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Fred K. H. Tam

      The Power of Japanese Candlestick Charts

      Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

      The Wiley Trading series features books by traders who have survived the market's ever changing temperament and have prospered – some by reinventing systems, others by getting back to basics. Whether a novice trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future.

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      THE POWER OF JAPANESE

      CANDLESTICK CHARTS

      Advanced Filtering Techniques for Trading Stocks, Futures, and Forex

      REVISED EDITION

      Fred K. H. Tam

      

      Cover image: © iStockphoto.com/P2007

      Cover design: Wiley

      Copyright © 2015 by John Wiley & Sons Singapore Pte. Ltd.

      Published by John Wiley & Sons Singapore Pte. Ltd.

      1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628

      All rights reserved.

      First edition published by Pelanduk Publications in 2001.

      No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628, tel: 65-6643-8000, fax: 65-6643-8008, e-mail: [email protected].

      Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any damages arising herefrom.

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      ISBN 978-1-118-73292-2 (Hardcover)

      ISBN 978-1-118-73294-6 (ePDF)

      ISBN 978-1-118-73295-3 (ePub)

      ISBN 978-1-118-77714-5 (o-Book)

      INDEX OF REVERSAL PATTERNS

      Single Candlestick Patterns

      Double Candlestick Patterns

      Triple Candlestick Patterns

      Multiple Candlestick Patterns

      INDEX OF CONTINUATION PATTERNS

      PREFACE

      This book is about applying the popular time-tested Japanese candlestick technique to spot market turning points. After all, making money from the markets is all about predicting correctly when the market is about to turn, and the Japanese candlestick technique does this job superbly.

I find the candlestick technique very applicable for trading actively traded financial instruments such as stock indices, foreign exchange (forex), commodities futures, and stocks. This is because most, if not all, financial instruments tend to exhibit short-term rallies only to be followed by short-term corrections regardless of their time frames. Their trading cycle ranges from 5 to 15 candles (see Figure P.1 and Figure P.2).

Figure P.1 Gold 15-Minute (2014) – Trading cycles range from 5 to 15 candles

Figure P.2 Dow Jones Industrial Average Daily (2010) – Trading cycles range from 5 to 15 candles regardless of the periodicity of the chart

      It is fun to be on the right side of the market, buying at or near market bottoms and selling at or near market tops. But the question is, “How do I know if today's market action constitutes a market bottom?” Conversely, after a sharp rally of a few sessions, what signals are there to tell you that your stocks have topped out and are due for a correction?

      Questions like “Is this the right time to buy?” or “Is this the right time to sell?” have always been a talking point amongst traders and investors. The objective of this book is to provide an answer to these questions.

      There are many techniques out there, mainly from the West, like the moving average, relative strength index, moving average convergence divergence (MACD), stochastic, momentum, Bollinger bands, Elliott waves, and so on, that can help you time your entry and exit. I strongly believe that these Western techniques should be part of a trader's arsenal.

      But complementing Western techniques with that of Japanese candlesticks will give you that extra edge in getting a much better price – a lower price if you are buying and a higher price if you are selling. You will be convinced from the hundreds of charts illustrated in this book that Japanese candlestick signals lead the Western technical indicators in timing market entry and exit.

      The candlestick technique is the most leading of all technical indicators that I have come across. The reason why the Japanese candlestick technique triggers buy or sell signals at least 2 periods and sometimes up to 10 periods earlier than Western indicators is that candlestick signals are based on an analysis of price itself.

      When you are analysing the candle chart, you are in effect analysing the psychology of the market participants that is reflected in its price. No indicators can beat a technique that analyses price in itself.

      This passage taken from the Sakata Goho sums up the candlesticks' raison d'être:

      The psychology of the market participant, the supply and demand equation and the relative strength of the buyers and sellers are all reflected in the one candlestick or in a combination of candlesticks.

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