lower shadow, small
lea] (blaek or white) near the top end of the trading range, and
little or no upper shadow. All these lines met entena
21. c. Although a classie hammer is a potentialbr bullish leversal *nal, this
exhibit shows us the importance of putting candles in context of the pæ
ceding priee action. In this example the market is making
lower lows and lower elc&s and lower highs This keeps a short-term
downtrend Lntaet. How€nvr, the multiple hanuuers are IVfIeeting that
the market is re3eenng low priee levels as it descends. ConsequentW,
the markets dou•nnvnd keeve us buying. but the potentially bullish
applications of the hammer keep us from Theæfore, the best strategy in
this scenafio would be to stand aside.
22. O. In seenano 2 we see a hanuuer eonfinntng a prior low and therefore a
potential support area. This raises the plobability that the market u•ill
bounce from this area. Seenafios I and 4 would not be hammers , a
hammer must come after a dou•ntrend. Seenano us hammer may be
potentialb' bullish Ix•eause the market is oversold, but the odds of a turn
with the hammer are better with the hammer in seenano 2 that is eon
nrming support.
23. c. Candlestick lines with long lower shadows and small real tx:xlies of
the top end of the trading range, dunng an uptrend, are hanØng man line«
24. a. Although these are all potentially bearish hanging man lines, the bear
Ish eonfinuation of sueh a line eomes with a close under the hanging
man's real Ixxly. Sinee no sueh elc& occurred, we did not get any sell
signals.
23. c. Some for a shooting star inelude an uptrend, a small real
bcn:ly in an ascending trend, and little or no lower shadow. The only
scenario that mæts these eliteria ts s•enarlo I.
26. . A hanuuer LS a candle line with a long lower shadow (at least the height of the
real body) and a small nyal body at the top end of a trading range, wlth little or
no upper shadcw. A hammer must also eome aner a dou•ntaend. Scenario 3
meets these eritella. Scenario I does not have a lower shadow long enough,
seenario 2 has an upper shadow that is too long. and seenario 4 comes after an
uptrend instead of the necessary
The Dangero'ls Doii
n this section we'll on the candle line known as the doM. The don
plays an important tole Ln candle ehaning teehnique« When it appears in the eonteM
of an uptrend, especialb' in a mne of prior sistanee, it ean signal a significant trend
shift, or revemal Naturally, to the doff s appearanee eonnrm the potential
turn.
In faet, the doffs ability to convey the market's me•age is in a letter I received
from a medical doetor. He wrote, "As a physician, I can most appreelate the
simplielty and effeetivenes of candlestick charting Like a simplistic in
deeign, but powerful in diagnosis, candlestiek charting has shown me a form of
technical well suited to diagnosing the health of my stocks.
'his see""" leat" .

• The definition of a don
• How to identiß' different of don
• The imponanee of don when they in uptænds and dcnvntænds
• How to interpæt a don when it forms in a range
I elms to row:
• Doji
• Dragonfly don
• Gravestone don
• NOIIhe1Tl don
• Southern don
The Japane& plaee great signLfieanee on the power of the don. Espeeialb' in the
eontext of a market expenenc•ing a matme uptlvnd, this candle line, either alone or
inelud«l in a two- or thræ-eandle pattern, warns you that a trend shift may be in the
offing.
The doli is a in which the opening and closing pnees are the same; thelpfore, it
æsembles a erc«. Like the spinning top, the don indicates a market in complete
balance between supply and demand. Sinee a doji ses sion a market at a
junctulv of indecision, it ean onen be an early wamtng that a preceding rally eould
be losing steam.
The ideal don fonus with the same opening and closing pnee, but this Nile is
flexlble. W'hen the opening and closing pnees are only a few ticks from eaeh other
you ean still eonsider the eandle line as a dolt.
Maybe y:u've hemmi the old saying. "The s toek market hates uncertainty. The
dodi ts synonymous with uneertainty. Consider the doM a warning that the
framework built by the bulls nuv falter or crumble.
While don are extremew valuable at calling market tops epeeially after a long.
white candle), they lose signal potential when defining market The doji's possible
negative influence at fiend tops from its warning that the market is indecisive.
As sueh, a close over the don's high eould be a signal that the bulls have regained a
foothold.
Although a dolt' s appearance in a ralb' signal an exhausted market, a doffs
emerge nee in a downtrend may not ponend a bottom. Other Westem indicators, and
eertainly priee environment, must a market turning into a bZ&. Why? Rememt:er
that a don indicates IndEn21sion and uneenainty in an ovew:ild market may just be
a æstlng plaee before another downturn resumes.
Depending on the placement of the open and close pnee on the some doji
have nicknames. These don are still reversal indieatom, but they hint at more p«itive
or negative outcomes. A few of the«• specialC' named don are the dragonfly dolt,
the gravestone don, the Nonhem don, and the Southerm dolt. Exhibit 2.8 illustrates
these special doji Iin•x.
Long-legged doji Dragonfly 63ji Gravestone doji
Nomern doji Soumrn doji

2.8 Doji
The dmgomflu doli forms with the open and e lose near, or at, the high
of the candle. This eandle emits bullish implications. It's long lower shadow
shows that the market fell sha_lvly during the but buying pressure pushed
the pnee back up to close at, or very near, the session's high. If you're
thinking this don re&mbles a hammer, but without the real body, you
Pay attention when you see the dragontW don emerging dunng
that have tA•ome oversold. Normalk,; don in declines are not
important, but the dragonfk,' don is an exception.
The bearish eountelvmt to the dragonfly don is the gyut•tone doji,
shown tn Exhibit 2.8. The gravestone doffs open, low , and close all reside
at the bottom of the eandle. From the shape of this do' i you can understand
its name: It looks like a tombstone.
Single
The gravestone doffs strong point ts in calling top reversals. ImaØne an

uptrend overbought, rising on white real bodies. a glanee at the
chart tells you that recQ11t reststanee at this same priee len•el Is also In
place. Now, the gravestone don appeal* The market opens, to a mueh
higher pnee (shown by the extended upper shadow), then falls to the Icw of
the session to e10"?. For the moment, at least, the bears have won eontml.
If the next candle falls to the downside, the signal is complete.
Naturalbr, if the eandle that forms after a gravestone don above it and
culminates in a long white real or other positive candle line, the potential
trend revel*d signal given by the gravestone don is negated.
To differentiate between doll appeanng in a rallv and materializing in a
decline, I refer to the former as -'Northern doji and the latter as Southern
doji. A don with long upper and lcmer shadows is called a Iong-lcgged doji.
Like a pivotal word in a sentence, the don gnes optimum signals when
taken in the eontext of a prior trend, when they eonflrm other teehnieal indi
eat0B or patterns, and during consideration of follow-through action.
In Section Three, we'll finish our dLs2ussion of single candle lines by

explot-Ing the displayed by bullish and teallsh and their long
bodies. We'll also talk at»ut the psyeholoqr that undelVLns these candle
"with an attitude.
VOUR
Oueslions [or Chapter Tuo. Section "fivo:

'ne Dangerous Doli
. A d03iisasession
a. in which the open and are the &uue.
O. that a candle line with an upv"yr shadow.
c. in which the open and the low are the same.
d. that develops a candle with a very long lower shadow.
2. What do•xa signal?
a. The market action ts one-sid«l.
O. The bears have taken eontml.
c. The bulls and bears are Ln a stalemate.
d. The bulls are in eontml.
a spinning top has a very small real body, it has the same implications
a. doJL
O. long. black real tody.
c. long. white leal body.
. For a dragonfly dojL, the repæsents the high, and
a. low of the se«on
O. middle of the
c. of the s e«on
d. midwzw point of the real body
The doji in a rally is signal.
O. alwws
d. None of the
Single
6. For a gravestone don, the is the open, low, and close.

. low of the s*ion
D. middle of the se«on
c. upper of the se«on
d. midway point of the nyal body
7. As a hanuners real buty gets smaller, it will ultimately become a(n)
. dragonfly doJL
D. inverted hammer.
c. dolt.
d. hanging man.
a. As a shooting stars real body gets smaller and smaller, it "-ill ultimately
a. a dragonfbr don.
O. a hammer.
c. a gravestone dolt.
d. None of the atx:ve.
9. A spinning top LS to a long real body as a(n)is to a spinning
. inverted hammer
O. bullish belt-hold line
c. tx•ansh belt-hold line
d. don
10. A doji in an uptrend is a
dolt.
D. dragonfly doJL
c. Southem don.
d. Nonhem don.
11. Northem don are most effective when
a. the don is in the middle of a trading range.
D. the market is very overbought.
c. the don appears at a area.
d. Both band e
12. Use Exhibit 2. g to answer the following by filling in the blanks:
(A) Which is a gravestone don ?
(B) W'hieh is a long-legged

doji? (C) Which is a dragonfly
doji?
12
13. Exhibit 2.10 shows a don in a dovvntapnd. Should you attention to this
dad i?
a. Yes, beeaus• the don is confirming a suppon level.
O. No, becaus• don Ln downtrends are not important.
c. No, the don works best in neutral trading environments.
d. Yes, don work well in short-term dou•ntænds.
Support Igvel -
13
14. Exhibit 2. Il shows doji following a tall white candle. Assuming this is a
daLbr ehart, at what priee would the market have to get abow to eon
sidered a bullish bæakout?
a. A close over 2
O. A close over 3
An intraday over g
d. A elose over 4
Single
14
15. Mateh the patterns shown in Exhibit 2.12 with their candlestick terms.
Answers for Chapter T"O. The Dangerous Doll

1. a. The don reflects a market Ln a state of transition and is, eonsequently,
one of the more impoltant indivldual eandle lines A don sesion has a
horizontal line instead of a real body, beeauy• a d03i is fonned when the
open and close are the same. Stw especially cautious when
a don matenalize after a tall white candle in the eontext of a

signineant uptrend. This is true whether the don ts within the pnor long
white real body or above it. A don means that the bulls are failing to
sustain the upside dHve. [n this seenano, the market is eonsidered tired
by the Japane&, henee sus2eptibIe to a
2. c. A doji is synonymous with indecision. In such eonditions, the market
beeomes vulnerable to eon-ection. Don often work better as markers of
top revemals than tottom reversals.
3. a. Althou41 the ideal don has the 01Aüng and closing at the level, if the
real body is small enough, it has the same implications as a dolt. Hmv do
y:yu decide whether a near-don day (t.e„ the open and close ate very but
not exac•tr,' the same) should be considered a don? One method I LS to
eompare a near-don dw to æeent action.
the•1V are a of very small real bodies, I would not vlew the near410M as
significant, s mee many recent periods had small real or
don.
4. c. The dragonfk,' don its formation with the open, high, and cloy;' all at
the y•ssion 's high. As such, it might have more bullish impli eations than
a legular dojL The long lower shadow of the dragonfbr doji illustrates the
market selling off steeply dunng the and then springing back to close at
the highs of that session.
. a. A don is more effective if it appeals in an extended rally or uptænd,
espeelaIC' if the market is overbought (meaning it has moved up too far,
too fast). Its signal is ewen more powefful if it appears at a æsistanee
level.
6. a. The 4•avestone don eompIetE6 its fonnation with the open, low, and
all at the sesion's low. Theæfotv, it has slightC' mole bearish
implieations than a regular dojL As its name Implies, this don sets a
negative tone v,-tth its long, upper shadow. It tells you that the market
opened, then moved up to an high, but fell to eloy• at the
opening
7. a. As a hammers leal body tv•eomes it may tA•ome a dragonfhr doff such

a don displuvs the open, high, and at the high of the sesion. Consequently,
u•ith a hammer's small real body at the top end of the trading range, when
the leal body gets smaller and smaller (meaning the open and close get
closer to one another), the fiend in the formation of a dragonfly
don.
Single
a. c. The 4•avestone don has the open, low, and at the low of the ses
ston- A shooting star, Meith its leal buly near the bottom end of the trad
ing range, would become a gravestone don as its real tx»dy shrin]c.
9. d. In this question, we're eomparing the size of the real bodies.
Consequentrv, a spinning top has a srnaller nyal body than a long real
body. Con tinning this analog', a don session has a smaller real body than
a spinning top session. Remember, a spinning top is the nickname for a
small real
10. to a don in a descending market (a Southem dojo, a don in

an asQnding market is a Northem dolt. In my expenenee, Northem dojl
are more effEn2tive at calling top reversals than don are at
calling bottom
d. When a do'i appears in the middle of the trading range, I su*'st you
Ignore it. Dolt, like most eandlestlek signals, alp reversal indleatms;
therefore, they need a fiend to reverse. the market is in a lateral (i.e., box
range), theæ ts no trend to the don would not be a signal to plac"2 a trade.
The odds of a turn for a Nonhern doM are enhanced if the market is
overextended and is near resistan.æ. It's important to nymem ber that the
more signals you have eon firming the same support or tanee level, the
more likely a reversal is. ConsequentW, if a don appears to confirm a IVs
istanee area, the cads of a turn ts higher than if no pnor resistance is in
place. This the entic•al aspect of alwzws eon sldenng candle
signals in the context of æeent price pattem history. In this instanee, if
the market mm-ed in a lateral range befolp the doji appeared, we would
not use It as a trading signal. But If a don developed after a rally, and
especially if the don confinued a prior æststanee area, it has a high
probability of being a r€wersal signal.
12 (Al. 2. The gravstone don has the open, low, and close of the bottom end
of the trading range and a long upper shadow.
12 1. A long-lezg«l don has very long upper lower shadows. It's also
sometimes called a high wave doJL
12 (Cl. 3. A dragonfly doji has the open, high, and at the of the session. les
probably called a dragonfh' sinee it resembles the insect of that name,
with very long wlngs at the top of its body.
13. . Nonnally a don in a downtavnd (a Southern dolt) doesn't work as well
as a Northern don. However, all candle signals must be observed in the
context of the overall market picture. In this example the don is eon
flrming potentialsupp01t.Assueh, this d03itakeson
moæs1gntfieanee
Long Real Bodies. Ille C,onsmnmale S/

orytellers
n previous sections, we on single candle lines that ineorwrate small real

bodies. ThE& small real bodies project indecision on the part of market
participants , espeeialbr when they form at suppolt and resistance
Now, we'll switch gears and talk about long leal bodb* Candle line« with
extended real bones can al") display stmng signals, especialW when they
touch support and reelstanee mnes. Toward the end of this section, well
summanze market wehology as it penains to single candle lines and their
shadows, as well as their real bodies.
'his section leat" . . .

• Market sentiment that underpins long white or black real bodice
• Bullish and beansh what they Icok like, and what they mean
• The importance of belt-hold lines when they develop at support and
resistanee areas
• How belt-hold lines add to your money
management skills of upper and lower shadows on
all candle lines
row:
White opening shaven bottom

• Blaek opening shaven top
• 1k' It-hold candle line
A candle ehart displaying small leal bodies at the culmination of an uphend

or even intermediate moves to the upside or downside—
indicates that bulls and beaIY are fighting in a dead heat The flip side of the&
small-bodied eandle line reversals, which inelude spinning t01E, wave
eandles, and don, are single candle lines ina:nporatlng long black or white
real bodies. The Japanese refer to the candle line featunng this ex tended real
body as a belt-hold.
As Exhibit 2.12 Ulustrates, the bullish belt-bold is a tall, white candle that
opens on (or very near) the low of the session and closes at, or neu, the
of the sc«on. When it appears in a decline, it forecasts a Wtential rally. When
it appeals dunng an it keeps the bull trend intact.
Pullish belt-hold gearish belt-hold
Resistance
As you can see tn Exhibit 2.13, the bearish belt-hold is a long, black ean
dle that opens at, or near, the high of the session, then tumbles lower as the
unfolds. If this eandle line appears tn the oontext of a mature
trend, it mw fonn a top reversal.
Generalbr speaking. the longer the height of the Id candle line, the more
important is the signal it gives. That makes becat&' an extended range
eulmlnating in a s closing at the opposite end from the opening means that
either the bulls or the bears dominate that session.
As you can by the suppon and æsLstanee line« Ln Exhibit 2.12, belthold
lines that appear at prior or resistanee areas, thereby eonnrm ing the stapngth
of those aæas, are extremelv valuable signals since they increase the chances
of a reversal. Belt-hold lines also gain value as a re ver signal when they
have not appeaæd regularly on the chaffs recent time
Like many candle trend leversal signals, bullish and tx•afish tv•lt-holds
ean plw an important role Ln money-management pnneiples. Sw you are
long and your st02k nieek•,; in an uptrend. a dojl or spinning top appears,
then a t:eafish belt-hold forms. The don was a warning to seale baek on
longs, but the be ansh belt-hold eompleter,; eonnrms the leversal and oould
*nal a time to oonsider closing entire position and ta]dng pmnts.
The re wrse s•enario if you are holding a short position in the eon text
of a dou•ntrend. Perhaps the decline slows, and a bullish belt-hold fonus at
a pnor support area. You Inw choose to ecwer pmt or all of your position,
thus your gains
Single
We've explored the size of real bodies thoroughk,' in previous pages.

Still, the eandIOs and lower shadmxs—or laek of them—also tell a story. In
the last section, we at the long lower shadows of hammers and the long upper
shadows ereated by shooting stats. The long lower shadow of the hammer
echoed the faet that at some time during the session the market had sold off
sharply, but by end the market had regained all the lost ground and elosed at
or near the high of the In other words, the long lower shadcw •vlsualb' shows
that the market had reJeeted lower priee levels A long upper shadow , sueh
as that in a shootlng star, illustrates a market that tests and then rejeets higher
prices.
Likewise, if thelv is a tall white candle that also has an extended upper
shadow , that upper shadow offsets some of the bullish implications of the
tall white candle. Convel&br, the beansh implications of a long black candle
are by a long lower shadow. Consequently, when analyzing candle lines, one
should eonsider both the real bodle« and shadows imaØne you a market
stabillzing at prior lows or a support zone, then stabilize. At that time, many
of the shadows develop Meith dennable long. lower bulllsh shadows—
despite the size of the real body. That tells you that buyers are aeeumulating
each time the priee down to that support level. As a trader or Investor, you
ought mon itor that stock for a possible basing move and long
entw, if and when it penetrates resistanee on staong volume.
You've loamed how powefful single candle lines can be. When they
develop near suppon or they can even more potent.
In the ne>t chapter, we'll study candle patterns. These patterns, eon of or
more candle lines, give ineredlbb' powefful signals that help foretell trend
revemals. Like their single eandle line colleagues, patterns eome u•ith
highly names, including dark eloud cover, twæzem, and tlupe white .
VOUR
Oueslions [Or Chapter Tuo. Section Three: Long Real Bodies.

the Consummate Storytellers
. What ts a bullish tx•lt-hold line?
a. A tall, white candle with a long upper shadow
O. A tall, white eandle with a long lower shadow
c. A tall, white candle with the same and close
d. A tall, white candle that opens near the low of the session and
at or near the high of the sesion
. What ts a beansh line?
a. A long, black real body that opens at the high of the and at or
near the low of the sesion
O. A long. black candle with a longer upper shadow
c. A long. black candle that plunge« below the prior box range
d. A long. black real tody that closes below the prior candle's low
. When does a beansh belt-hold line become more significant?
a. When the trend is sideways
O. W'hen the trend is up
c. When the belt-hold is near resistance
d. When the belt-hold ts near supwrt
The longer the heu of the holt-hold candle line, the signal
it gives.
a. less important
D. more imwrtant
d. less eonsistent
3. a eandlstiek chart, what points do we use to draw a support line?
a. Flom the bottom of the real bodies
O. horn the top of the real bodies
c. From the bottom of the lower shadows
d. From the top of the upper shadows
6. The smaller the real body, the
. greater the foree behind the move.
D. more the market has bounced off its lows.
c. more the market has off its highs
d. less the foree behind the move.
. Imagine held 3CO share« of XYZ as a short position. The stock moved
dou•n Ln a shall) decline, until it nea1Vd the same priee zone as the most
Single
reeent low. At that suppolt point, it rallied, forming a bullish belt-hold.
This candle fonnation suggests that you should
a. ecwer at least pan, of your short
O. add to your short
c. wait for the S.%P 500 to make a new hu
d. buy puts to hedge your
8. A senes of long lower shadows as the market ts deseending
. strengthens the outlook for a s•enario.
O. shows that demand is overcoming supply.
c. shows that the market LS reluctantly.
d. None of the at»ve.
When anabrzlng a stnøe candle line, one should consider
. the real body.
O. the and lower shadows.
c. the real body and shadows.
d. the real body and the upper shadow.
10. In Exhibit 2.14, what is the market telling us?
10
a. The LS fully up, as shown by higher
O. The fiend LS slightr,' lower, due to higher lows.
c. The fiend LS neutral.
d. The trend is mostly higher, but caution is warranted due to long upper
shadows.
Ansuers for Chapter Tuo. Section Three: Long Real Iu•dies.

the Consmnmate Storytellers
1 d. A bullish belt-hold line ts a tall white candle that has very little or no
lower shadow and little or no upper shadow.
2. a. A bearish line is a long. blackæal body that opens at the high of the
sesion and at or near the low of the session. It has small or nonexistent
upper or lower shadows.
3. c. A bearish line displays added tv•anshness when it eonflnns a
æsLstanee area by opening near lesistanee, then plunging lower into the
eloy•. This tndieates heavy suppr,' at the æsistanee zone.
O. Generalbr »eaklng. the wider the pnee range of the belt-hold candle
line, the more important the signal it Øves.
5. c. In candlestick charting, we draw support or lines the same way we
draw it on a bar chan- when we draw a support line, we eonneet the
lows of the lower shadows on the candle chart, Just as we would
eonneet the lows on a bar chan- This brings out an impor tant point
about candle eharts: Ekuyause they use the &une data as a bar Chan,
we the same teehnique« on a eandle ehart as we do on a bar Chan,
Including an Indicator as basle as a fiend line.
d. One of the mRior attmutes of candle eharts LS that they serve as a quiek
visual clue telling you whether the bulls or bears alp in of the market.
When you see a tall, white eandle, the bulls are in charge. When a tall,
black real body fonns, the bears alp in eharge. A spinning top (small leal
body), however, suggests the market is undeeided and tells us the pnor
trend rnw losing some momentum.
7. a. When you are holding a short and wish to retain your pmflts,
eonstder eovefing all or pan of your short position when a bullish
belthold appears at support.
8. c. A tall lower shadow shows that the market is rejecting the lower
pnees of the se«on. A series of long lower shadow candles, even
thouQ1 the market may be falling. signals that the bears do not haw full
9. c. The real tx:xly is called the ew•nee of the pnee movement because of
all the Information it provides about the demand-supply situation, but
shadows are also an important aspeet. For example, a tall white candle
without an upper shadow could be •vlewed as more positive than a tall
white candle line with an extended upper shadow.
10. d. Although the market is aseending , as shown by higher highs and
higher lows and higher closes, the eol&euüve long upper shadows tell
us that the bulls cannot hold onto oontml into the close of the session.
This should make one more cautious follow-ing a fully bullish stance.
The, Power of
Candle Patterns
SECTION ONE
Close Crmsins: Piercing. Dark Cloml
Covers. and Co/"lterattacks
andle charts are most powerful when two or more eandle linc« eom
bine in a candle pattern. Just as the Japanese single candle lines u•ith
imaginative names , they also bestcwed on eandle patterns. These descriptive
monikers undelu•ore the nature of the pattem's signals. For example, cloud
is a beansh signal of a twcveandle pattern that indieates a top reversal. Of
when dark clouds eover the sky, it is the waming the storm.
[n this unit, we'll patterns that include two or three eandle lines. We'll
also diseus windows, which the eall candles.
The section that follows explains dark cloud eovers and engulfing,
pieremg, and counterattack patterns. Readik,' æeognizable on chans, these
candle pattems offer potent signals of possible trend changes and leversals.
Use them in ectuunetion with Weste1M indicators to find buy'sell setups and
ineorporate them into your money-management tactics.
'his you ...
• An crvervt€w of multiple eandle patterns
• How to recognize the bullish piereLng pattern
• How to the dark eloud pattern

• The Imponanc•e of bullLsh and beansh engulfing patterns
• How bullish and beansh counterattack patterns ean lead to quiek
fiend
'elms 'o for:

• Bullish pierelng pattern
• Dark cloud emer
• Bullish engulfing pattem
• Beansh engulfLng pattem
• Bullish counterattack pattem
• Beansh counterattack pattem
In earlier units, we loamed about the power of diseu• why multiple eandle
patterns display even more intense signals.
Just as indMduaI candle lines send important signals about the market's
health, and thnæ-eandle pattems that emerge during upm•nds and
dcwnnends often a trend reversal, or change. Typically, a two-candle pattenl
begins with the topping or t:ottoming candle; the next candle Orms the
revemal. A pattern stmt v,-tth the formation of a candle In the of a taend,
followul by the topping or bottomlng candle. The third candle's appearance
vefifles the æ•ersal
First, we'll dtseuss the pattern referred to as the buUis,9 piercing pattern
(Exhibit g. IA), which appears in the eontext of a decline, or dcwntrend.
Naturally, the more the deeline, the mole significant the signal be. The
bullish piereing pattem eonststs of a black body fonning in the downtrend;
the next leal body eulminates in a white real body that eloy•s within the prior
black body, prefembly more than onc•half of the black body 's The white
real body -pierees" the n>2ent dcwntlvnd, with the bulls ovens-helming the
boars. Subsequent pnee action should eonflrm this Piercing p attem Dark
cloud ccwer
Power of
You minit ex1A•t the eountelvalt to the bullish piercing pattem to

be called a piercing pattem. However, the opposite pattem ts a
power ml top reversal pattem knou•n as dtp* cloud
As illustrated in Exhibit g. 1B, a cloud cozier forms a top reversal
pattern. The first session should be a strong, white real body.
The seo:ynd price opens over the pnor session's high (or
above the pHor close). By the end of the session, it closes
near the low of the sexton. The black candle should ideally close below
the center of the prior white candle.
This foreboding pattem graphically indicates that the bears constrained
the bulls. the blaek real tx»dy does not close below the halfway point of the
pnor white candle, eonsider waiting for bearish eonfirmation on the follow
ing This could be a lower elose on the next
Here's an example c" how candle pattems add to sour money-

management skills by n•.lng earlv warning of trend change. If you were
holding a long position of a in an uptrend and saw the strong. white real body
of the filSt candle soanng into the uptrend , you would surer/ lemai_n bullish.
Cm the next session, the opens at a new high, eonflmüng your bullish new
By the end of that session, how€n•er, the pnee has fallen well within the pnor
real body, indicating that the new prlee high failed to hold: SuppW overeame
demand. At th is point, bullishness nuv ehange to eau
Hon, and wisdom tells to take profits. This is a pnme example of how candle
signals offer early ævemal infonuation and can aid you in locking in
Next, we'll look at the twc—eandle pattern called the b"Wsh encuWing
pattern, illustrated in Exhibit 3.2. Like a pierelngpattem, the bullish engulf
ing pattern typically appears at the eulmination of a decline or a downtavnd
Exhibit g. 2A). The market mlls, and a blackeandle forms. Next, a candle
line develops u•ith a real that around the prior session's blaek body. (The
Japane& sometimes refer to this as a Iuung line, for obvious As the white
real body opens under the pnor black real body's close and eloses above that
session's open, it shows that buying prewure has pressure (Le, the bulls have
taken charge!) If the market is solid, the lows of the bullish engulfing pattern
should be support. Thus, for thc& who are long based on this pattem, there
should a stop under the lows of this pattern.
Bullish engulfing pattern Bearish engulfing pattern

Power of
The flip
of a bullish engulfing pattem LS the bearish enguUing pattern, which
appeals at the top of a market experiencing an upnvnd. A white real body is
engulfed by a black real body, suggesting a top reversal. As you can see in
Exhibit 3.2B, the black nyal body gaps open above the prior white real bodys
close. Then the market falls to close below the pnor session's open—a
bearish signal That movement Indicates that supply has ove•lvow
demand. Obviously, the bears have wrested from the bulls. [f the market LS
weak, the high of the bearish engulfing pattern should a resis-
The pattems we'll study are lines. Countemttaek

are formed when opposite—colored eandIE6 have the same elose.
The bullish eoentouttaclc line ooz•urs durlng a deellne. As Ulustrated in
Exhibit agA, the initial candle in this pattem is usualbr a black candle. The
gullish counterattack pattern Pearish counteratack pattern
ack Patte
next candle opens lower, which delights the Suddenly, the bulls stage a
counterattack by propelling pnees to the pnor candle's elc&. This causes the
downtrend to stall.
The bullish counterattack pattern is to the bullish piercing pattem. The
differenee LS that the bullish countemttaek line does not move up into the
pnor candle's body. Instead, it returns to the pnor candle's close. The inability
of the bullish counterattack formation to push into the fonner candle's leal
body tells y:ju that it mm' not be quite as potent as the pierelng pattern,
nonetheless, the countemttaek line should be lespeeted. It shows a changing
of the guard from bea1Y to bulls , and that's always a signifleant event.
In a beuris,9 muntemttael' pattern Exhibit g. 3B), the filSt white ean dle
shcws the bulls happily in The next candle galE open higher, but the bears
rush tn to foree the elosing priee down to the pnor session's close. The
surprised bulls have no doubt s wallowed their recent optimism and now
Ond themselves on shaky ground.
As you' ve probabW surmised, the bearish eounterattaek pattem is
similar to dark cloud eover, but again, the black counterattack candle does
not pen etrate the pnor session's real body. Instead, it closes at the pnor
y•ssion's close. This suggests that dark cloud eover Inuv dlspnv a slightly
stronger sig nal, but again, whenever suppbr overwhelms demand, it
significantly changes the market's texture.
Beansh counterattack lines espeeialk/ potent signals when the
Ond session gaps oven mech higher than the pæ•vlous sexton. This tells you
that the market moved in the direetton of the prevailing trend, then made a
Shan) U-turn to close at the prior day 's pnee. In other woms, it shot up, only
to end back down where it started.
You ean imagine the same seenano, with directions revers«l, for the bull
Ish oounterattaek pattem.
Now y:ju ean why the twoæandle bullish and bearish engulfing pattem,
bullish pierelng pattern, dark e loud cover, and bullish and bearish terattaek
patterns are sueh powellul indicatom opinion drives the pnee in one
Power of
direction, then suddenly that opinion reverts. Driven by a swift change tn

supply and demand, the pnee tums around and shoots in the oprxxite
direction.
In the next section, we'll talk atx»ut additional pattems that
presage trend ehange. For now, though, answer the questions that follow,
then cheek your answers to gain mole insights on the patterns Just
Oueslions for Chapter n•ree. Section One: Close Cousins: Piercing.

Dark Cloud Covers. Engulfing. and
. From the choiees listed, select conditions needed for a piercing
pattem.
c. The fnst candle is black

d. The candle is white.
e. The candle is black
1. The candle LS white.
2. From the list in question I, three conditions need«l for dark cloud
eover.
3. As the second session of apierelngpattern pushes mole and more deepw
into the filSt candle, it become a
a. morning star.
O. don star.
c. dark cloud cover.
d. bullish engulfing pattern.
The pattem to the dark cloud cover is
a. the beansh engulfing pattern.
O. the bullish engulfing pattern.
c. the pierelng pattem.
d. the hammer.
5. A piercing pattem is to a bullish engulfing pattem as a

is toa beansh engulflng pattern.
. tx•ansh eounterattaek
D. bullish eounterattaek
c. hammi
d. dark cloud eover
6. For a bullish engulfing pattern, which ts true?
a. The second session's white real body to wrap around the pnor ses
shadows
O. The second session's white real body to wrap around the ses
black leal body. c. The second session's black real txxly to wrap around
the pnor ses black leal body. d. The second session's white real
body to wrap around the ses white real body.
. the following list, the two main for a bullish engulfing
(I) As a bullish eontinuatton signal

(2) As a bottom reversal signal
(3) As
(4) As resistance
a. land2
O. 2 and g
c. g and 4
d. land4
8. The two candle lines that make up the bullish engulfing pattern have
a. the same real tunes.
O. a black real buty follouul by a white leal body, in a downtrend.
c. a white real body followed by a black leal body, in a downtrend.
d. two white real bodice in a downtrend.
9. A dark cloud eover is to a piercing pattem as a
is to a bullish en gulfing pattem.
a. tx•ansh engulfing pattem
D. evening star
eounterattae k
d. bullish eounterattaek
Power of
10. The most significant difference between the bearish engulfing

pattern and a dark cloud eover is
a. the y•eond of the engulfing pattern wra1:E around the prior white leal
body, while the second of dark cloud eover elose« partialhr into a prior
white nyal body.
O. the bearish engulfing pattem wrape around a pnor black real body,
while the dark eloud cover "Taps mound the pnor black candle.
c. the dark cloud cover appeals after an uptænd, while the beansh en
gulfing pattern eomE6 after a dou•ntrend.
d. the dark eloud ecrvvr develops after a dou•ntænd, while a beansh en
gulfing pattern appears after an uptrend.
11. From the following list, which are the conditions for a beansh
engulfing pattern?
(I) The market ts in a downtrend.
(2) On the session of this pattem, the market should open above the prior
se«on's close.
(g) On the of this pattern, the should close the prior se«on's open.
(4) On the seeond session of this pattem, the market must above the prior
se«on's high.
a. land2
O. gand4
c. I and 3
d. 2and3
12. an extremely large white candle eompletes a bullish engulfing pattern,
you should
a. buy immediately on the close of the white candle, stnee it is so
strong.
O. on the close of the white candle, sinee the market is overbought
c. it depends on the nsWreward pmnle.
13. The imponant eonsiderations of a bullish counterattack pattern are
(I) the market LS in a downtrend.
(2) on the second y•ssion of the pattern, the market must under the prior
se«on's high.
(3) on the of the pattenl, the market must open shamly under the
pnor 's elc&, or Icw.
(4) on the last session of this pattem, the market must close abcwe
the prior sesion's close.
a. land2
D. I and4
I and
d. 2 and g
14. One aspect of the beansh oounterattaek is that todzvs is the &uue
as yesterdAV 's a. close, open
O. close, close
c. 01:A1, open
d. open, close
15. List the order in which patterns fonn as a white candle nyal body more
dæply into a black candle. (I) Bullish oaunterattaek
(2) Bullish engulfing pattern
(3) PiereLng pattern
(4) Dark cloud ecwer
16. List the order Ln which pattems form as the close of a black real tody
mcwes more deeply into a white candle.
(I) Bearish counterattack.
(2) The pattems are all the same.
(3) Dark cloud cover.
(4) Bearish engulfing pattern.
1,44
PO「Of
17. WhlehofthepattemsinEihlbitg.4aæb•xufishengulfIngpatterns?
1B. WhateandlesignalLsati?
a. Hangingman
O. Shoot1ngstar
Bullishengulfingpattern
NOI Of the above
19.Asumethedashedlineisourtargetonabounee.Shouldyoubuyatt
he ㄖ 0! Of candle Ⅲ i?
a. Yes,sineetheeandlesignalatiisapotennallybullishtunungsignal.
NO,beeauS2Xhasasmallrealb•dy.
NO,b« W Oft] t
Y , be
20. Assume the dashed line is our target on a bounce. you buy at the
of eandle line y ?
a. sinee the lows of the hanuuer should be support.
D. No, because y Is a black candle.
No, because the of the trade is not attractive.
of the trade is attractive.
21. In Exhibit 2.6, after which bullish engulfing pattern is the market most liker,'
to bounce?
Use Exhibit g. 7 to answer questions 22 to 24.
22-24
Power of
22. The pattem shown in Exhibit g. 7 has the same of candle lines as which
pattern?
a. A tx•ansh engulfing pattem c. A dark cloud
D. A piercing pattem d. A twæzels top
23. Why is the pattern in Exhibit 7 not a classic example of this pattern?
a. The black candle did not open enough.
O. The lower shadow of the black candle ts not long enouQ1.
c. The of the black body did not deeply enough into the white real
body.
d. The white real body was not long enough.
24. Based on the pattem in Exhibit g. 7, what should you wait for to increase the
likelihood of a top reversal?
a. Wait for don.
O. Wait for the next to mom into the white candle's leal
c. Wait for another tall white candle.

d. Wait for none of the above.
23. In Exhibit 3.8, which is(are) piercing patterns?
O. 2and3
d. land3
20. In Exhibit 3.9, which goup(s) of candle hint(s) that the bulls ate losing
momentum?
c. 2 and 3
27. Which of the bullish eounterattaek show-n in Exhibit 3.10 is more

liker,' a reversal?
. None of these
O. All of these
Answers for Chapter '"wee. Section One: Close Cousins:

Piercing. Dark Cloud Oner. Engulfing. and Counterattacks
1. D. c. r. The piereLng pattem is eomposed of two candlesticks in a falling
market. The flßt candlestlek session In this pattern has a blaek real body; the
has a long. white real body. The white y•ssion opens shawly lower, under
the low of the prior black Then prices push higher, creating a IV lativebr
long. white real body that above the midpoint of the pnor day's black real
W:xly.
2. a. d. e. The dark eloud LS the opposite of the piercing pattern. The dark cloud
eover ts a dual candle pattern that a top leversal after an uptrend.
Power of
The first of this two-candle pattern ts a stmng. white leal tody. The seo•nd
pnee opens above the prior session's high, meaning above the top of the
upper shadow. By the end of the Ond dtVs however, the market closes
deeply within the prior sesion's white body.
d. If the white candle is large enough to close above the opening of the pnor
black real bcxly , it will beoome a bullish engulfing pattern.
4. c. The dark cloud takes place in an uptrend, forming a black leal body el(Ang
deeply Into a pnor white real body. The opposite of that is the piereing
pattem. It is a bottom reversal signal that dunng a market decline, and has a
white real body that pushe« deeply into the pnor black real bur,'.
d. This question eompanx how deeply a real body into a pnor leal body in the
two pattems. The piereing pattem has a white candle that partially into
the pnor blaek real body. The bullish en gulfing pattern has a white real body
that eompletebr wraps around the pnor blaek real body. Sinee a Ixpansh
engulfing pattem pa.w•s all pnee action of the prior white candle, dark
cloud cover, which only partialbr moves into the prior se«on's white real
txxly, is the cor-
6 0. A bullish engulfing pattern requilps that a white leal tody vvral:s around the
pnor black real body dunng a downfiend. It is not a æquisite for a bullish
engulfing pattern that the white real body "Tap around the prior s upper or
lower shadows.
O. Besides aenng as a bottom reversal signal, the lows of the bullish engulfing
pattem can be as a support level
8. c. A bullish engulfing pattern eonststs of a white lea] body that wrai:s around
a black real body in the context of a downtrend. They have to be eonseeutive
sess ions.
9. a. In this analoqr, the dark cloud cover LS the of the piercing pattern. The
opposite of a bullish engulfing pattern is a engulfing pattem.
10. a. The combination of candle line« for both the beansh engulfing pattern and
dark cloud cover are the Speciflealb', the market is moving up, and the next
eonsLsts of a white candle immediately followed
by a candle with a black real body. The main difference between the bearish
engulfing pattem and dark eloud is that the beansh en gulfing pattem's black
real body must u-rap mound the pnor y•ssion's white real body. The dark
cloud cover need only move into the middle of the prior se«on's white real
body.
11. d. Sinee the bearish engulfing pattem eonsLsts of a black leal tx»dy that
•maps mound a white real body in an uptrend, the open of the second session
(i.e., the black real body) must open above the pnor y•ssion's
12. c. A bullish engulfing pattern doesn't equate "'ith automaticalk,' buying,

whether one buys or not on this pattern (or any candle signal) is depen dent
on the risk,'reward profile of the potential trade.
13. c. A bullish counterattack pattern during a decline. The fust ean dlestiek of
this pattem LS a long, black real body. The second session opens
dramatically Icwer. At this point, the bears feel confident. The bulls then
stage their eounterattaek by pushing the pnee back up to the pnor close, the
pnee is virtually unehanged. It's imponant that the market initiallv opens
deepw under the lows of the pæe•2d1ng session. This gap down shows that
the Ix•ars have a fcothold, at least at the open ing bells. But by that session's
end, the bulls eome back in what the Japanese eall a kamikaze battle, to
return the market to the pnor e lose
14. D. A bearish eounterattaek pattern requilvs that (I) the market LS in an
uptrend, (2) a white candle ts immediatew followed by a gap higher open
mg. and (2) the session that gape higher closes unchang«l, at the same priee
as the prior white eandle session's eloy•.
15. D. All patterns are bottom leversal signals that have a black candle directly
followed by a white candle that opened weaker. The differenee in these
patterns is the extent to whieh the white eandle intrudes Into the black candle.
The bullish eounterattaek patte1M has as its second can dle a white candle
that at the same pnee as the pnor el€&. A plereing pattern's sesion
(white) candle closes above the pnor session's close. (Ideally, it eloses abcwe
the center of the pnor white candle.) The bullish engulfing pattern develope
with a white candle for the second that eompleteb' wrape around the pnor
92ssion 's black real body. The dark cloud has a black candle closing in a
prior white candle's leal body.
16. . The beansh counterattack has as its candle a black real tody that elose€ at
the &uue pnee as the prior (white candle) close.
The dark eloud ecrvers filSt s*ion is a white candle. The seo•nd sc«on is a
black candle that moves below the pnor SQssion's close (Ideally , the black
candle at least halfuuv into the white candle.) The beansh engulfing pattern
has as its session a black teal Ixxly that eom pletely wraps around the pnor
session's white real Ix»dy.
17. c. Two critena for a beansh engulfing pattem are a blaek real body en gulfing
a preceding white real body, and the market must be in an trend. Although
Ln examples I and 2 we see blaek real bodice wrapping around white leal
Power of
bodies, the trend pæeeding the pattern was ineorreet. Therefore, and 4 meet
the requfipment for a bearish engulfing pattern.
1B. d. This ts a hammer. The shape of the line is eoræet and the trend tx•fore the
line was the requisite downtrend (even though it was a short-term
downtrend).
19. c. If one buys on the hammers the risk is to the bottom of the lower shadow
of the hanuner (that should be a support area). Next we have to deten-ntne
the potential upelde of the trade, whieh in this is the dashed
we now have our stop-out level (under the low
of the hammer's lower shadow) and a priee target (the dashed line). Now we
ask the pivotal question: Is this a goul trade based on the risk"teward pmfile
of this In this ease, u•ith the risk Just about the same as the æward, thLs
might a trade to bypass. This brings out a entic•al aspect of the candle charts:
Even a beautifulbr denned can dlestlek line or pattern may not offer an
attraetlve trade because of a
20. d. While the market is at y, we now have a better Hskh•eward than

in the pre vtous question. This ts tv•eause the hammer ts still poten Hal
suppolt and we still have the same pnee target shown by the dashed line.
Sinee at y we ale now near the bottom end of the hammer's suppon area (the
bottom of the lower shadow), we have a tighter stop "Ith more upside
potential in relation to this stop-out level. Of eourse, if the market eloy•d
under the lows of y, one should consider vacating Ions.
21 . d. In this we volume eonnrmlng the potential bullish implicaHons of the
bullish engulflng pattem. Specifically , theæ Is light mume on the black real
body portion of the bullish engulfing pattern and vol ume mere on the white
turnamund eandle. Although ehoiee e also has higher volume on the white
candle than the black, answer d has a mueh higher-volume sesion on the
white candle to the black candle than dces ehoiee e. This question
displays a powerful aspect of the ean
dle charts: All elasie Westem chalting techniques, sueh as wlume in this
example, ean be easily merged with candle charting techniques.
22. c. Thls is the same eomblnatton of candle line« needed for a dark cloud
oover. Speeffleally, the market is in an as•ending mode with a blaek real
body that opens above the prior session's high and then into the prior se«on's
white real body.
23. c. A classie dark cloud oover should have a higher than the middle of
the prior tall white candle, which shows that the bears have intruded deepw
into the bulls' terntory.
24. D. Beansh eonnrmation of a less-than-ideal dark cloud cover can obtamed
by waiting for the (after the s€n:ond of the dark eloud cover) to a close that
goes more deeply into the white ean dle that started the dark cloud eover.
25. c. A piereing pattem ts a potential bottom reversal signal in which the market
opens under the prior day's or preferably under the pnor duv's low, and then
above the middle of the prior black real body. In seenafio I, the close of a
white leal body did not get deepw enou$l into the black real body. In scenafio
2, the elose of a white real body was strong enough that it wrapped around
the black real body and so became a bullish engulfing pattern. Seenano 3 did
have the same combination of candle lines that is for a piercing pattern, but
lines earne after an uptænd instead of the neeessary downtrend.
26. c. In seenafio 2, the last two candle lines fonn a dark cloud cover, which is a
wtential top reversal signal. In seenafio g, a of small leal bod typifies a
market that is nmning out of steam. In seenafio I, although the last candle is
a hanging man line, we would need IX2arish eonflr mation of that line to
turn negative. 4 shcws a "*rtes of relativerv tall white candles with higher
highs, lows , and eloy•s and therefore no signs of Ioslng bullish momentum.
27. d. The theory of the bullish counterattack is that the market should open
robustly lower than the prior sesslon and close unchanged from that prior
sesion. Sueh a close on the second y•ssion proves that althouØ1 the market
opened shawly lower, the bears could not sustain of the market into the elose.
In Exhibit 3.10, the only s•enarlo that had a shall)ly lower opening was g.
'he llarami and llarami Cross.
Morning and L'velling Stars
n this section, we're going to dtseuss more candle pattems that are formed
by a eombination of single candle lines First, we'll at an intelestlng tunmandle
pattern called the haraml, and a vanatlon on that pattern knou•n as a harami
Then we'll delve into a powefful thnæ-eandle pattem—the star pattem—
renowned for ealllng bottom and top revel*Us. The star pattenl ineon»orates
spinning tops and dojL As remember, we the shooting star befOIv. Now we'
Il explore mondng stalb, evening stars, and stars that inelude a don, called
morning don stars and evening don
'his leat"
The importance of the haranü and hammi ercss
• The differences between the harami and harami eross
• The power underpinning the harami eros•
• HEW to differentiate between the haranü and the engulfing pattem
• Hmv the hammi pattern eompatvs to the Western inside day
• The enterta for morning and evening stars
• How morning and evening stms eall bottom and top reversals
•
star signals
• PetriMng pattern
• Inside day
• Momtng star
• Evening star
As shown tn Exhibit g. Il, the filSt real tx:xly of this pattern is an

unusually long black or white real body. The next eandle
of a small real body , which is eompletely
within the pnor real body.
The eolor of the real bodies in this pattern is They can
be or the same.
As you ean like all candle patterns we' ve so far, the haranü is a reversal
pattern. The Japanese sw that when the hat-ami pattern (Exhibit 3. I IA)
appears, a pæeedlng rally or dou•ntrend is losing its breath. The bear Ish
harami tells us that despite the bullish white leal body that moved the market
higher, the tiny real body that follows indicates uneertalnty and indeeision.
As learned in previous sec•tions, the limited pnee range of the small real
body—especially when it follows a real body with a wide priee range—shows
that trend velocity has weakened.
On the other hand, when a bullish harami (Exhibit g. 11B) appeals in a
deenne or dou•ntrend, the pressure demonstrated by the first long. real
Pearish harami pattern Bullish harami pattern

Power of
i'.wm'13.11
Ix»dy in the pattem LS apparent. Then the s€h20nd tiny leal body fonus. The
bears suddenr,' lose momentum; they alp unable to the market at or tv•low the
pnor candle's elc&. Uncertainty sets in, as the harami foretells a possible
reversal and trend break Do undemtand how this pattern tells y:ju an
important story about market en•vlmnment, "'ith its change of
ff the second real body LS a don instead of a spinning top, it is
eall€«l a hammi crews (Exhibit g. 12).
Next, we'll discuss an intriguing pattenl known as the star. Indæd, this
pattem ts a star when it eomes to calling top and bottom leversals!
A stmr is a small real body (think spinning top) that gaps awzw from the
long lea] txxly pæeedlng it in an uptrend or downtrend. The candle in the
formation al") should gap aww the lea] body of the star, leaving the star's real
body Isolated at the top or bottom of uptrend or downtrend. Idealb', the real
bodies should not overlap, althouQ1 the stars real body can in trude into the
pnor candle 's shadow.
The stars teal I»dy represents a tug-of-war between the bulls and bears. It'
s a similar eoneept to that of the harami—a strong move Ln an uptaend or
downtrend, dileetly follow€«l by an indecisive time period. The star repæ
a stronger initial s urge Ln the pævaLIing trend, however, tx•fore
forees arrive to quell it.
Bearish hammi cross Bullish harami cross
3.12 Hmi
The star ts the middle pomon of two candle patterns called the morning
star and evening star (Exhibit 3.13). The morning stay is a bottom reversal
patte1M that denvcs Its picturesque name from Mercury, the morning star
that appears Just befOIe sunrise. Just as the momLng star pæeede« dMight,
the morning star eandle pattem potentiallv pæsages higher prices.
Three candle lines fonn this pattern. First, tn the context of a dovvntrend,
a long. black candle develops, asuring the bears that they continue to in
command. Then a small real body or spinning top appeals, gapping down at
the open of its and delighting the eonfldent The star (the mid dle portion of
the monung s tar) eompletes its formation in a tight pnee range, without
nslng back to Into the pnor black lea] body, although It may rise to an
intraday that infringes on the black candle's lower shadow. The final candle
of the moming star pattem LS a white real body that mcwes deepb' into the
first session's black candle. This panics the as the white candle proves that
the bulls have taken control and revelV'd the dcwnnend.
The moming stars bearish eountelvmt LS the evening st«r. Three candle
lines make up this top IV".retsaI signal. In the eontext of uptrend, a long
Power of
Morning
Eveningstar
white candle appears, eonvtneing the bulls that the rally v,-tll oonünue. Then
the star appeals In the fonu of a small real body that elassiealbr gals up from
the white candle's elosing price. The star's leal body (black or white) remains
L931ated as the next candle eonflnns the trend top by gapping away from
the star and pmdueing a long. black real body that pushes into the white
candle's real body. The final candle "*als the fate of the bulls as the beals
grab eontml and push the market downwmxl.
If the middle ponton of either the morning or evening star ts a don

instead of a spinning top, the pattem LS called a morning doli star or
doji star (Exhibit 3.12).
The valuable haraml, haraml cross, and star pattems offer you more
reversal pattems to place in traders toolbox. Your ability to recognize they?
pattems on chans of auv time frame "-ill add to your trend forecasting and
money -management skills.
[n the next two sections of this ehapter, we'll diS2uss mole candle
patterns that signal top and bottom rewrsals. We'll also explore an entirely
dif ferent eoneept, that of eandle« In pattems. First, though,
please eomplete the questions that follow. Be sure to ehEn2k the answe1Y
that follow the questions for added information.
Oueslions for Chapter 'nuee. Section "1'"0: The Harami and Ilarami
Cross. Morning and Evening Stars
1. The hammi is a
a. bullish revel*d c. continuation
O. bearish revel*d • . bullish or bearish reversal
. The harami pattem is
a. a small real body followed by a long real tx»dy.
D. a small real body that must for-m inside the prior long real body.
c. two eonseeutive small leal bodies
d. Both b and e
3. Which statement is tame about the color of the real for a haranü?
a. Both sesions must have the sameoolor leal bodies.
D. Both can have the sameæolor real bodie«
c. The first must be black, and the second must be white.
d. Both sesions must have opposite-eolor real tunes.
. An engulfing pattern consists of a long real bzxly wrapping a small real
body. U'hieh candle stiek pattem has the rever*2 s2enario—that is, a long
real body followed by a real body?
a. A piercing pattem
O. A dark cloud ecwer
c. A harami pattem
d. Both a and b
5. What is the difference betwæn the harami and the harami cross?
Power of
a. They alp the same.

O. The harami cross has same-color leal bodies.
c. The haranü cross forms "-ith a don as the candle instead of a
small real body.
d. The harami cross must come after an uptrend.
6. What is the differenee between a Westem inside day and a haraml
pattem?
. They are the same.
D. A harami that the range be within the prior ses open-
close range, whereas an inside day requires a high low range "-ithin
the prior se«on's high-low range.
c. A harami low that is below the pnorsession'slow, but an in
day requires the low to above the prior s e«on's low.
d. None of the
. Prom the list that follows, ehoose four conditions needed for a moming
1. Uptænd.
3. The filSt candle of the pattern LS black.

4. The filSt candle of the pattern LS white.
5. The eandle of the pattem is white.
6. The candle of the pattem is either black or white.
7. The thinl candle of the pattern is white.
b. The candle of the pattem is black.
8. From the list in question 7, choose four oonditions required for an
evening star.
9. A morning star pattem is a potential
a. top leversal signal.
b. bearish eontinuation signal
c. bullish eontinuation signal.
d. bottom reversal signal.
10. When an evening or morning star pattern dewlops, the real body of
that pattern must be
d. large.
11 . Which part of the ewni_ng or morning star pattem represents the star
poltion?
a. The candle line
O. The candle Kne
c. The third eandle line
d. The foulth candle line
12. Which of the evening star patterm represents the reversal?
a. The filSt y•ssion
O. The s c«on
The fourth session
d. None of the above
13. If the star portion of the ewning star ts a dolt, that pattern becomes
a. an ewnlng don star.
D. a tweeærs top.
d. a tn-star.
14. In Exhibit 3.14, which Ls(aæ) evening star(s)?
d. Both 3 and 4
Power of
15. In Exhibit 3.13, which Ls(aæ) harami pattems?
D. None
c. Both 2 and g
3.13
Ansuers for Chapter Iluee. Section The Ilarami and
Ilarami Cross. Morning and Evening Stars
1 d. The harami ean be either a potential top or a bottom æversal signal. In
the of an uptavnd, the pattern appears as an unusually long. white real
body immediatebr followed by a small real body (black or white). This
represents a potentialki beansh haramL Cm the in a deseending market,
a long blaek nyal body fonus first, followed by a small leal body (blaek
or white), again by the larger leal body's priee range. This
repæsents a bullish liar-am L
O. A harami pattem can take place dunng an uptrend or downtrend. In an
uptrend, a long white leal body is followed by a spinning top that fonns
within the prior candle's real body. In a downtrend, a long. black leal
body is followed immediately by a spinning top that forms u•ithin the
longer candle' s real body.
O. The real body of the harami pattem ean be white or black. For example,
if a white real body ts the fLrst portlon of the haraml, and a small, white
real body is the next session, the Japanese refer to this as a white-white
haramL
4. c. The harami is the reveBe of an engulfing pattem. Whereas an engulf
ing pattem prE&nts a long candle engulfing the previous leal body, the
harami emerges as unusually long real Io:ly followed by a very small
lea] body. After a downnvnd, the appearanee of a haranü shows, as it is
in Japan, that the decline is exhausting A harami topping an advance
shows that the market has a poor ehanee of fising
3. c. The harami cross is sometimes ealIEn:I the petriMng pattem. Because

it for-ms v,-tth a don as the candle, this pattern often more likelihood of
a ren•ersal than the traditional haraml
O. Although the inside dw and the harami appear similar, the hammi has
a major advantage in that it mw give a signal not available "Ith the
Westem inside session. SpeeineaIW, the inside requfivs that the curlent
session's high-low range is within the prior y•ssion's high-low range.
However, the harami æqutæs only that the eunvnt session 's real body be
v,-tthLn the prior session's real body , even if the current se«on's high is
above the pnor high or the eunent session's low falls below the pnor
se«on's low. This means that the harami may provide a ævemal signal
that is not apparent "'ith the Westem inside day.
7. 2. 3. 6. 7. The moming star is a reversal pattem It is made up of a tall,
black real body followed by a real body.
The small real body gaps lower than the pnor real body. The third ion is
a white real body that moves well within the filSt candle's black real
8. 1. 4. 6. 8. The evening star is a thæe—eandlestiekpattem. The for this

pattern inelude a market in an uptrend. Then a long. white candle
appears, followed by a small real body. The small real body ean either
black or white and idealk,' should not touch the real of the first ean dle.
The third candle of this pattenl is a blaek real body that ide docs not toueh
the sA•ond real body. The third candle well into the white candle line
that made up the flßt candle of this pattem.
d. In the of a downtavnd, the morning star ts a thræcandlestiek reversal
signal The filSt candle. a long. black real body, shcms that the bears are
still in eontrol. The eandle ts a small real body that shows the beats are
Ioslng momentum. T•hls small real body should not touch the prior black
candle. The final tuming signal and eompletion of the morning star
pattern arnves with the third candle, which should be a tall, white candle
that moves well into the nrst candle's real tody.
10. c. In both the evening and the morning star, the middle candle line must
be a spinning top or dolt. The of the spinning top ts not rele vant
11. D. In both the evening and momtng star pattem, the second or
spinning top, is IVferæd to as the star.
12. d. The third black candle, which mo•.• well into the filSt eandIOs white
real body, completes the
13. a. If a don appears as the eandle line (instead of a top) in a
mornlng or evening star pattern, it is renam«l a momlng doli star or
evening don star.
Power of
14. d. g and 4 are evening stars. The eolor of the middle portion
(the small real body) of an evening star ean be black or white. SQnarIo I
is not a classie evening star because in an ideal evening star the second
real body should not touching the filSt real mdy. In seenano 2, although
the grouping of eandle line« ts eon-ect for an evening star, the last candle
should be blaek, not white.
15. a. These are all examplE6 of harami patterns. The definition of a haraml
pattem is a small leal tody within a prior unusualW long real body. The
color of the real body does not matter. Even if the shadows of the second
session of the haranü are outside the real body of the filSt sesion, it is
still a harami if the real body of the second session is within the real body
of the filSt session.
TEE COURSE
Pictm•esqm• S/oolellers: liveezers.

Crovvs. and Soldiers
n this well eontinue to explore candle patterns that tell us more amut
the mood and manner of market environment. AIthough the æeent price action of a
chart is imwnant, earlier priee history can also eontmute to our assessment of future
price movement. The s torte« candle pattems tell us, present and past, all add to our
ability to evaluate potential that will eontribute to our sueeess as tradeIY and
Now, on to the candle patterns know-n as tweeærs, , and soldiers. The Imow
ledge you&e acquired Ln previous sections will make the following pattems easy to
understand.
set-lion you learn .

• The eonstmetion of the candle pattern the eall tweezers
• HEW tweezers signal trend changes on long-tenu charts
• How tweezers other candle patterns
• The definition of black cymes and the signal they give
• The pattem known as thæe advancing soldiers and variations on the
• Caveats IA-taming to three advancing soldiers
'em's
ror:
• Tweezers top
• Tweezers
• Three black crows
• Three advancing soldiers
S'1'AR1'E1i
The candle pattem known as tweezers consists ot two or 111.01v candle lines wlth
matching highs or lows. The name is derived fro:rn the appearance ot their
formation. The twee±ers top oeeurs in a rls1nZ market when two or more
eonspeutive highs match paell other, thus giving the image of the two prongs of a
tweezers CExhibit a. 16), CSinee tweezers pineh, the connotation is that une trend
is getting pinched.) A tweczcn tvttoyn take« place in a decllnlng market, when two
suce€•ive lows are equal.
Ideally, the tweezers pattern should de',elop with the fLrst s ewion ineor
poratlng a lone real body. [n a deellnlng market, thls would probably a long black
eanclle«tlek; In a 11sLng market, It would as a lone white
The session is interesting because it has many variations. It's best—but

not ateoluteLy when thLs se—ion forms with a small lea] body. You up already
tamihar the eandle lings that Lnay this eomponent- For example, a tweezers top
rn*ht fin Ish with a hanging man, a
Tweezers to p T*eezers top Tweezers t cp and

hanging man
and harami and

dark cloud ewer
Ts•ee rs bottom T.•æezerz bottom and
harami and
pietclng
Tw—zers Tops and Tweezers Bottoms
The Pox€r of Carr',k Patterns
TEE COURSE
shcoUng star, or a dark cloud cover pattern. A tweezers bottom could eulmi
nate with a hanuuer, haratni ero•, or piercing pattern.
With the first long real body and the srnaller real body tntegratlng two
eonseeuttve highs, the tweezers top tells us that the bullish force of the long
white candle began to disslpate with the small real body of the second candle
line. Also, since the seeond candle eannot make a higherhigh than the nxst
candle, the tweezers top adds to the outlook ot a s lakenlng or demand.
The tottom begins with a long black real bcxly carrying the happy beal>
to victory. But the candle, with the sane lows and otten eompleted with a
small real body, smtehes to uncertalnty. As buying bulls start n1bb11nX the
bear's taLlure to press the se.mnd session to a lower low intensifies their
angst. Naturally, the next candle will help oonfirm the potential revelsal,
We assign little importance to two eonseeutive highs or lows shown on
a dauv or intraday chart mudess other defining signals are present. In and of
they are not noteworthy.
[f you are a long-term trader or Lnvestor, you probably study weekly and
monthly charts to obtain a longer perspeetive. S' as to shorter time of
intraday and daily charts, tweeærs tops and bottoms that appear on weekly
and montllkv ehalqs potentially indieate important reveNd sig nals. For
example, if a declining stock finished the current week by suceew fi.llly
holding last week's low, It could t:u2 the start a base tor a future rally.
Conversely, it a 13-rnmutø eandle on tm Intraday chart sueeessfully holds at
me prtor candle's low, It LS not as slgnmeant.
The next eandle pattern appeals onw at high prlee levels , or In the
eontext of a mature uptrend , The Japanese gave it the quaint name, three
blaek en:jws Also called three cmows, the three b tae* pattern eons Isis of
three black candles that should el•ze2 at or near their lows (Exhibit 3.17).
Three Hack crcnvs

The J •panese refer to the opposite of the three black crcnvs pattern •s three advancing
white soldiers, or three whit* soldiers. Againr as with other candle pattens a
military connection,
The first eandle appears near the top of an uptrend that's already starting to roll over;
or move down, Each session's open should ideally take plac•e within the previous
Ion's real body
The three black ewws pattem »pnds useful tor longaerm traders and investoxs.
By the time the patten concludes with the completion ot the third black candle, ICs
ahea•$i obvious that the market has fallen signifieantLy from Its reeent high. Were
you holding a prcq:vetwe long-term position and a three blaek crows pattern
appeared on a wee]O; ehalt, in eonlunetton with other indieatcns, it might want you
to take partial or all profits.
As we ean in Eyhibtt X] 8, while so!ciiers appear as tluve long white eandle•
exhibiting eonsæut;ivebi higher prices. This is a eontinuation patteau, and each
candle should 01092 at or near its high. The lines form an onlerbr, ongoing tise, with
each eandle wLt.lün or elcee to the prior eandle's real body. For this pattern, trend
LS not efftleal. The soldiers may beg:tn an npward ellmb out of a downtrend reversal
or emerge during a rallv. In these instances, the patern suggests positive momentum
ahead.
Pundits are fond of Ekaying, "Trading is war" The patterns in this see
tops and bodoms, three black crows, and tluve white sol diers—
provide you with extra ammunition to early Into battle. Ln the marke•t eombat zone,
the more knowledge you have, the more likely you are to sue That's true now,
more than ever, w-lt:h volatlllty oceunlng as an everyevent
Three white 931dlgrs
Three White Soldiers

TEE COURSE
A caveat regarding the three white soldiers pattem: Although the candles display a
healthy 'ise In the they do not sarily gn•e you a buy signal. When the candles to an
extended price range. becarehll of e nteringlong positions, Overbought markets
usualhy• con solidate or retrace after prolonged price rises. The proper long entry
nay appear after a pullback pnce suppolt.
[n the next spetian, we will diseu.ss the powerful candlestiek

eontinuathon pattern known as windows The window repreænts the Japanese
ver sign oi the Westvill Zap, and It provides us with a host of compellin
signals.
Before you go on to that seedon, though, answer the questions that tol
low. Take your t:lme to asses how mueh :knowledge you from the
rnaterla] diseused tn this saetion. That's me best way to obtaln the most from
thls
and Soldiers
Cine eondition that a tweezers top must display Is
a. matching highs.
n. matehing real bodiew
c. matehing mid -points.
d. matehlng lows.
. [deqlly, In a mature advance, a tweezers top eonsLsts oi a,
a long blaek eandle followed by a dcdl.
n. along whlte candle followed by an evening star c- along white
eandlefc.llowed by a smaller real body thathas the same
d. a long blaek eandle followed by an Island reversal.

3. A tweezers bottom that forms at the potential culmination 01 a decline
could form as
a. a small-bodied black candle followed by a bearish belt-hold.
b. amonüng don star.
c. a haramipattern with equal lows on both candle lines.
d. apiercing pattern tallowed by a haraml.
4. On a weekly ehalt, a tweezers top shows that this weeks high is the
same as last week's high.
n. the top of the real bodies have the lows.
c. the top of the leal bodies have the Enme highs.
One condition for a three b lack crows pattern is thlpe black
candles
n. thæe black spinning tops c- three
bullish belt-holds
d. three dark eovers In a row.
b. Three black erows a beansh market emlronrnent when they
aplA2ar
a. a box range.
n. uptrenl c- a
downtrend.
d. dlreetly after a bullish piereång pattern.
The signal generated by three blaek erows Is best utilize:] by
a. day traders.
n. market
c. New York StcekExehange specialists.

d. long-tenu and investors.
8. A eondition for the three white soldieas pattern is
a. they appearin a sharp downtrend.
b. they emerge in a cangu
c. they develop in an uptrend.
d. , None of the above.
S'1'AR1'E1i
The candle pattem known as tweezers consists ot two or 111.01v candle lines wlth
matching highs or lows. The name is derived fro:rn the appearance ot their
formation. The twee±ers top oeeurs in a rls1nZ market when two or more
eonspeutive highs match paell other, thus giving the image of the two prongs of a
tweezers CExhibit a. 16), CSinee tweezers pineh, the connotation is that une trend
is getting pinched.) A tweczcn tvttoyn take« place in a decllnlng market, when two
suce€•ive lows are equal.
Ideally, the tweezers pattern should de',elop with the fLrst s ewion ineor
poratlng a lone real body. [n a deellnlng market, thls would probably a long black
eanclle«tlek; In a 11sLng market, It would as a lone white
The session is interesting because it has many variations. It's best—but

not ateoluteLy when thLs se—ion forms with a small lea] body. You up already
tamihar the eandle lings that Lnay this eomponent- For example, a tweezers top
rn*ht fin Ish with a hanging man, a
Tweezers to p T*eezers top Tweezers t cp and

hanging man
and harami and

dark cloud ewer
Ts•ee rs bottom T.•æezerz bottom and
harami and
pietclng
TEE COURSE
Tw—zers Tops and Tweezers Bottoms
9. Ideally, the real bodies that make up the three white eoldiel> pattern
should move in
a. an orderw with eonseeutivelS higher
n. a sideways pattern.
c. an uptrend that ineludes a retraeement
a. an uptrend that ineludes a don.
10. Why eould you eall three white the "good news, bad news' pat-
tequ?
a. Beeause the eandles look strong, but they are really weak-
n. Although the eandles are moving up, short selling is responsible for
uptrend-
c. The candle's is only a rebound in a l:earmarket.
a. a market that for three eonsecunve days may be in dan ger ot
bæo:ming owlbou
I I. Mateh the patterns shown in Exhibit3.1Ø with their candlestick term.
neo
an
•oo
A
Question I I
12. In Exhibit 3.20, which of these if*are) advancing three soldiers?
d. Both 2 and 4
TEE COURSE
Question 12
Answers [or Chapter Tiree, Section 'Iliree: Tweezeß,

and Soldiers
. a. The erlterlon for a tweeze's top Is that It must of two
eonseeutive candle lines that share equal highs.
2. c. The ideal tweezers top consists of a long white candle followed by a smaller
real body that. has the sane high,
3. c. A tweeæ:rs bottom that forrns at the potential eulmination of a decline eould
form a haranllpattelll with equal lows on both candle Lines. The nrst candle in a
bullish hararni is a long white real body that In a decllne. The seeond is asmaller
real body that r«des within the ovenlng
and closing pc-lee range ot the first candle. As long both candles haw
the sune low—whether formed by shadows or real bodies—the pattern
ean be deslgnated a tweeø•rs
a. On a weekly ehart.showing a top, this week's high would be the as last
week's high. The tweezers eompose•d real bod les, shadows, and/or doll.
Tweeærs oeeurs on a:mseeutive se—lons, yet are not a •våtal revexd
signal on an Intraday or daily chart. They take on extra Importance when
they eontaln other bearish (tor a top revelMl), or bullish (for a bottom
candles nek slgnals. For those who utlllze longer t.ime tweezers tops and
bottoms on weekly and monthly candlestlekeharts nuv represent
slgnifleantreversal patternx A low made las t week, or month, that
sueeessfulky tested, «•uld be a base for a rally. A low made yestenuy,
that is suecvsstul[y tested todQv, how ewr, Is lese; likely to hold as a
base, as the Mme Wame Is shorter.
5. a, The three blaekerows vattern consists of three falling eand]E6, all with
black real bodies.
n. Three black erowsappearas a top reversal. Consequently, this pattern
must enme during an uptrend.
7. a. With all c-andle patterns, the signal is only valid when the final candle
is complete. With this pattern it means the third black candle. As such,
It test used by longer term traders and investoxs. This ominous
signal gives a hlnt ot trouble vat:h the first black crow, which form as a
dark eloud eover, or other top reversal By me Orne me thlrd
black erow develops eompletew, it. is apparent that the are in eon trol-
But by then the market may have moved well off its h]g11Y therefore,
if you sell on this pattelu, you should have a longer-tenu wrspeetive„
d. The trend Is not tmpottantwith the three soliders. TN eondltlon for
the three white soldiers patten is that there are three white eandles
eaeh with a higher close and that each eloæ.s at or near its highs.
9. a. The real bodies that make up the three white y•ldiexs pattern should
move in an uptrend, and each white candle should elose with a higher
pllee than the previous earidle.
10. d. Thegood news: Three strong whlt:eeandles foreeast a market
moMng tn healthy rise. Not-so-good new* By the eompletion ot the
thlrd eand]e, the market be overextended or nearing a resistance area
In those
ætraees. When It Wunees oft supp:ut and shows signs ot resuming the
uptrend, a buying setup may emerge.
100 TEE COURSE
11. a. 1
i. 10
12. n. Three white or three advanelng is a Zroup orth:reewhffe eandlßtieks
with conseeutivebr higher closes, with each of the elosæs near the highs of
the session. These thrEQ white eandlestjeks wesage more strength if they
apLu•ar after a period ot stable pnecs or at a low priee
Disjointiid t:anrlles: Rising and
l"alling IV indous
n previous sections, weh,re studi«l Leversal patterns. These

suggested we take action, whet.her to open a new or apply money-
manageme:nt n_lles to close a position. Now we are golng to erPlore a
Japanese ecntlnuano:n p.attem that [mp[les the prior trend will tinue. This
peattern, ealled a w-indow, is synonymous With the Westernpattern
knov.rn as a gap. We'll diseuss the fundamental ec»neepts of winrlows
and how tlwy appky in different patterns. We'll also talk about general eon
eepts as they appbr to trends.
'n you learn .

The d.efinition of window
• How a dlffers from a falllng wlndow
• How aet as support and reslstanee areas
• Why closlng prlees are Important '*hert eloslng "Indows Why size
doe.sn•t matter wlth windows
• Where key support areas are in large windows Why It' s Important
to trade With trend
'o eh Ior:
• Rising window
• Palllng •wlndow
• Ptlee vacuum
S'1'AR1'E1i
102 TEE COURSE
In teehnjeal analvsis, we generalbr talk about two kinds 01 patterns:

reversal patterns and pattelli& By now you are familiar with the
action that takes plaee tn a reversal pattem, meaning a ehange in dlreetlon. If
you are a trader, you spend the majority of your time assessing ehalts and
looking for potential trend reversals; that is where you typieally enter and exit
positions. Continuation patterns suggest that the tænd before the pattern will
eontlnue, whether up or down.
A window is the sarne as a Western gap, but the Japanese havæ unique
uses for wlndows (detalls follow Ln this seetlon). A window means there Is a
prtee zone In whleh no trades take place, or a pnee vacuum. For example,
stock XYZ has a high at If the low of the next session is there is a
$2 rising "'indene. [f, however, stcek: XY has a low at {50* with the next ses
*ion's high at *48, we would say It has gapped down and therefore a $2 fatting
exists.
A rising er8ndou' LS a bullish signal. The p:riee vaeuum between me prior
eandle's high arid the eurrent sassion's low means the bulls are in control and
aetlvity between the prior law and the enrænt session's high shows the bears
are driving the market. down, with no eo:mpetition from the bulls.
The Japanese advise, "Go in the direetion of the window." ThLs makes
sense, as windows are eontinuation sigmaLs„ It the bulls are willing to skip
several levels and pay hlgher prlees tora security, then they are Indeed In
eontrol. Cc.nversely, If pnee6 are st. weak that bears ean toree thern to plunge
below a eprtaln range, then the s elling pre.*4urp is not to doubted.
For a demonstration of hcew gaps can be filled on an intraday basis, watch a stock
that gaps up a point or more al the open. Since some mavket wake a [Wing from the
or trading 111 the dir*tion from the gap no.'e: Ifa stock gaps h igher a substantial at
the openr the pro will sell [t short for a quick trade. If enough selling pres sure occursr
the stock wil drop enough to fill a portion, or all, ofthe price vacuum. (Please try this
technique yourself, un you are a experienced trader. inwlves extremety• high risk.)
Cine ot the most eonunon misundeMandings about and falling win dows
Is Ident.lh-ing the part oi the •an.dle se—lon that eo:nst.ltubx a pnee l:lrnlt
*'Ine thlnk that Ifrea] rodles do not touch, the space between is a wlndow-
This is Ineorreee With rtslng and fa]Hng wtndows, there must be a spaee—
whether nan•ow or wide—where le highs and lows do not inter
If shadows interspet, there is no window. There must a price vaclam, or
space between pliee lewls, for a window to tv valid.
One oi the mc«t useful offered to us by lisLngand falling windows is
sununed up by another Japaneee saying: "Coræetlons stop at the window. •
That means wlndows often beeome support and resistance areas. You ean
how thLs works In Erhtbit *.21, wndows aetlng as spnneboards of and
resistanee,
When a rising window oeeurs, the entire space of that window is eonsid
ere•d a support area. Theavfore, ifyou have a long position that just
cle•æloped a lising window, ean expeet that whidow to aet as suppolt if the
market pulls back. If the price to the of the window, but does not close belote
it, then support has not been broken. [f, however, me market eloses below the
window's bottom, then support has Wen broken. Con , the most
important area of a rising window is the bottom of that window.
The same LS true tor a falling wLndow. When a falling window forms,
the entire pllee vaeutuu establishes a resistance area. If you are eonside•ling
a
Ris ing Wiin

104 TEE COURSE
3.21 Rising and Fallinq Windows

shon stle, you •an regard the window as price resistaruæ when Of) the security
rallies. If thepriee ralhe« to the top ot the wLndow, but ci0ß not close above
it, that reslstanee stmtslntaet However, If the prlee through the falling wlndow
and eloscs It, me reatstanee area Is broken; no short sale should be enteæd-
Thus, the top of a falllng window is its eritlc»al reels tanee area.
In the next unit, you will find many different examples oi rising and falling
windows to study. Just as a pietuæ is worth a thousand words , these diagrams
and :æal-world •halts will help you understand more thoroughbr how
windows aet as strong components ot prtee patterns
Ouesiions for Chapter Three. Section Four: Disjointed C4mdles:

Rising and Windows
A rising window on a daily chart takE6 plaee when
two eonspeutivereal bodies do nat touch.
n. today's lower shadow is the s•unp as yesterd$s lower shadow,
c. today's lower shadow is exactly the same as yesterday's upper
d. None ot the above.

A falling window Is a
a. bullish eonnnuatlo:n signal.
n eontfimation signal.
c. bullish reversal signal
a. beansh reversal signal
. The minirnumdistanee for a ',zLLd window is

a. 30 cents.
n. I dollar.
c- any amount—even 1 eent.
d. 10 eerits.
The larger the rtsing window, the more
slgnifieantthe subsequent rnove should be.
n. larger the support
c. smaller the support zone.
d. more likely themarket will reverse from up to down. Whieh
part or me rising wtnctow should be s upport?
a. The top ot the window only
n. The bottom of me •window only
c. The entLre window a, The retracement level within
the window only
[n a rntüor downtrend, a bullish eandle signal tould be used to
a. WD short
b. go long.
c- step aside.
d. wait for the bonnee to eons:lder selling
7. When a beansh eand]e signal ernerg•s In an uptrendlng market, the more
the market, the vulnprahle it Is.
a, less
c. equally
d. has no bearing on the other.
. The more eandlestiek or Western indicators that merge together at the
same support or reslstanee area,
a. the more signlfleantthe move away from support or reslstanee.
n. the more likely a reversal.
c. the less Ilk-elv a revelsal.
a, None of the above.
[n Exhibit 3.22, whleh of the ehoiees is Care) windows?
106 TEE COURSE
3.22
TEE COURSE
a. Both 2 and g
b. All c- Both L and
10to1 to
Questions answer questlons
3
10 to 13.
10- Denne support shown by the rts:Lng window at

X-
a. 7Æ.nefrorn ID to
g n, Zonefrom 11 to
10 c. Zonefrom 12
to Il
I. What Is the most Important support area of this

[ising window at X?
12 n. 11
c. 10
12. Denne æsLstanee as shown by the falling window

at Y.
TEE COURSE
n. 10to 11
10t012
18. What LS me important reslstanee area of this falling wtndow•'?
a. 12
b. 14
Answer the next two questions based on Exhibit 3.24.
Questions 14 and 15
14. What pattern Is shown at 1B

a. Dark cloud eover
b. Tower top
c. Bullish engulfing pattern
d. Beartsh engulfing pattern
13, What is bearish eonflnuatian of this pattern? (Hint: There is asmall ing
window.) a, Candle
b. Candle line4
c. Candle line 2
d. On the black se—lon that eomplete.s the bealish engulfing pattern
Answers for Chapter Three. Section Four: Disjointed

Cxu•dles: Rising and Windows
1, a.Arisingwindawtakesplaeeon ehartwhentodw'slowisabove yesterday's
high. In other words, todaft lower shadow shoubd re—ide ato,e
yesterduVs upper shadow, with no overlap.
2. b. A falling window is a beansh eontinuation signal and shoubd aetas
resistanee on rallies. A beat-Ish eontinuatlon sigmal means that the down
trend In force betoæ the signal remains Intaet alter the signal. A rising
window is a billfish eonttnuatlon signal, whleh means the raw preceding
the nslng wlndow remains In effect after the rlslng wlndow emerges.
Therefore, corrections that fall to that. rtsLng window should use it for
potential support.
3. c. Witha window, size does matter. E•.pn if the window is only 1 eent
wide, it. is still valid. The window should act as support or ree;istanee,
dppending on whether It's a rising or falling window.
n, A large nsingw-indow means there isa big zone of support. Remember,
the entire window represents potential support, and we cloni know
beforehand how fu—or If—the market will pull into the window before
bounelng. Cholee LS not eo:rreet, slnee earidle ehart1nZ teehnlques do not
proleet moves. Therefore, even If a market has a large nstng wtndow, it does
not mean me ralri will be substantla]ly more powefful. s. c- In both and
ta111nZ windows, the entire wtndow is Lmportant. It becomes potential
support tor a 11stnZ •window, and resistanee for a falling window.
6, d. No matter what technieal tools you are using, you should always trading
in the direction of the ni4jor trend, If the major (long-tATn) trend is down,
and a bullish eandlestlek signal appears, you would be more pmdent to
use a potential bounce from this sma] to 9211 on a rally. Although the
candlestick pattern described in the question was bullish, selling rallies is
In llne wlth me bearish nature of me prevalllng trend. ThLs als::.. means
that it a tnalor bull trend Is In Bree and we a bn]llsh eandlestiek signal in
a dowll move; we could eonsider initiating a long position. That. action
would keep us trading in the direction of the major
7. n. One of the most important. enteria for usLng eandle eharts is to

remeunber that these pattems malnky offer reversal signals. If the market
is owrextende•d, either to the upside or the downside, the odds of a Lever
TEE COURSE
sal with a candlestick signal are enhanc«l. Therefore, if a beadsh candle

signal emerges and the market is •reat,ky owrbou.ght, the market ts more
Ilkew to revel—e.
b. Although we are ioeusLng mainE on candle ehalts this book, It should be
remembered that the power candles Is emhaneecl by eomblnlng them wlth
Western ehatt:lng technlques. Specifically, there is a strong Western
technical signal, such as a moving average that has worked well as support,
and a eandle slgnal appears at that movlng aver age's support level, the
ehanee6 of a turnaround ineleasp. Remember, though, that if a combination
of candlestick signals and Weste•lll indieators eonwrge at the same support
or re—Lstanee area and greatLy increase the Ilkellhood of a reversal, the
indieators do not project the extent of the move.
9. a. mndows are synonymous with Zaps Western teehrdeals. This means
that there should no priee overlap one se«on and me prior seslon-
Examples 2 and a display falllng and rising windows, respeetively. In
examples L and 4, although the real bodice are not touching, these ate not
w-inllows since the shadows overlap, With windows, no part of the candle
line, IneludLng the shadows, ean overlap.
10. n, The zone of support. for the rising window is the whole window. In this
exhibit the window runs from Ll to LO and as sueh beeoruee a potentlal
support zone.
I . c. While the whole zone is potential support (fmm Il to 10), the pivotal
oi rising windows is at the bottom of the window. In this exam
ple, the ot the window Is at 10.
12. c. The falling windoVs zone oi re,sBtanee is the elitire window. In this
exhibit, stnee the market gapped down trom 12 to 11, that bem:mes the
reslstanee area.
13. a. Even though for a falling window the entire window is
lesLsta11Q, the most Important resistanee LS at the top of the
wlndow. In this ease, the top of the fa111nZ window Is at 12.
14. d. The blaekrea] body wrappinzaroundthewhite real body In an
uptrend fotms a bearish engulfing pattem.
IS. n. Although a beallsh engulfing is a top reveral signal, It LS ent:leal to p
laee the eandles In the context tu%ent market aethlty. [n this example, the
white eandle of the bearish engulfing pattern gapped higher than the
session and in doing sa formed a bullish nslng
1 10
window. Therefore, we have a bearish engulnng pattern that formed at the

potential support of a bullish rising window. Based on the theoly that a
rising window should support, one would have to walt for a close under
this rtslng window to eonflrrn the beallsh of the bearistl
engulfing pattern. The elase under this nslng wlndaw came on ses sinn 4.
Obser.rp how at sesion a the market did break under the rising windows
support on an intraday basis, not a closing basis To eonflrm a break of the
window's support one would need aelow underthe bottom of that rising
window. This creture•d on se—ion 4.
TEE COURSE
Taking
Opportunities
s the Japanese proverb states, "Make uw of your opportunities." In thLs chapter

I show some practical applications ot how candle Charts will let you take
advantage market oppoltunjtie—. The examples in
Szetion 1 01 this Chapter pmvlde Illustrations oi the following real-world
• Using candle charts to preserve Capital

• Elow eandle charts give earkv rpveNd signals
• How ean.dleeharts ean confirm suppolt or resistance areas
• Llsinz a eonfluenee oi eandle signals to eonflnn support or re€stanee
• The ease of eomblnlng Western technical tools with earldle eharts
• Obtalnlng a prlee target
• Harriessing me Insights of the eandles to enter and exit a trade
• Using intraday trading signals
• The technique of using a longer time frame chart to get support or resiE+ tan.ee
and a short time frame to issue the buy or sell Signal
2 Cit thls ehapter applies me tradlng preeepts gtve:n In Chapters One, Two,
and Three. Keep tn mind that the technlques shown In the rest ot this chapter ean be
applied to any market. you ale trading—futures, equities, fixed-Ineome—and any
time frame—from a I-mlnute to a 1171011thly chart In addition option traders ean
also ll.se candle signals as a timing mechanism. The exception to this universality 01
use for candles is that the market has to
111
have an open, low, and elose„ nek charts and daily mutual funds, forex ample, can't
have candle charts, sin.ee both only have ekæs„
Chapter Four has two goals: to bring together some of the eoneepts addressed In
the prevtons ehapte1Y and to tolleh on some of the more advaneed tradlngeoneppts
that alp the focus of my other edueatlonal matenals Cas dptailed in the eonelusion on
page 205).
TEE COURSE
roperly used, eandle "halts not onbr help improve profits, but they al"' assistin
capital. They do by helping you avoid a potential trade or exiting a profitable trade
early. Exhibit 4.1 shows an example of the latter. The clashed lines In Erhibit 4. I
show a rests tanee area near 1g:3. A tall white eandle pierces this reslstanee In earw
March. For those who were already long this index, this was a green light. to remain
1 14
long. But olwprve what unfolded the next session—the dojL ThLs doJi line
hinte•d that ul.e bulls had lc«t full ot the market It does not mean
that the rears have taken With thls don, one should eonstder taking profits,
mo•nng up proteellve sell stops, or sel[lng calls. This Is a elassie example of
the power of eandle charting teehnlques•: WIth1n one session we were able
to glean the visual clue via the don that while the market was maintain)ng its
highs, the dou shouted that the bulls weæ not in complete control. So whLle
the market looked healthy :huu the outside, the internals shown by the
doll) weli2 reÄ'1ne the message that the market was not as healthy as It Thls
market was , as the proverb states, •Like a leaking boat brightly palnted.
A key eoneept is that the mole teehnieal signals that emerge at the same
support or lesistanee the higher the likelihood of a æ.rersal. This eon vergenee
eoneept ean be appHed with ean.dles and We—team tæhniques„ That is, If a
eandle signal eonnrms a Western tæhniea] signal, as the Japanese pavverb
says, like the right hand helping the left. The charts In Exhibits 4.2
Taking Ewantage of Market Opp
and 4.3 are examplee oi the eæe and power with which one earl merge ean dle
and Westelu charting Exhibit 4.2 shows how candles ean eonfl:rrn
support and how we ean use Westem toehnleal tools to get a pnee target
Exhibit 4.2. dlspnys how a eandle signal helped eonflrm base.
Exhlblt 4.2 shows how a gravE8t.one doJi helped IVInfo:ree a resistance
zone near 420. Another teehnic»al signal at or near the same pric•e area of the
grawstone doll amplifies the eandle signale signLtiean.ee. As in Chapter One,
a limLtation oi candle charts is that they normally don't pHee targets. Thås is
TEE COURSE
why classie Western teeludquc•, such as or resistanee Hnos or pivot highs
or lows, Is so Important, slnee you use thesa levels as targets. With t.hls In
mlnd, let's turn c.'lr attemt]on to the sarne chart Ob.splve how this market.
was Ln a box range (discussed in Chapter Ong Section Three) of about 420
to 370. Onee the gravestone eon firmed une top end oi the box range at 420,
a u-adereould consider short with that signal [with a stop over the top
e•ndofthelmx rut geo with a target to the tott0Ln end of the tox ranqenear This
0b' eet:ive was quickly meet.
In Erhlblt 4.3 a bullish engulfing pattern that took on extra Imponanee as a turning
signal Is hlghllghted for two reasons. The fLrst was that the lows ot that bullish
engulfing pattern eonfirmed a potential support level set. by the lows made in late
January. The second eons Ideration Is that, although a elas sie bullish engulfing
pattem has a white candle wrapping around a pnor black ean.dle, this bul]åsh
engulflngpattelll had a white eandle that engulfed the three pnor srnall real bodles
(one of whleh was a dom. Though thLs aspeet dcesn't forecast that the market will
move mueh higher than It would with a regular bullish engulfing pattern (vpmember,
candles don't give tar gets), it d0E6 greatly improve the ehanees of a turn and thus
makes a buy more attractive,
In ul.e exhibits 4.2 and 4.3 Ltouehe•d upon eombLnLng candle chadång tools
with Westem teehnieal analysis (please note that this book onb touched the Mp of the
leeberg 'Mth this eoneept Please see mneluslon tor more souree materlal on •w:ws to
eornbl:ne moving averages, volurne, Bollinger bands, ete
Candle signals eonverge, just. as Western technical indicators do. This means that
if you more than one candlestick signal eoniirmLng support or
port area set by a bullish engulfing pattern, the likelihcod oi a tum Ineæa»æ. Exhtblt
4.4 Illustrates what eall a confluence of candles. ThLs ehart also shows that eandle
ehalllng teehn1qne6 are easl]y applleable to intradguv eharts Paxlublt 4.4 shows a
bearish falling wndow, or resistanee zone, from SO to U02CL Thus, one eould
eonsiller selling on a nove up to that win dow. The stock got to that level at candle
line A gut although the was at resistanee, would one 9211 shon with a tall white
candle? I wouldn't reeornmend that, even the market is at a resistance level! Notice
what un folded after eand]e line A: As shown at area B, the market formed a senes
of small real (aka spinnlng tops). Thesa real bodies tell us that the hulls were tired,
eonflrnung the market' s hesitation at the tanee zone set by the falling window. This
eould a goo:l time to sell short. Of if the market closed wer the top oi the talllng
window (I.e., one should æeonslder being short. As such we had one ean.dle signal
(the falling win dowl set the reslstanee area and another eand]e signal (the srnall real
btxlies) reinforetne that s upply was stevong in at the wlnctou€s resLstanee.
Beeausø candle Charts often send out revel*ll signals rnneh stoner than bar
charts, eandlps wtll slune at helping yau improve market. timing Indeed, some of
ouradvisory ehpnts ll.sæ fundamentals to decide whjeh marlæts to buy or sell and
then the candles for timing these buy orsell times. Exhibit 4.5 illustrates how a trader
might use the candles to enter or exit trades.
TEE COURSE
117
A hammer tonus on May 7 (the uppershadow was small enough to make this a
hanuner). This, in eonmbinatlon with une seate« ot bullish shadows shown at A and
B, was a strong Indieatlon that the market was trylng to build a foundatlon tora rally.
One eonld buy on that harnmerwlth a stop under the low of the hammer, In the next
sesion the market fonned a rLs1ng wlndow, whieh was another positive signal. A few
clzws after this rising window the stock but the bottom ot the lislng window
malntained itself as suppolt based on the (remember that it takes a close under the
bottom of a window for the wtndo«s support to be broken). SLnee this support held,
we would stay long [n the week of IA, the market moved The emergenee ot a
engulfing pattelli near at a reslstanee level defined by the highs of April i 0 (shown
by the dashed line) was a st.long in dieatfion to take profits from the longs
an the hammer ion,
In Exhibits 4. BA and 4.6B show just one oi the many ways a trader ean hamess
the powerofintracÄv candle charts to get a leg up on the competition.
H and Blo:k:Dally•11Jslng Intraday Candle Sign also

T”g ,甿 g Of ,"k tOppo , m , tm
TEE COURSE
E 1 4 Awe b 1 suppo n r 4 竁Ⅲ p n 丨 blⅢ h IguⅢ llgl「n 嗎

Olltl week Ⅲe Tl wss
thesetwobIllhshengulfingpatternswassueee.ssfullydefendedonJu
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,:bt d 0111the 1y41 t |山比〕ne , v was 寸心 nedbya 1 1 r.

orewee 1buy 罒 h n a ed.罒忭 m 鬮 t eh nn:rt a、p 心 4、de『
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欁 r 仩(d 旧 bt n rt。dth 吜& “ ter
time frame's candle signal (a 3-minute chart) to place the trade. This eonee•pt
ean be expanded to any two time frames. Thus, for example, you could use a
weekly chart to get a support level and it there are any bullish eandle signals
on a daily chart as the stoek gets to this support
122 TEE COURSE
SIVI'ION
Trading C/lidelines
n Section One or this chapter ] gave some real-world examples so you

could get a fee] tor how to apply the tools and techniques of Chapters One to
Three. Now we take the next step by listing the pivotal trading eon eepts
explained In the preceding chapters.
A note of eautlon: Market eond1Mons afteet some of me precepts listed
Aeeorlling io one of the guidelines below, northern doji are nonna]lv
more signifleant than southern dajL Whl]e this is generally true, if there's a
youthern doli eonflrminz a major area, you ean be assured that I would pay
close attention to that do]i. This to the fore the Importanee of looldng at all
eandle signals and trading guldellnes In the eontext of the market
envlronment.
• As the real 'x:xiy gets smaller, it implies that the prior trend is losing
• The larger the real body, the greater the force under-vinnlng the move.
• The more teehnleal •als , whether Eastern (eand]e6) or Western, that
eonfirm the same support or reeistanee level, the greater the ehanee for a
bounce from support or deeline from resistance.
• Nort.tP1u doll are nonnally more sinutieant than youth.ern don.
• A wries of lonz uppe•r shadows as the market is asc•endlng implies that the
bulls do not have full eontrol.
• A sarles ot long lower shadows as the market Is falling hmts that the bears
do not have tull control.
• The rising and falling windows are, reesveetively, bullish and beansh eon
tinuatian indieato&
121
• Doli in not atradinzsignal, sin-æt;hereisno trend to revel»•.
• Candleeharts are used as a tool, not a system.
• Res:lstanee or support not coruslflerecl broken unless by a elco•.
• If you see a reveNd signal, eonsider Initlatlng anew pcsifion only if that
signal is in the direction of the major trend.
• Never place a trade yü.h a candle signal until you have the ris
lo'æward oi the potential u-ade.
• Candle signals can denote appas of suppon and resistance.
• Candle Indleators do not offer prtee targets.
• you should watt tor the e lose to eonnrrna candle *nar
• A hanging man needs headsh eonfirmat.ion by a close under the hanging
man's real body
• When analyzing a single eandle me, one should wnsider both the real body
and the shadows.
• Remember the tmpm•tanee of stops.
• The entirespaee w-lndow isa area,
Mth the most portant area the of the rising
wlndow.
• The entire area of the falling window is a rE8jstanee zone, with its most
important area the top of the falling window.
Progressiw
Charting
At my seminars one of the most frequent questlons Is, "What's the to wayget
eomrortable wlth candle eharting reehntques"Y Is to print out a ehart, plaee a
blank piec=e of over the ehart., and hlde al] the candle lines, Slide the blank
piec-•e of paper from left to light, re.;ealing a sLngle ean dle line, or a few
candle lines, ata time. Looking at the exposed single eandle lines (or a few
124 TEE COURSE
candle lines) the student eandle ehalis as.kx, "What signal do I and what are
the market applications ot the SlÄ1al?"
To relnforee the material presented so far, we wlll do somethlng simila—
we will a single market bit by bit. We 'Mll Imik at five months' worth of data
on a eandle.stjek chart, golnga day or afew days at a time. One Chart 'Ml I be
broken into 44 parts, w-ith each part another d&ky or a few cuvs Into the next
time frame. For example, elun 3 has eandle mes ending on June 15 , and chart
has the same candle Lines in chart g plus the next see4t.n's candle line.
The teehnlques diseuss•cl In the answer seetion are related to the Ideas
already presented tn this book Some ofyou who are vet* familiar eandles may
see signals in the charts that are not addressE8:l in the answers. This was done
bpeause same candle patterns and teehniquE6 are beyond the szope ot this
book. Nonetheles even with these basic ooneepts, using this section will let
you get up to quickly, hamessing the unique LnSlghts provided by eandles
125 TEE COURSE
For each of the 44 Exhibits, ask yourself these questions:
. What signal do I Of any)?

2. What are the potential Implleattons of that slgnal?
3 How is this earidlestlek line related to the prior pnee aetton?
Are there any other aspects of reeent or pnor prlee aetlan that are inm
portant?
At the end ot this sect:lon I will ove you my observations. These are denoted in
ExhLbtts to
51 1
125
Questi6n
TEE COURSE
Question 5.2
Que stion 5 A
Questi6n
Prog ressiM€ Chay ting
1 26
Question 5.4
TEE COURSE
127
Question
Questi6n
Que stion 5.7

TEE COURSE
Question 5.8
Questi6n
Question S.IO
Question I
TEE 匚 0 ST 丨〔
0 SE
n 513
TEE 匚 0 ST 丨〔
0 SE
• on 514
515
• on
TEE 匚 0 ST 丨〔
0 SE
• 0n 518
Q
• on
TEE 匚 0 ST 丨〔
0 SE
• on
TEE 匚 0 ST 丨〔
0 SE
를 CANDLESTICK ;를
Q
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如•`t[미 1 5
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1 궃` `t[이 1
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1 覃` ㉡책• `t|이 1
1 궃` `t[이 1
1 覃` ㉡책• `t|이 1
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TEE COURSE
1 覃` 5.4
㉡책•
TEE COURSE
Question 5.44
Iin Exhibit 5.43, although the market was asændjng, the extended upper
shadow of the candle fine at the arrow retleets that one ot two things was
happening: Either the bulls were retreating as the market appnoaehecl the
upper end of its dally range, or the bearB had enough foree to overwhelm
the bulls. lil either sepnario the result is the same: a market whose rally had
stalled as it approached the upper end of its trading range and then closed
near the lows of that session. This candle line is a shooting star, which as the
Japan.W2 say, represents trouble overhead.
In Exhlblt 346, the potentlal beansh applleatlons of me shoot]ng star
were reLnforeed In thls se«on wlth a long black real body that wrapped
around the small white leal body of the shooting star. The lesult was a bear
ish engulfing pattern. This [pinforeed the af a top (if the bulls had
had enough wheæwlthal to push the market above the high oi the shooting
star, that would be a bullish breakout). I want to pointout something inter
est1nZ about this beartsh engulfing pattern. Whenyon see a bearlsh
engulfing pattern, you may think it resembles a Western key reversal or
out:slde day. A
147
Answer to Question 5 . I
Answer to Qu ion 5.2

TEE COURSE
key æ,rersal day, or outside day, takes place when the market makes a new
high during an uptænct It then falls to close below the prior day's close,
resultlng In a signal. WIth thLs engn]flng pattem, the seeond ses that made
up this pattern , the blaekeandle) did not make a new for the SER ion,
Therefore, if this was a bar chart, there would have been no reversal signal via
an outside rpwrsal session, All we for the bearish en gulling patlern, howeW1,
is a black real body wrapping around a white real body, which c•eeuræd here.
Consequently, we were able to obtain a bearish rewrsal signal on the
ean.dlesuck chart that was not avaLlable on a tradi nonal bar chart.
In Erhlblt 5.47, a srnall falling w-lndow adds further bearish applicatlons
to the bearish engulfing pattern. Although It's a small falling window (with
windows, size doesn't matter) ih is window now rep:rEfA1ts a potential reels
tame area.
In Exhibit 5.48, the falling window' s re•istanee level was eonfL11ned
with a long black real body. Although there is a black real body wrapping
around a whlte real body, this was not bearish engulfmz The reason Is that a
Warlsh engulfing pattern eomes after an not during a decllne, as was the here.
Although this was not a bearish engulfing pattern, the
dow
Answer 5.3
to Question
to Question 5.4
fact that there was an extended blaek real body does further dalT1age to the
toehnieal pieture.
Ln Exhibit &4Ø, for a few s ewions after the long blaekrval body, the mar
ket continued its deseent The smaLlreal Ixxly white eandle shown here, with
Its extended lower shadow, does take beansh stearn out of the market weause
of the bullish shadow. In addltlon, It was a sueeessfill retest of the pnor
sesslon's low, tormlng a tweezers TAMS eanclle line, although eonstruetive
of its extended lower shadow is not a hammer Why? Beeause for a hammer
the lower shadow must be at least two times the height of the aval body. This
lower shadow did not meet that entex-ion.
A rally du.ling the next session game by ot a small Idslne window and a
high wave earidle. The wave eandle; with its extended upper lower shadows
and small real btxly, lessens the 'bullish applleations ot the ra]W. However,
there was not a 111Qior trend to so we should not view this as a strong bearish
reversal signal sinee the market was not overbought. and henee not vulnerable.
The real body of this candle line in Exhibit. 0 was small that we ean also
view it as a doji, and it earl also be ealled a high wave do' L
TEE COURSE
to Question 5. S
5.6
to Question
The rally eonånuee in Exhibit 5.51 anothe•r rising window (rising

window and another high wave candle. This high wave candle has slightlv
more ornl:nous implleat:tons than the prlor Illgh wave eandle beeausa the
market Is now at a reslstanee area, as defined by the falling window n•om
the prior week Consequently, we look for support. at the nslng window at 2
and resistanee at the falling window
Ln Exhibit 5.32, a black leal body wrapping around the white leal body
fonus a bearish engulfing pattern (this was a bearish pattern
cause the Plior trend was up). While this bearish eligulflng pattern is eon
firming the falllng 'Mnctoxes resistance, the rnarket Is stlll holding the
support denned by nslne wlndow 2-
The market remains entrenched in a Ubattle af windows • in Exhibit
as the falling window remains resistanee and the rising window is eon firmed
as suppoai 'ha the white eand]e. The white candle in the prior black lea] body
l•nks like a plereLnZ pattexu, but it is not. This Is because apiereing pattern
as a bottom reversal slgna] must eome after a downtrend. Instead, this eandle
came after an upw•lateral market.
Here LS a rally followed immediately by a black real Wdy that opens
to Question
TEE COURSE
Answer 5.7
Answer to Question 5.8
to Question
Answ•r 5.0
Ln Exhibit 5.67 the market was higher via a tall white eand]e,
shatteldng the wLndow's resistance level. In spite the tall white leal the
stoek is now near a potential reststanee area denned by the breakauW gap
Cwhleh is me same as a fa111nZ window) n•om early Deeember. As such,
ane should be eautious about. buying at this close, bemuse dolng so would
mean buying at a rE61stanee level.
Now Exhibit shows a tug-of war between the rising support line as a
floor and the bæakaway gap as a eefllng. This action shows us a vowe•ltul
ad vantage oi the candle charts In that they ean help eapital. As talled in
question 529, although on the prtor tall white candle sexton the rnarket may
have looked healthy, we would Ilkew not have Zone long be• cause th is
white eandle was near a resistanee area set by the breakawaky gap. Thus,
using candle charting techniques (aka the breakaway gap as tanee)
keeps us prematurely going long and thus avoid a potentialbr trade.
Properly used candles will help you preserve capital.
TEE COURSE
Onee again this market gapped down under a support area, fonning
another breakaway gap, as shown tn Exhibit 3.69. Thls now beeomes
restsranee,
to Question
TEE 匚 0 ST 丨〔0 SE
Exhibit 5.70 eonfinns the resistance area by the breakawav gap diE+
cussed In question This candle line; wlth Its long upper shadow and small
real body near the bottom end of the trading range, has the same eon
figuration as the sh.coting star. But a sh.cotinz star must eome alter an
uptrend. This candle came aner a *holt-term downtrend and thus would not
be called a shooting star. However, Its long upper shadow and near the lower
end of me se«lon does have Eeartsh Implleatlons
A bullish eounierattaek pattern emerged in Exhibit 871 a.s the market
opened sharpkv lower than the prior session' s elow and then bounced haek
to close at the prior se—lon's elc•e. This is a strong implication that the bulls
were stalüng to grab eontml ofthe market from the bears. This bullish eoun
tea-attack pattem has extra significance bæausv it's helping eonfL11n a sup
area defined by me mm-Deeember lows.
The rally after the eonnterattack patterm Is stal]hng at the fal]lng
vhndou€s resistanee level in FA111bit 5.72. Therefore, we would need a
elow above the top of the falling window to show that. the bulls are In
eonn•oL
Chi this s esion In Exhibit 3.73, the market propelled itself above the
falling window' s lesistanc•2 area and Is now approaching potential
resistance denned by the most reeent high in early January.
Prog ressöv€
As we see In Exhibit 374, the market retreated fi•om the potentlal reeds
tanep area in early January, However, slnep the lows of the past few ses
*ions are nearkv the same, we get. a sense that the market was trying build
a baw for a potential rally. This potentla] was further enhaneed by the ecun
pletion of the bullish engulfing pattern when the white real body wrapped
around the black real body. Whlle the market was buildång a floor, if you
went long, you should remember that a elc_o• under this support are<l sat
by the past eouple (Qys would be vtewed as a t:eansh signal Llslng stops Is
a "ital element Ln any trading plan.
The rally from the bullish engulfing pattern in Exhibit 74 is
stalling at a falling reslstanee line obtained by eonneet;ing the highs from
late Lieæunber and mid-January in Exhibit 3.75. A harantl pattent (In which
a small real body—in thls ease alrncet a doaj—is wlthln a pnor long real
body) reinforced the slgnhfleanee of thLs falling reslstanee I
In Exhlblt 5.76 the rnarket gapped over the resistance area set by the
falling resistance line detailed in Erhlbtt i75 above. This opened a bullish
ing window. With the aetian, any of the potential beansh appheations of
the harami in Exhibit 5, 75 are negated. With this rising window as potential
sup-
o』t,顰프
TEE COURSE
%.7 품 Answer to Question 5 31
%.76 Answer to Qu •soon 5 32

port, where do we have potential resistance? For that we turn to the early
Deeember high at the top the evening star.
Prog ressöv€
The hlgh wave eandle stalling near the area from early
Deeernber shows IIS that the rnarket ts now eonfused in ExhLbtt 3.77.
However, the new hlgll for the move on that seeßlon keeps the trend slightly
positive.
The liblt that the high wave candle was signaling a potential rewrsal
failed to mateaialize as the rally pushed this market a resistance area in
Exhibit The uppershadow ofthLs white real slightly offset of Its bn]llsh
Impact. This eonld be a very small stgn ot the warmlng that the market might
having so:rne trouble as It approaches the malor reeds tanep set by the dark
elond eaver in Inn-November,
The black real body in Exhibit 5.70 completed a bearish dark cloud
eaver. For potentlal supp:xt we eould look to the alsing window it-um early
Febru ary„ Keep mind that although there is a [ising whidow, that doe— not
neeessarlky mean the market will be drawn like a magnet to that w-lndow"s
potentlal support are«
The blaek real Wdy shown In Erhlblt 3.80 wrappLng around the prior
white leal body Is not a beansh engulfing ßlttern- Although this combinatlon
of eandle lines is eorreet for a bearlsh engulfing pattern, these two lines came
Answ•r to Quest lon 5.33

170
Question
after a decline. As we know, a headsh engulfing pattern must corne after a

rallv for It to be a top revpusal signal.
A senes of white real bones in the last two sessions and the markeft mostly
higher highs and higher lows over the las t week keeve the short-term trend
up In Exhibit 3.81. However, it is now approaching a resistance area set by
the dark elond eover„
The appearance ot me Warlsh engulfing pattern that was eompleted on the
black real body in Pmhibit 582 reinforeed the importanee of the rE8is tanep
at the dark cloud eover.
In Exhlbit. 3.8:39 another healisll engulfing pattern adds onto a top built
by the prior beansh engulfing pattern and dark e loud ewer. However, a
support area defined by the lows of the lows of theprior sessions isholding„
This puts the market In a
The black eandle on the session shown Ln Exhlblt 584 breaks a multiweek
sum:ort level. The bears amp now in eontuol.
In Exhibit. a falllng window is nowpotent.ial reelstanee. Thus far, the late
January LisLng w-indow is now next potential support. While thLs eandle

TEE COURSE
line has the su-ne shape as a shooting star, It is not as such because it came
after a decline rather than a rally.
white real body, forming a dark cloud wver. This beaÄsh signal in Exhibit 5.34 is not
surprising sinee the dark cloud eover emerged at the resistance level set by the
engulfing pattern bullt a rew weeks On the tup we eould look tor suppolt at
rtstnZ wlntlow 2.
The under the support at rlslng w-lndow 2 naw means that the next
potentialsupport area is at rising window L in Exhibit.
Cr•er the next tew sewlons the market began stabiliz.ing above the support wt at
the Idsing window. At the last two eandle lines shown In Exhibit 5.56, there was a
white real closing into a pc-lor blackreal How ever, thls was not a elÉL«e pierelng
pattern beeause the elose of the white real body should be above the middle ot the
blaek real body (shown by the dashed line). Although this is not a elasåe piercing
pattern, heeause this was the first. white candle in five and this white candle held the
lows of the prior two sessions, we get a sense that ul.e market is trying to bulld a base.
Ln E..xhiblt 5.57 The market is expanding on the base detailed In Exhibit above.
[n Exhibit a tall white eand]e that penetrates a realstanee area by the last four
sessions puts the bulls baelc In eontroL An earlier Indieatnn that
TEE
드夤|IOL[드 Tl〔K COUR 5
Answer to Question 도 1 1
Answ•r to Question
TEE
도12
Answer to Question 5 .13

COURSE
the bulls weæ gaining some momentum game with the series of mostb'
higher lows prec«ling thLs tall white candle, displayed as a lising support
l]ne. This formed an ascending mangle that showed that the buyers were
more eage r to buy on prlee dips. This ascending tllangle bllnes outs a •.1tal
elempnt. about. eandle charts They can uw any teelmlque that ran be on a
bar ehart, because the candle chart lisps the same open, high, low, and close
data as a bar Indeed, 1 strongly rem:nunend merging u-aditional Western
technical analysis with candle charts. Such a eomblnatåon WI]] fur ther
enhance the power oi anabrSls
While the rlslng support line Is sull Ln foree In Exhibit 5.59, me high
wave eandle Zlves us a sense that the upslde dllve nught be losing some
momentum The new high elase forthLs move on the high wave candle
session keeps the short-cerm trend positive, in spite of the high wave candle.
For beansh eonnrmation oi this particular high wa•æ candle, theæ should be
a close under the real body of the candle to confirm that the beaxs have taken
In Exhlblt 5.60 we got the bearlsh eonnn•natlon detailed In queenon 15.

T'hls session, when combined with the prior two seslons, forrns a elassie
evenLng star patter1L Although this is a bearish pattern, selling short heæ
would not have an attractive prome because the market Is still
holding that lislng support line. Therei0F2' if you 92]] on the eke? of the
black real you ale selling at support. (The entieal eoneepts of rlsk/ reward
and money-management technlqnes are dlseuss•d In detail in my other
products as tn the conclusion seenon.)
In Exhibit 361, me market opened a Zap under the rlstng llne. Por those
familiarwith classie Western ieehnieal tcols, a gap under a support or
æsistanee alpa is eallEA:l a breakaway gap. (Remember that. the terms gap
and wLndow are synonymous.) This gap, or falling window,
should bæome resistance sinee a falling window is resistanee„ Although this
breakaway Zap Is now reslstanee, we stm have the rtslng window trorn the
pnor month as support
Another gap down (i.e. a falling window) and a new low for the move
puts the In eontrol in Exlublt S.62.
As shown in Exhibit after a period of some stabilization in the nücl dle
oi Deeembpr, the market rallied and then stalled at the falling window via a
bearish engulfing patte1T1. Remember that the whole window is resistanee.
As sueh, the resLstanee ean begin at the bottom of the falling wiridow, as It
Md here.

TEE
Although the entire spaee of a falling window is resistance, the most
entjeal area of resistance for a falling window is at the top of a falling
window.
157
5.16
Answer to Question 5 .19
Consequently, Ln splte ofthe new high close for thls move on thls eandle line In
Exhlblt 36*, Its small real body hlnts that the top of the tal]lng wlndow would
maintain itself as resistance.
mth the candle line in Exhibit 5.86, we now have an evening star pattenl. Although
this is a beansh turning signal, especlalb' sinee it eonfirmpd a falling
resistanc•2, we still have to look at the suppolt line as a potential support uea. Thus,
ifyou x-•ld at the third se—ion oi th)s e',oenlng star (that LS me s eslon that eompletes
this pattern), you'd se111nZat a potentlal suppott area. Onee agam we me
overwhelmLng importanee of thinking about the liskfrpward af a trade based on a
eandle slgnaL
Although the market. has been tweendinga]ong the slope set by the rising support
line in Exhibit it is now at a pivotal resistance area defined by une top of the falling
window. Since this Is a tight support/resistanee range over une next or two, one of
thew levels should be breached. Elther we will see a break above the top me falling
wtnctow, which would a bullish signal, or a elose under the ascending support fine,
whleh would be a beansh slgnal.
160 TEE 드夤|IOL[드 Tl〔K COUR 5
VA Answer to Quest on 도20
14` Answ•r to Question 도21

171
112 TEE 드夤|IOL[드 Tl〔K COUR 5

Answer to Quest on 도39
Answ•r to Quest |이[도40

171
The black eandle brc.ke the rlslng 'Mnctmes support level Exhlbtt 586. A point
to remember is that onep a window's support. IE"IPI is breached, that window is
Willed. In other words, if the market. rallies after the break of the window's
comes back to the broken windo«s support, that win dow should no longer
be 'hewed as support. With the eurrent candle line, the market, on the plus side, opens
a srnall rlslng window. On me negative slde, thls eand]e fine stalled at the falllng
wlndoxes realstanee. WIth such tight and resistance; the market should break
out one way or the other in a day or two.
The eandle in Exhibit. 3.87 shows that the bleak was to the downside as une
pHc•r lis:Lng window was breached Notice how the high oi this black eandle
stopved at the falling window 's resistance.
[n Exhlb:tt this sessionrs beansh shadow onee again hlghlights the
*ntneanee of the falling windows resistance.
THE COURSE
173
Bringing It
All Together:
Charts
his is where we bring It all together. The pages that follow give you an
opportunity to take advantage of Interaetive work%hop material, lneluding real-
world, hands-on praetiee eharts. Through working with them, you will appky what
you've leamed in this eouvsp hook The goal of this seetion is to provide a mechanism
to detennine your level ot eomtoat vü.h candle charts, and the detailed answers help
to further refine your
The eharts show that whl]e eandle stgnals give valuable tlrnlng for entering and
exiting the markets, they are not 100K. aeeuraie. A chart might show, for example, a
bullish harami pattern with the market falling after the emergenee of that bullish
signal. TILLS is why stops are so important. h•kv goal is getting you eo:mfortable
with recognizing the pattexus—even if they dont work as forecast.
• How to determine suppolt and æsistan.ee levels for lising and falling
• How to detennlne the rlsWreward .eets of a potent-lal trade

• To know when to stand aside and when to initiate a trade
• Elow to tell if a trend is gaining or Iceing fcn•ee
• To name candle patterns on a chart
• How to obtain bearish and bullish confirmation tor a candle signal The
imponanee ot viewing candle signals within market
177
TEE COURSE
The Importanee of multiple layers ot confirmation Ior suppolt or
The Irnpollanee of trend in detennlnlng a eandle signal
hey inns few:

Bullish engulfing pattern
window
Morning star
Northelll don
Reslstanee
Shoot1nZ star
Southplll doji
Real-World Charis use ExhLbtt 6. I

for questions 1 and
1. For areas A, B, and C, whieh Is a window"? A falling window?
2, What are their respee•tive support and resistaneezonps?
Use ExhLbit 6.2 to answer questions to 7.
Highlight the three rising windows befOre candle line A on Mareh
on these rising windows, where would support. levels be? If the
nrst supp:ut at the top Idsine wLndow was broken, where would we ex
peet next support?
s. What Is the earidle llneatX?
. If at line X, where is a potential resistance area? Oünt_: Conneet hlghs
fro:rn A and B.)
7 on the question above, would a buy on the elose of liner wesent an
attraetlve :nskfreward profile?
use ExhLblt 63 for questions S to O.
TEE COURSE
8. What are the candle signals at 2, and 4?

9. At a.æa A, how weæ the candle ILne« hintdng that the market was losing
bulllsh mornentum even though the stock was making higher hlghs and
hlgher
10- In earw March (area B) the stock made another••:ries ot higher highs and
higher e10SE8. What were the eandlestieks hinting about the extent of
the bulls' controt?
Use ExhLbLt 64 to answer questions 11 and 12.
l. Name the four candlestick signals at L, 2, g, and 4 that underwoæ
support near $75.
12. What happened at signal 3 that gave this market a fill-ther bullish out-
use Exhlbtt 63 to questions 13 to 18 Highlight

the rising windows.
14. What. are the candle signals at X and Y?
Is X apotentially bearish signal? Why or why not?
10. Would you sell on the ekwe of Dne X? (Hint; Note X's low and the
session's high.)
17. What would be bearish continuation oi the potentia] negative candlestick
signal 1:1ne at X?
What would us to reasses a Warlsh •mew bas•cl on signal Y? Use
ExhLb1t 66 to answer questions 19 to 21.
What are the patterns atA and B?
20. What. were the two aspects thatmade pattern B more likely a bottom re-
21. After the week oi October S, why was there support near $23?
use ExhLbLt 67 for questions 2 to 24.
22. What were the signals at A, B, and C?
Ellghlleht the haraml patterns on thls eha:rt.
24. What was slgn1Heant about the two eandlellnes at C?
Use ExhLbtt 6.8 to answer question 25.
25. Whteh of the numbered lines ale hammers
Use ExhLb1t 60 for questions to 28.
20. What signalsat 1, 2, and g show hesitation near the 1970/1075 aæa?
Brmg:ng Real-WorH Charts
27. After the opening on Mareh 20 lat candle line 1), why is there support
near 1030?
While thedoJ1 at 1 suggested that the market wast:lred, what wasnceded
to eonfltm Its potentlalW bearish Irnpllearto:ns'? IH1nE See ques t:lon 20
Use Exhibit 6.10 to answer questions to 42
Match the 1M of eandle slgnals below with the numbered eandle linee; and
patterns in Exhibit 6.10,
Candle signals 1 are
30. Candle signal 2 is a
31. Candle signal g is a
88. Candle slgnal 3 is a
SS. Candle slgnal 7 is a
Candle
signal S is a 37
Candle signal is
a
Candle
slgnal
39. Candle signal I is a
40. Candle signal
41. Candle signal
42. Candle slgnal 141sa
a. bullish engulflng pattern
n. bullish hat-arni
bearish haram i
falling window
e. southern doji
f. morning star
g. northern d.oJi
11. shooting star
i. hammer
|9 야
Brmg:ng Real-WorH Charts
Ansm•rs for Chapter Six: RI-inging It All Together: Real-World
Charts
. There was a small falling window on 20 at A (Exhibit 641; the dashed
line— representing a resistance zone). Note how the market neu
thås window 's resistance staltlng in late in July with a series of long upper
shadow candles. ThelV was a small falling window at g. The on August
29 pushed the stock above wlndow's reslstanee area and, as a Japanese
goes, "blew away the dlrE"
2. A relatively large rising window unfolded between the se•ians of
September 2 and 3 (at C). A few sesslons later (September 8) the market
broke under the top of this window Cnear but the bottom of the win dow
near *34.23 remained as support. It take a eloæ under that level to eonflrm
a bleak of support. ThLs is based on the concept that a w-1ndoWs
silppo:rt is tn foreo nntll the bears ean elose the rnarket under the bottom
or •Mndow„
The three rising windows are shov.rn in Exhibit B. 12,
Eaeh of theee [Is Ing windows is support, that is, the whole zone ofthe
ing window Conseque]ltly when the market under the rising win dow L
(on March 28) our potential supp:xt area Is rising window 2. The bottom
ot lisülg window held as s uppc•Lt for a tew weeks, at least until the
market closed under it on April E. Cinee the bears broke the polt at
rising wlndow 2, the next potentlal support area was denned by rising
window a (from $22.30 to $209) The challenge 'Kith a large rising
window Ilke this LS that it gives sueh a large potential support zone.
Therefore, we don't have a tight potential support mea, sinee the whole
window LS theoretically a support zone. Nonetheles if we remember that
the most supp:'lt oi a Idsine window is the bottom ot the
wl:ndow, we can focus our attention on potential pivotal support near the
bottom ot rlslng window 3, at $2030.
The eandle l:tne at X is a hammer. Thls harumer takes on extra positive
implications sinee it is a suceessful test of the bottom of a large window
at OXO.
6. A limitation candle charts is that they do not price targets. Ther.æ fore, we
shift to the Western teelmiealS to obtain a potential pc-jee target. We ean
eonneet the highs at A and B to draw a falling resLstanee llne. As a reslstanee
area, It beeomes our potential target on any bounees from the bullish hammer
1 월』
TEE COURSE
7. In this ease buying at the hammers elcep preænt.s an attractive

liskh•eward profile since the risk is to the bottom of the hammer
(about a risk) for a potential talZet to the tailing resLstanee line
dlseuss•cl above, near 824. TOMS Ztve.s us a upside target.
Therefore, this seena:rio therisWreward LS I to 2.30,
a bullish engulfing pattenl, and 4 a shooting star,

9. For area A, although the stock is maldnz higher highs, higher lows, and
higher closes , wete getting definite warning signs that the bulls are los
ing upside forep base:l on the long upper shadows and small real bodies.
10- Por area B, onee again the market is making h)gher highs, hlgher lows,
and higher elce»s. But the long upper shadows show that the bulls eannc.t
hold the highs into the elase ofthese sessions. Our final eautionaly signal
emerges at the shooting star.
I l. In Exhibit 6.14, signal 1 is a bullish engulfing pattern. The height of the
white real body that completed the bullish engulfing pattern would Hkely
not preænt an attractive liskåæya.rd sinee the market moved so far ft its
lows by the time the bullish pattern was completed. At signal 2 we a
doll eonnrmlng the potentlal support area denned by the bottom of the
bullish engulfing pattern. Normally a doji in a downtrend (that is, a south
ern doji) is not apatent. bottom reversal signal. However in this seenario,
sinee the d.o]i eonfillns a supp:wt area, this Southern don is a sig nal to
watch. Signal 3 is a bullish hammer. Note how the low of this ham mer
t:eearne support on a elose. Signal 4 Is a pterelngpattelli. The market Is In
a downtrend, and then we have a black real body, followed in the next
sexton by a white real that pushes deeply Into a prior black real body.
12. Underseoring the importanee of this support area Ilef1nE€l by the
aforementioned bullish candlestick signals, ül.e market opened a small
lising window giving further bullish impetus.
13. Theæ axe two rising windows, one in mid-Oetoberand the other in late
October, as shown In Exhibit 6.15.
X LS a shooting star (the lower shadow LS small enough tor this tow
eonsidered ashoonng star) The eandlestiek s Ignal at Y LS a
engulfing
Yes, normally a shooting star LS a votentially bpa_nsh signal due to its

Long shadow auld e1092 near the bottom eald of the session's range.
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TEE COURSE
10. On the se«ion 01 the shooting star mentioned in answer 15, the market opened
a window. Theref01V we æee\ved a beansh reversal signal ['ha a shooting star)
at a support area (as defined by the "Ising wlndoy). the shcoting star would not
be an attraetnre short sale based on the risk/reward aspect of the trade. This is
because If you sell at thLs shooting stars close, you are selling near a support
area
17. Remembering the eonc•epi that a rising window should become support, to
validate the vn•tentially beansh implieations of the shooting star, we would need
a 01092 under the rising w indow's support area. The support area Is shown by
the dashed fine.
For signal Y, the beartsh engulfing pattern, onee the market elnsed above the h
lgh of that pattern it would be fiewe:l as a break ot resistanee„
As shawnat.A in Exhibit 6, 16, there is a morT1jng star pottern, or more ex
a variation an the classie morning star. This is beeause the elassie ruornl.ne star
has as Its thst ean.dle a long black real buty rather than this average-sized black
real body. Nonethele—, with the intrusion the whlte real body Cthe thlrd of this
pattern) deeply Into thls black real body , and the faet that none of the real of
this three candlestick pattern overlapped, I would still •new It as a mot-ming star
At B, there is a classie bulllsh engulfing pattern.
20. Pattern was a bullish engulfing pattern and the two aspects that made thLs
pattern more significant were Cl that it was s ueceeful eonflrmation of the
morning star's support and that the white real body ot the en gulflng pattern
wrapped around not only one black real body, but four black real bodles [as
shown by the dashed Hnes).
2 1 - The support lewl engendered durtnzthe week of October 8 was due to a very
small rtsLng wlndow (upper dashed Imps),
22. Signal A (Exhibit. 6.17) was a hanging man, whieh was eonflrnw:t Ln the next.
session (for the implications of a hanging man to be eon finned we need to e Lose
under the hanging man's elas e the session). Signal B was not a bearish engulfinz
pattern. Although the combination ofcandle [Ines was eorreet3 that Is a blaek real
body eovellng a white real body. A bearish engulfing pattern must eomø after an
uptxpnd, not a dov.rntrend, as in this example. Signal C was a harami pattern, a
small real body was eontalned in tum unusually long prior black real body.
Theharamipatterns are showllat L, and •k [ would not view signal 2 as a classle
harami sinee this pattern should have an unusually long real body as ul.e first candle
oi that pattern and, Ln this instance, the real tx»dy
't Tcy€tEE'T R€aI•WorW
Brmg:ng Real-WorH Charts 201
was not unusually long. With ean.dlest.ick ehaflång, Just as with
Western charting techniques, •orne subjectivity is involved the
analysis.
24. The two candle at C were •special(y s*nhflearlt weause they formed a
harami (as detaLlpd in answer 23) and eonf1rr11E€1 an important
support. area near 8 L
23. The only hammer Ln this chart oeeurred on February 24. go through
each line (Exhibit & IS). Line 1 is not hammer because It doesn't eome
after a downtrend. Line 2 Isn't a hammer beeaus• the lower shadow
wasn't long enough relative to me real body [the lower shadow should
be at least tv-tee the height of the real body). Line a meets all the
eritpna for ahammer. Speeifleal]y, themarkpt is in a downtrend with the
eandlßtiek line with a long lower shadow (at least twice the ot the leal
body), little or no upper shadow, and a sma]] real body at the top end
ot the trad ing range. Lines 4, 5, and are not hammers. Although the
shape of the eand]esttek lines are the same as a hammer, one the
erltefla tora hammer Is that must come aftera downtrend (stnee it Isa
l:ottorn reversal nal) and therefore we need a deseendlng market to
meet a eondition for hammer. Each of linee did not eome after a
down trend. This brings to the tore an eoneept with candlesticks [t is
not 011b' the shape of the line that define« the pattern. but it's al"' the
m. [n Exhhb1t6.1S, line L is a doll. unes 2 and are shoot:lngstars.

27 Although the first candle line on Mareh 20 was a doji, there was also a
ing window, which teeanme a support area. Therefoæ, to eo:nflrm
the potential tea.ldsh applications of the do] I we haw to wait for close
under the bottom of the rising supp»rt Iino ThLs occurred later in the
92.ssion on this Intraday chart.
To eonfirm the negative implieations of thedo'i we would need to a
elo.se under the rising windows area, This at 14:00 an March 20 via a
long black candle.
29. 11. Signals I aavshooting stus
V). n. Signal 2 is a billfish hararnL
l. Signal is a hammer (it eould also considenA1 a dragonfly dojo ,
32. a. Sigml LS a bullish engulfing 8B. d. Sigma]
%isafalllngwtndow.
e. Signal 6 LS a Southern don Ca that emerges during a deeline)L
33. a. Sigml 7 LS a bullish engulfing
TEE COURSE
30. r. The throe candle lines that torm signal 8 make up a 1110111ing star.
37. g. Signal 9 Is a Nolthern don. (a don dullne an advance).
c- Signal 10 Is a bearlsh hararnl (the second real body is so srnall It ean
al*' be eonsidered a harami
n. Stgnal 11 Is a bullishharamL i, Signal 12 is
a hammer (also a dragonfly don).
Signal la is a bullish engulfing pattern.
42. Signal 14 is a hammer.
Conclusion
here is a proverb: "Fish for me and I will pat for today, but. teaeh me
how to fish and T will eat the rest of my life." I hope this has helpexl teach
you to fish. Ey detailing the basic eoneepts of the eandle charts and then
having you test your skill with questions, wal-world exam ples, and day-by-
day analysts, I hope [ have helped you down the road to candlestle k analys
Is.
I in•nte yon to stgn up for our free biweekly educatlonal e-newsletter.
Each newsletter details a specifie trading tool or tEQhn1que nslng real-world
examples This is a perfeet to eontlnue your eandlestiek education.
A Japan.eæ Samurai genera] said, 'Learning LS the gate, not the house.
You have to get to ul.e gate before you go to the housel" With thås book I
taken you to the gate. There are many more technlques, eoneepts, and tradIng
strategies that are beyond me seope of t:hLs itv:ok.
To leanl all that our site has to offerand to sign up for this free e-newsletter
please go to wwweandleeharts.eom. Following Is a partlal of and
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isual Glossary
0T Candlestick Tenns
Used This BOOK
he in thLs glossary give ideal versions o fthe patterns Keep in mind that
sinee there is some sul:jpetivity , some les-than-pe:rfeet pattens ean be valid
signals. Alter each definition the following abbreviaåons are u»2d to show
market Implications:
IF Prior trend losing foree

TC Trend ehange
Although the candlestick signals may eon',ey teahshness or bullishness,

they do not Imply the market will reverse. The beallsh earlflle signal means
that the market has gone trom up to neutral, or from flown to neutral In the
of a bullish candle signal. Of eoutse, whether one trades or not on the
signal depends on many factors, one of the most Important. of whieh is the
liskfrpward of the trade.
Please note that sinee thLs book is a primer on candle charting teeh
niques, not all candlestick padems and tenus axe ineludexl in thås glossary.
For a complete glos saw ot all the candlestick patterns pleasa vlsit our site at
www„eandlechart.s.eom.
hell-hold lines Theæare bullish and beansh belt holds (Exhibit Gal). A
belt-hold (B) is a tall white eandlßtiek that on or near its low
TEE COURSE
and clows well above the ope•nLng ptiee. A bearish bett-ho&i CER) is a long black
candlestick that opens on or near its high and elcee.s well off its open.
gull sh Eealish
candlestick cha 'Is Traditional Japanese charts whose Indifidual llnes look like
candles (Exhibit GO). called candle charts. The eandlE6t.iek line is made up of a
real body and shadows. See real body and shadows.
upper
lines A bullish countemtüu:k tine oeeurs when a blaek candle In a

downtrend is followed in the next session by the market gapping lower on
the opening and then unchanged from the prior ses si01Üs close (Exhibit A bearish
countemttac/' fine ocq2urs when a white eandle In an uptrend Is followed In the next
session by the market gap-
Pulish Peansh
Counterattack lines
ping sharply higher on the open and then closing unchanged from the prior w•lon's
close.
Glossar
dark cloud cover [BRO Inan uptrend a long whlte tol]owed by ablack eandlßtiek
that opens above the prior wh eandlest.iekshlgh (or elosp) and then elosE8 well into
the white eandlest.ieksrealhody preferably more than halfway (Exhibit G. 4).
doli CIF) Ase•ion in which the open and oralmostthe saille (Exhibit (75). There are
different. vanetlps of doJ1 lines grrueeszone, dmgom'!u, and mg-legged dojo,
depending on where the opening and eke are in relation to the entire range.
Northern doji axe doji that appeardur a ralb'„ doji appear during declines.
6.3
dragonfly doii (B) A doji with a long lower shadow, in whieh the open, high, and
are at the seslon's lugh (Exhibit G.6),
white real body that engulfs a small black real body in a downtrend (Exhibit G". A
tearisk engulfing pattern (BR) æeuts when selling pre.wure
210
ovelwhebus buy ing force, as reflected by a black real body engulfing a

small white rval body in an uptrend.
TEE COURSE
evening star (BR) A pattern formed by three eandlelinew The nrstLsa tall
white real body, and the second is a small real body (white or blaek), which
gaps above the first real body to form a star, The thim is a black eandle that
closes well into the first session's white real body [Exhibit G.gj. lithe middle
portion oi this patte•lll isa don instead of a spLnninZtop, it is an evening Oji
star.
Black or white
Evening star
fall window Sæu,'indouys,
doii (BR) A dojiin which the opening and are at the low ot
the session (ExhLblt GO).
Gravestone doji
21 1
hammer (E) A small real body (white or black) at the top of the sessionS range and
a wry long lower shadow (with lidle orno uppershadow) that ap during a
Glossar
downtrend (Exhibit G. 10). The lower shadow should be at least Mere the he*ht of
the real body.
Black or white
Hammer
hanging (BRO The hanging man and the hammer are both the same Wpe ot
line: a small real body eltherwhite orblaek, w-lt:h little or no upper shadow, at the
top of the session's range, and having a very long lower shadow (ExhLbit G, 1 L)
When the hanging man appears during an uptrend, Lt becomes a bearish hanging
man. Because ot the bullish lone lower shadow, this pattelll needs beansh
confirmation by a e1092 under the hangIng man's real buly.
G. 1 1 man
ha rami QTC) A two-eandlestiek pattern in whieh a small real body holds within
the pnor session's unusualbr large aval body (Exhibit G. 12).
alack
white
G.12 Harani
high wave candle A candle with a very long upper orlower shadow and a shon leal
body (Exhibit G. 13). If the real body Is a doJi instead of a small real body , It is a
Eong-'cgged doff.
TEE COURSE
nonling (B) A pattern formed by three eand1E%t.ieks (Exhibit G. 14). The first is a
long blackreal body. The is a small real tody (whiteor black), whleh gaps lower to
form a star. The thin:l is a white candlestick that eloses well Into the flrst sessionrs
black real body.
piercing (B) Ina downtrend, a long black candlestickis followed by a gap

Lower durlng the next sasslon (Exhlblt G. 15). Thls session flnishes as a strong
whlte eand]estiek that closes more than halfway Into the prior blaek
real body.
Piercing pattern
rising window See windows.
real The reetangular palt of the eandlestlek fine. It Is denned by the elnstnZ and
opening prtees of the session. When the elos• htZher than the open, the [pal body is
whlte (or empty), A black (or fllled-ln) leal l:ody when the is lower than the
opening Exhibit G.±),
Glossar
shadows The thin lines abo',v and below the real body of the candlestick line.
They repæsentthe extæmesof the session. The lower shadow is the line under
the real The bortorn of the lower shadow Is the low of the ses4•n. The upper
shadow Is the line on top of the real body. The top of the uppershadow LS the
high of the se•ion (see Exhibit. G.
(BRO A candle with a long upper shadow with little, or no lower

shadow, and a small real body near the lows ot the session that arise— after an
uptrend (Exhibit G. 16).
.6_ or *ite
Shooting
spinning lops The niekname for candle lines srna]] real bodles
CEXh1b1tG.17).
Spinning tops
close near or on their lows [Exhibit G„IS).

214
Three crow s
TEE COURSE
llnq•e while three A O•oupotthrwwhjte ean d]estieks with eonæeutivelv
higher with each closing near the highs of ul.e session (Exhibit G. 10).
Thr•e advancmq soldiers
top (BRO and Tweezers o•æurwtpnthesamehighsor

lows are tested on back-to-back sewions„ Ideally, the first candle
shoubdhave a large real body and me seeond eand]e a srna]l real body
(Erhlbit G. 20).
T—ezers Bp
The same as a Western Zap (Exhibit G.21). Windows ate continuWhen the
muket a window to the up side it Is a rising
If a wlndow opens In a sell-oft, it Is arauing window (BRIE
Rising Falling window

G." 1 Window
Applications, candle ehart, 113—120 CanuJlidation, 20, 21
Construction of eandle line•, 9—12
BaekZronnd of eandlestle k charting

Daily ehart, a, 6, 11 narkelond ea, 77, 78,
techniques,
so, Isa,
Barehart:s, O, 10
Baruch, Bernard, 1 16u72
Bearish belt-hold, 36, 57, 217
Beansh counterattack pattern, 67, , 78,
Dou, 25, 43-46, 50-33, 114,
79
Dourntrend, 20
Bearlsh engulfing pattern, 66 , 67, 77,
45, 31, 52,
78,
Beansh falling window; 116, 117 Emotional aspect of market, I —2

Beansh hat-and, 82 , SO, 201 Belt Entenng trades, 116, 117
hold, maekrea1b0dY, 10, 11, Eveninz doll star, u, 85, 00
15, 16, 17 Box star, 84-85, go, 156, 157, 159,
range, 160, 167
Breakaway
Exitingtrades, 116, 117
161, 162, 16a
Bullish belt-hold,
Bullish counterattack pattern, 67--6*
so, 168,
window, 102'
Bullish 77, vS, 70,
Ice, 109,
113—116, 117,
167, 194, 198,
Index 148-149, 131, 152,
156, 158-161,
204 haranu,
170, 173-175, 191, 201
82-83, 89, 204
Fundamental analysis, I
Bullish piereLng pattern, 78, so
BuyLnZ pæs.sure, 29
Gravestone doll, 46—46, 52, 115

Candle line, 3, 4, 8
Candle patte•lus, g, 4, 62—110
Capital, preserving, L13
Hammer, 22, go, 42, 79, 117, LIB,
Change of polarity principle, 23
201, 204
C'lc<ng hour, 12, 16
C'.lcKng p:riees 12, 16, 22—22 Hanging nun, 40, 41,
Confluenee of c-andlß_ 117 Hanami, 82, 90, 166, 167, 194, 201
Haramierc«, SO, 204 Psychological eomponent of market, I
High wavecandle, 149, 150, 151,
136, 157,
Homma, Munehisa,
Hourly chart, a, 6 10, 15, 16,
eharts, 177—204
Reelstanee, 22—2g, 25, 114
Retraeement, 21
Intradw eha.lt, 6, 1 L, IS—120 Revel•l signals, a, 10, 2B
TEE COURSE 'n dex
1. Rising window, 102, 103, 108, 109, 117,

IIS, 136, LES, 173, 174,
Line charts, 0—10
1M, rag
Long legged do'L, 45, 46, 52
Rlsk'reward, 2—4, 7, 207
Long real bodies, •S, 61-62
Lower shadow. 10, 13-—16
S
Selling prewure, 29
Shadow, 58,
Market ow:xtunities, takine advantage Shoot'ng star, 31, 40, 41, 146, 147,
of, 111-12
IJ4, 201 Single
MO:rnlne dQlt star, 83, candle lines, 27 small real
Morning star, 84, 198, 204 Southern 45, 46, 52, 104, 201
Spinning top, 28—29, go, go star,
support, 22-22, 25, 115
Northern 46, 52, 204

Teehnleal anarsis, 1, e
Ttuæ•2 black erows, 93—04, 99
Three-candle pattern, 64
Opening hour, 12 Three white soldiers, 94—95, 100
Open prier, 12 Trading guideline—, 121—12
Trend w,'ersals, 19, 20
Trends, 12,
Tweezers, 9240
Point-and-figme Charts, 0 Tweezers bottom, 02, 03, 14'! 150
Pliee target, a, 8, Tweezers top, 02, OSS 99 Two-
Pllee vacuum, ICU candle pattern, 64
Progæssive Chatting. 123—173
umbrella fines, g I Upper
shadow, 10, 15—16
Uptrend, 20-21
volume, 37
Weekbr chart 6, 11 Whiterealbody,

10, 15, wtnttow, 101, 102,

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The

'"IRE", The candle Patterns

usual Glossary 01 Candlestick Terms [sed in

hen I was a brand-new trader, I Steve NLson' s filSt

As a trader or investor, acquiring knowledge and applying it properbr is

Toni Turner, author ofA Beginners G"üte to Dau I'mdång On

teve Chartered Market Technician (CMT), LS President of Can

s the filSt to reveal Japanese candlesticks to the WSt, I am pleased and

Candle eharts pietofially display the supply-demand situation by showing

he financial markets some of the most exciting and chal

'his section you .

The use of eandlestiek ehalts originated in Japan. Sinee little or no

As a Japanese prcwerb says, "HLs potential is that of the fully draw-n

In the of this chapter, well cover the eonstruetion of single

Ouestions for Chapter One. Section One:

a. candlestick charts and technieal analysis evolv«l at the same

d. Both (a) and

4. d. Candle charts ean be used thmughout the trading speetnuu, from

made up of points that usually repr&nt the closing price of a nnanelal

d. close is lower than todays open.

10. In Exhibit 1.3, for line x, area 3 repæsents the

Por liney in Exhibit 1.4 area g repnxents the

Ansuers for Chapter One. Section '1'"0: Can

IW•sic Market Slrategies

arly æeognition of potential trend reversals is one of the mcst impor

Supwrt and resistance

Trend leversals or shifts are a modifleation in market wehology. In a

Trend reversal Signal — Trend rgversal signal — trend

Review Ouestions for Chapter One. Section Three: Basic

Ansuers for Chapter One. Section Three:

Spinning Tops and 'ligh Candles

'his see""" leat" .

a. The market is in an uptrend.

e. A black leal body.

c. either black or white

16. If we eombine the shadows of a star and a hammer, we would

a. tall white candle.

Use Exhibit 2.5 to answer questions 23 and 24.

25. In Exhibit 2.6, which ofthese is (are) shooting stars?

. a. A high wave candle shows that a standoff between the

• It should have no, or a very short, um:v'r shadow.

It should have no, or a very short, lower shadow.

1B. D. When a stock in a stmng uptænd and ætraees in an orderly manner,

The Dangero'ls Doii

'his see""" leat" .

Long-legged doji Dragonfly 63ji Gravestone doji

Nomern doji Soumrn doji

The gravestone doffs strong point ts in calling top reversals. ImaØne an

In Section Three, we'll finish our dLs2ussion of single candle lines by

Oueslions [or Chapter Tuo. Section "fivo:

6. For a gravestone don, the is the open, low, and close.

(A) Which is a gravestone don ?

(B) W'hieh is a long-legged

Answers for Chapter T"O. The Dangerous Doll

a don matenalize after a tall white candle in the eontext of a

7. a. As a hammers leal body tv•eomes it may tA•ome a dragonfhr doff such

10. to a don in a descending market (a Southem dojo, a don in

Long Real Bodies. Ille C,onsmnmale S/

n previous sections, we on single candle lines that ineorwrate small real

'his section leat" . . .

White opening shaven bottom

A candle ehart displaying small leal bodies at the culmination of an uphend

Pullish belt-hold gearish belt-hold