Beyond candlesticks pdf download

Trading with Candlesticks Author : Michael C. Unfortunately, price levels and traditional technical indicators alone aren't always reliable. There is a solution: candlestick signs, moves, and patterns. When these visual signs of reversal or continuation are integrated with other signals, they provide the strongest possible entry and exit timing: both the signal and the means for confirming it. In this easy-to-use book, renowned trader Michael C. Thomsett demystifies candlesticks and shows active traders exactly how to use them.

In Trading with Candlesticks, Thomsett explains how each leading candlestick works, how they appear, and how to interpret them to discover emerging price moves and trend reversals, as well as confirmations of existing trends.

Trading with Candlesticks shows dozens of examples of candlestick signs, moves and patterns in action, explaining them not in isolation, but as part of broader, developing price trends on real stock charts.

Thomsett also discusses failed signals, and offers guidelines for identifying the likely impending failure or success of each pattern. Lo details how the charting of past stock prices for the purpose of identifying trends, patterns, strength, and cycles within market data has allowed traders to make informed investment decisions based in logic, rather than on luck.

Neill, and William D. Gann The Evolution of Technical Analysis explores the fascinating history of technical analysis, tracing where technical analysts failed, how they succeeded, and what it all means for today's traders and investors.

Unlike most westerntechniques—moving average, relative strength index, MACD,stochastic, Bollinger bands, or Elliot waves—candlestickcharting signals are based on very close analysis of product price,producing accurate buy or sell signals between two and ten periodsearlier than other techniques.

In The Power of JapaneseCandlestick Charts, noted author and futures trading expertFred Tam offers a full and sophisticated range of chartingtechniques using candlestick methodology. Written by Fred K. Tam, a noted pioneer in exploring theJapanese candlestick methodology Ideal for anyone who wants to invest or trade in both thefutures and stock markets Includes hundreds of illustrated charts The Power of Japanese Candlestick Charts is acomprehensive and valuable guide to candlestick charting that isperfect for analysts, stock or day traders, and short-term positiontraders.

While it is theoretically possible to buy a "canned" trading system, most experts agree that the best system is proprietary to each trader--developed, implemented, and tested by the individual to suit his or her exact requirements. A stimulating mix of cutting-edge techniques, timeless principles, and practical guidelines, this updated edition of a technical analysis classic offers traders a comprehensive methodology to develop and implement your own trading system, bridging the gap between analysis and execution.

They are a real-time graphics charting service. CQG was among the first servicesin the West to offer candle charts to their clients. I have used their servicefor many years. The accuracyof their data and their support personnel, such as Steve Onstad in New York, make this a premier real-time charting service. Their excellent worldwide reputation is well justified. Reuters Ltd. New York, London, and Tokyo have also provided charts for this project. Their RTA technical analysis real-time charting product offers some unique capabilities.

I have had the pleasure of giving a seriesof seminars for them throughout Europe. The fact that Reuters has gone through the time, effort, and expenseto send me to Europe for these seminars shows how committed they are in meeting the educational needs of their clients. My first book, lapaneseCandlestickCharting Techniques,was written around the sametime as the birth of my son, Evan.

I tell you this so that if there are typos, I now have an excuse. My daughter, Rebecca,is eight and very bright. I have jokingly said that I wanted this book easy enough for a child to understand, so I think I'll ask her to proofread these pages yet another excuseif you find any mistakes! Finally, there is my loving and patient wife, Bonnie, who understands that it is great to have written, but most difficult to write. Final thanks go to those who provided another incentive for writing this book-the credit card companiesand the bank that has my mortgage.

Note loyama, Kenji, p. Candle charts display a more detailed and accurate map of the market than do bar charts. A "It is not an exaggerationto Japanesebook that I had translated stated, say that candlesticks are the best in the world and a very exquisite cre- ation for charts.

Candle charts will pictorially display the supply-demand situation by showing who is winning the battle between the bulls and the bears. Bar charts do not. Like bar charts, candle charts will show the trend of the market, but candle charts add another dimension of analysis by revealing the force behind the move. Bar chart techniques can often take weeks to transmit a reversal signal.

However, candle charts will often send out clues of imminent reversals in one to three sessions. The result is that candle charts often provide the opportunity for more timely trades. These are just some reasonswhy the flames of interest in candle charts grow ever brighter. In just a few years, candle charts have joined bar charts and point and figure charts as a basic charting technique.

Candle charts are drawn using the same data as bar charts the open, high, low, and close , so they send all the same signals that can be found ot but charts. Yet, as just discussed,the candles offer many advantages over bar charts, so using candle charts instead of bar charts is a win-win situation. When you use bar charts you only get bar chart signals. Becausethe ]apaneseare major players in most of the world's mar- kets, there is strong interest in how the apaneseuse their technicalsto trade.

Candles are the most popular form of technical analysisin apan. The importance of the candles for the apanese trading community is illustrated in the following quote from the European magazine,Euroweek. This article quotes an English trader who works at a Japanesebank. He states:"All the apanesetradershere-and that's in the foreign exchange, futures and equities markets-use the candles. It might be difficult to work out the billions of dollars traded in London on interpretations of these charts each day, but the number would be significant.

This is hard to believe. Knowing the candles and their other technical tools discussed in this book may help answer the question, "What are the apanesegoing to do next?. IzVhenhe walked into my office, he saw I had candle charts on my desk. In a surprised voice, he asked: "You know about the candles?. I then asked if he used them. He told me that his company's top man- agementwould meet eachMonday to discussthe world markets. At these meetings, he would bring his candle charts to offer his technical views.

Then he pointed to my candle charts and asked: "How many other Americans know about this?. He looked relieved.

I then continued, "But I will soon have a book out about it. The point of the story is that the Japanesetrader came to me to learn about how we, in the West, use technicals. The fapanesehave learned from us and they know almost all of our technical methods. In most of the candlestickbooks and articlesI have had translated from Japaneseto English, there was at least some referenceto western technicaltechniques. A quote from one of the books I had translated stated, "To understand stocks it is not enough to know the apanesechart methods.

An article about my work appeared in the lapan Economiclournal. Tn "lapan, which has been in the position to learn it, the reporter states: many things from the West in the investments area, may be in the po- sition to teach something.

Chapter 2 shows how to draw the basic candle line, and delves into some history of the candle charts. Later in that chapter, I show how a single candle line can provide important market insights. Chapter 3 dis- cussesthe basic candle patterns. With the detailed descriptionsof these patterns, those new to candlesand candleexperts can discover new mar- ket perspectives. The last chapter in this section, Chapter 4 focuses on how the overall technical picture is more important than a single candle pattern.

Notes lHoshii, Kazutaka,p. For those new to the exciting field of candlestickcharts, candlestick is the term used for Japan's most popular and oldest form of technical analysis. They are older than Western point and figure and bar charts.

Amazingly, candlestickcharting techniques,used for generationsin the Far East, were virtually unknown to the West until I revealed them in my first book, lapaneseCandlestick ChartingTechniques. I am pleased and proud that my first book has been credited with revolutionizing technical analysis by igniting the flames of interest in the candles.

Before its publication, few people in the West had ever heard of a candle chart. Now, candle charting techniquesare among the most discussedform of technical analysis in the world! Interest in candle charts has become so intense that the World Bank in Washington, DC asked me to addressthem on the subject. The world- wide interest in these previously secret techniques are reflected in the financial headlines below: AncientJapanese lnaestor-"Revealed! Yet, within a short time, candle charts have now joined these as a basic charting tool.

The rapidity with which this has happened is a direct reflection of the candle's popularity and value. The groundswell of interest in the candlestickcharting has becomea topic in the media. But I guess the term "candle chart," thankfully, is here to stay. I have had many wonderful compliments from famous traders and analysts. However, the most endearing compliment came from a woman who wrote, "lf you ever have a down day, just remember there's a nice little grandmother in Missouri who's in awe of your accomplishments.

The reason for the popularity of candlestick analysis is easy to un- derstand. They can be melded with any other form of technicalanalysis, they are applicable to any of the markets to which technical analysis is applied, and they provide market insights not availableanywhere else.

Why this book? A renowned 16th-centurysamurai swordsman stated that "learning is the gate, not the house. You first have to go through the gate to get to the house. This book takes you to the house and has many new, excit- ing, and effective techniques to improve your trading, investing, or hedging. Japanesecharting was considereda secret.

However, I have managed to pry open the "secrets of the Orient" by exchangingideas with many Japanesetraderswho use candlesand by having many hundreds of pages translatedfrom ]apaneseinto English. Lin Yutang, a noted Chinesephi- losopher, sagely noted that one gets a different flavor from reading the same book at different stagesin life.

Therefore, he says, all great books can be read with profit and pleasurea second time; I have found this to be true. In the time since the publication of my first book, I have reread my original candlestick documents and have gleaned new insights. I reveal these new and val- uable insights in this book.

My first book focused on the futures markets. The candles have now become so important that their popularity has spilled over from futures into stock, bond, and foreign exchange markets from around the world. As a result, this book will have many more of the charts than did my other book.

At times, a single candle line can be important. The Japanesehave a saying, "With the fall of one leaf we know that autumn has come to the world. In this book, I will show how to use individual candle lines to obtain clues about the market's health.

It has been very exciting to see the intense interest sparked by the candles. However, it is often forgotten that the emergenceof a candle pattern is but one aspectof trading.

Other aspects,such as the risk and reward ratio of a potential trade and monitoring where the candle pattern appearsin the overall technical picture, must also be considered.

This is so important that I have devoted a chapter to these aspects. In my continuing studies of ]apanese trading techniques, I have un- covered three charting methods that are very PoPular in ]apan, yet are unknown to the West.

These charting techniques are called three-line break charts, kagi charts, and renko charts. They are revealed in Part 2 of this book. Th"y were known for taking risks and for careful preparation. Trading journeys were undertaken with much excitement, but in casethe fur traders forgot anything, they would camp out the first night just a few miles away from the company's head- quarters.

In other words, careful preparation spared the travelers poten- tial difficulties. In Chapters 2 and 3, I too provide careful preparation by providing a primer on basic candle theory and patterns.

For those new to candle charts, these chapters will provide the groundwork for your candle chart analysis. Many of you are probably already familiar with the basics of candle charts. With this in mind, Chapters 2 and 3 will also offer a deeper knowledge of the candles by revealing new candle theories, techniques, and tools.

As a result, even those knowledgeable about candles will gain new insights and pelspectives into the power of the candle charts. For example, when I describe the candle patterns in Chapter 3, I will provide a unique visual glossary of candle patterns. After you explore with me the beauty and power of the candle charts, you will never be able to go back to a bar chart.

This book will be a self-contained unit. I will not go over all the candle patterns; that is done in my first book. However, I will sometimes make referencesto the more obscureor rare patterns discussedin my first book. This is for the benefit of those who are familiar with all the candle pat- terns. Do not worry if you have not heard of the pattern before; it will not detract from the discussionof the chart.

Numerous charts and exhibits will quickly and clearly make evident how candlescan enhanceyour trading, timing, and investing. As shown throughout the book, candles can be merged with any other form of technical analysis.

Consequently, I have included charts that show how to fully utilize the candles' power alone, or when joined with other tech- nical tools. Just as important as the recognition of candle patterns is an under- standing of the relationship of the candle patterns to the overall technical picture. Chapter 4 focuses on this vital, but often neglected, aspect.

In this chapter, I will addresshow trading with the candles must take into account the risk and reward of a potential trade, the stop-out level, and the overall trend. I will also address the value of adapting to changing market conditions. Before I discusstrading with candles, I want to clarify a few points. In the futures market, selling short is as common as buying long. This is not true in the stock markeU most equity traders look to buy.

Conse- quently, throughout this book when I use the term "bearish" or "sell- ing" when discussinga stock, you should not think of necessarilygoing short. Instead, view it as an area to protect existing longs by such means as selling covered calls, moving up protective stops, or offsetting all or some longs.

But this book is about more than candles. In Part II I reveal the dis- parity index, the three-line break, renko charts, and kagi. These tech- niques, popular in Japan,are virtually unknown in the west and, unlike candle charting, little has been written about these techniques, even in Japan.

The disparity index comparesthe closeto a moving average. It is used in the same manner as dual moving averages,but it has an interesting wrinkle to it. The three-line break, kagi charts, and renko charts are popular among Japanesetraders.

They are excellent technical tools for determining the trend of the market. Whether you use the techniques discussedin this book individually or in combination with one another, you will discover that they provide dynamic advantagesfor those who make use of their tremendouJ poten- tial. A coupon for Metastock Software is included at the end of the book. The Japanesestarted trading in this market in the s.

Interestingly, the birth of the Japaneserice futures market was a consequenceof the country's military history. After a century of internal warfare among the daimyo Japanesefeu- dal lords , General Tokugawa Ieyasu, who ruled from Edo the ancient name of Tokyo , won the famous battle at Sekigaharain This was the battle that helped unify fapan.

Tokugawa thereafterbecameShogun of all ]apan. After his victory over the daimyo, General Tokugawa clev- erly required that all the feudal lords live in Edo with their families. When the lords returned to their respective provinces, the entire family stayed at Edo as hostage. The feudal lord's main sourceof income was rice that was collectedas tax from the peasantswho worked their land.

Sincethis rice could not be transported from the daimyo's provinces all the way to Edo, they set up warehousesin the port city of Osaka to store their rice. Becauseall these powerful daimyo lived so closeto eachother in Edo, they attempted to outdo one another in lavish dress,mansions,and other "The Edoite luxuries.

This was reflectedby a popular saying at the time, will not keep his earnings overnight. To maintain this lifestyle, the daimyo sold rice from their warehouse in Osaka; some- times thev even sold rice from future harvests. These were called empty rice contracts "empty tice" since the rice was not in anyone's physical possession and they were sold in the secondarymarket.

This was the beginning of one of the world's first futures market. Trading in rice futures engenderedmuch speculation,and it was from this speculationthat Japanesetechnical analysiswas born. The most fa- mous trader in the rice futures market was Homma. Homma traded in the rice futures markets in the s. He discoveredthat although there was a link between the supply and demand of rice, the markets were also strongly influenced by the emotions of the traders.

Becauseof this, there were times when the market perceived a harvest as different from the actual. He reasonedthat studying the emotions of the market could help in predicting prices. In other words, he understood that there was a differencebetween the value and the price of rice.

This differencebe- tween price and value is as valid today with stocks, bonds, and curren- cies, as it was with rice centuries ago. In the material I had translated, candle charts are often called Sakata charts in referenceto the port city of Sakata,where Homma lived.

How- ever, basedon my research,it is unlikely that Homma used candlecharts. As will be seen later, when I discussthe evolution of the candle charts, it was more likely that candle charts were developed in the early part of the Meiji period in japan in the late s. But determining whether one person, in this caseHomma, createdcharts or used them to trade is not too important.

There is a tendency in the West to be preoccupied with imposing authorship to one person. It is more likely that the candle charts we know today and all the techniques as- sociatedwith them tended to be a processof cumulative authorship by severalpeople over many generations. Even if he did not invent candle charts, Homma understood that the psychologicalaspect of the market was critical to his trading success.

And it appearsthat the earliestforms of technical analysis in Japan dealt more with the psychology of the market rather than charts. In the book, The Fountainof GoId-The ThreeMonkeyRecordof Money, purportedly written by Homma, the author states: " After 60 years of working day and night I have gradually acquired a deep understanding of the movements of the rice market. It is amazing that before America was a nation, the Japanesewere trading with contrarian opinion!

I did not understand the reference to the title. Then in some of my translated material, it said something about comparing successfultrading to being like the three monkeys we all knew as children-see, hear, and speak no evil. Then it dawned on me; the title of the book, The Fountainof Gold-The ThreeMonkeyRecordof Money, "fountains of gold," they should means that for traders to get to their have the characteristicsof these three monkeys.

Specifically: L. In the Fountain of Gold, it states that there is always a rotation of Yang bullishness and Yin bearishness. This means that within each bull market, there is a bear market, and within a bear market, there is a bull market.

This view may explain why fapanesecandlestick techniquesplace so much emphasis on reversal, rather than continuation, patterns. It may be safer to take a position after you determine how the market reacts to a news item rather than initiating a trade when the news is released. Bernard Baruch, the millionaire stock speculator and presiden- "are not tial advisor, stated that what is important in market fluctuations the events themselves, but the human reactions to these events. L shows that how the market reactsto the news may be just as impor- tant as the news itself.

The Iraqi War started in the first few days of August Yet, Exhibit 2. This failure to take out the prior high was in spite of the fact that there was a Mideast War. Gold's failure to rally on suPPosedly bullish news sent out volumes of information about the state of the mar- ket. To wit, be careful of a market that fails to rally on bullish news. Try to keep out of rumor buffeted markets. Isaac Newton once said, "I can calculate the motion of heavenly bodies but not the madness of people.

Basedon your analysis,you decide to buy into a market. You tell someone else of this decision, but they say something negative about that market. Becausethere is always a degree of uncertainty, you get nervous and decide not to buy. Then, of course, the market rallies. If you have carefully studied the market, it is safer not to speak to anyone about what you plan on doing unless you believethey have better insight than you.

Look only to the market to give you direction. In one of my favorite passagesinThe Fountainof Gold, it says that ". Wouldn't you love to becomea detestable marketdemon? The colorful languageused by the Jap- aneseis just one reason their technical techniquesare so exciting. Let us turn our attention to Exhibit 2. Evolution of the Candle Charts A.

Stopping chart-Also referred to as a point, line, or star chart. The Evolutionary Path to the Candlestick Charts prices. Th"y were named stopping charts becausethat was where the prices stopped by the end of the session.

Stopping charts were drawn with either diagonal lines or horizontal lines connecting the closes. Pole chart-Its name is derived from the fact that the lines resemble poles. This chart added the extra information imparted by showing the range between the high and the low of the session. Theselines show not only the direction of the move, but the extent of the move for each session.

Bar chart-This is a combination of the stopping and pole charts. Anchor chart-Named as such because it looks like an anchor. Based on legend, these charts originated in the Kyoho Era from from the fact that the usual meeting place for rice traders was port cities.

The anchor chart was an important event in the evolution of charting. With this chart, the opening price was now added and created a chart with an open, high, low, and close. Just as important, and something unique to fapanesecharts, was that the relationship between the open and closewas pictorially displayed. The top and bottom of the anchor's vertical line are the high and low of that session.

The horizontal line of the anchor line is the open. The arrow of the anchor line is the close. If the close is higher than the open, the arrow points up; if the close is lower, the arrow points down.

Candle chart-The next improvement from the anchor charts was the candle chart. Although they are shrouded in mystery, the candles probably started in the early part of the Meiji period from As can be seen in Exhibit 2. The use of black and white real bodies made analyzing the un- derlying supply and demand situation visually easier to determine than with the anchor charts.

With the arrival of the candle charts, Japanesetechnical analysis flow- ered as people started thinking in terms of signals and trading strategies. Patterns were developed and market prediction became more important. Trying to forecast the market took on extra importance in the Lswhen the fapanese stock market opened.

As can be seen from Exhibit 2. In essence,this means that since most of the West is still using bar charts, it is also using a less evolved form of charting than the Japaneseare with candle charts. Exhibits 2. We see why these are named candlestick charts; the individual lines often look like candles with their wicks. The rectangular part of the candlestick line is called the real body.

When the real body is black e. If the real body is white that is, empty , it means the close was higher than the oPen. Black Real Body I F. The shadows represent the session'sprice eXtremes. The shadow above the real body is referred to as the upper shadow and the shadow under the real body is the lower shadow.

Accordingly, the peak of the upper shadow is the high of the sessionand the bottom of the lower shadow is the low of the session. Candle charts can be used throughout the trading spectrum, from daily, to weekly, and intra-day charting.

For a daily chart, one would use the open, high, low, and close of the session. For a weekly chart, the candle would be composedof Monday's open, then the high and low of the week, and Friday's close. On an intra-day basis,it would be the open, high, low, and close for the chosen time period i.

Exhibit 2. We know that the close is higher than the open becauseof the white real body. This is a bearish sessionin which the market opened near its high and closed near its low. The apanesefocus on the relationship between the open and close. This makes sense;probably the two most important prices of the day are the open and close. It is therefore surprising that American newspapers have openings for futures prices, but not for stocks.

He said that he did not know why the Americans disregard the openings. I would expect that just as almost all technical software vendors now carry candle charts, so it may be that as candles become more popular in the equity market, newspapers may, by popular request, carry stock openings. Until then, in order to obtain the data needed to draw the candles the open, high, low, and close you need to use a data vendor service.

These servicesfurnish prices on disks or through modems. The data supplied from a data vendor are then transferred into a technical analysis software package that will draw the candles based on these data.

A note of caution: Some data vendors who do not have the actual opening price of a stock default to the prior session's close as today's open. This, in my opinion, is not valid. You must have the true open to draw an accuratecandle line. Although an open on a stock will usually not be much different from the prior close, there are some candle patterns in which a higher or lower opening compared to the prior close gives valuableinformation. Specifically,looking at a line's real body and shadows gives a sense of the supply and demand situation.

This section will discuss this basic idea, and explain how to use real bodies and shadows to get clues about the market's underlying strength or weakness. By using the candle lines discussedbelow, you may be able to get an early and tentative indication of market direction.

I think they must have written and edited the book because it is so elememtary and repetitive. To ask other readers questions about Beyond Candlesticksplease sign up. Stunningly effective on their own, these new bdyond pack an even greater wallop xandlesticks teamed up with traditional trading, investing, or hedging strategies, and Steve Nison shows you how to do it.

Wiley Publishing is the worst. To see what your friends thought of this book, please sign up. Candles and the Overall Technical Picture. May 14, Jerry Campbell rated it it was amazing. This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are as essential for the working of basic functionalities of the website. Unfortunately, price levels and traditional technical indicators alone aren't always reliable.

There is a solution: candlestick signs, moves, and patterns. When these visual signs of reversal or continuation are integrated with other signals, they provide the. The Evolution of Technical Analysis.