In 21 Candlesticks Every Trader Should Know, Melvin Pasternak has selected 21 candles that he believes every trader should know by name. These are the candles that in his experience occur most frequently and have the greatest relevance for making trading decisions. Just as knowing the name of a person helps you immediately recognize them on a crowded street, so being able to name the candlestick allows you to pick it out of a chart pattern. Being able to name it allows you to appreciate its technical implications and increases the accuracy of your predictions.
Candlesticks are one of the most powerful technical analysis tools in the trader’s toolkit. While candlestick charts dates back to Japan in the 1700’s, this form of charting did not become popular in the western world until the early 1990’s. Since that time, they have become the default mode of charting for serious technical analysts replacing the open-high-low-close bar chart. There has been a great deal of cogent information published on candlestick charting both in book form and on the worldwide web. Many of the works, however, are encyclopedic in nature. There are perhaps 100 individual candlesticks and candle patterns that are presented, a daunting amount of information for a trader to learn.
In my trading, I try to integrate candlestick analysis, moving averages, Bollinger bands, price patterns (such as triangles) and indicators such as stochastics or CCI to reach decisions. I find the more information which is integrated, the more likely the decision is to be correct. In this book, I have chosen to combine moving averages, Bollinger bands and two indicators, stochastics, and CCI on various charts. As we discuss individual candlesticks or candle patterns, I integrate these tools into the discussion. Hopefully, you will not only learn how to recognize candles from this book, but also appreciate how you can combine them with the traditional tools of technical analysis.
In this book my focus is on Minor trend reversals, the kind of reversal of most interest to a trader. The Minor trend typically lasts 5 to 15 days although on occasion, I have seen it stretch out to about 30 trading days. These same candle principles work equally as well, however, on 5 minute or weekly charts. It is simply a matter of adapting this information to the time frame you are trading in.
- Candles Anticipate, Indicators Follow, Trendlines Confirm
- How To Read A Candlestick Chart Bar vs. Candlestick Charts
- Optimism and Pessimism as Shown by Candles
- Advantages of Candle vs. Bar Charts
- Candles Anticipate Short Term Reversals
- Why Candlesticks Work
- “The Rule of Two”
- Candles in Action: Dow Jones Analysis
- Candles 1-4: The Four Dojis Show Stocks That Have Stalled
- Candles 5-6: Hammer and Hangman
- Candlesticks Signal Key Reversals
- Candles 7-8: Bullish and Bearish Engulfing
- Candles Spot Key Trend Changes Before They Take Place
- Candle 9: Dark Cloud Cover Warns of Impending Market Tops
- Candle 10: The Piercing Candle Is a Potent Reversal Signal
- Candles 11-12: The Three Candle Evening and Morning Star Patterns Signal Major Reversals
- Candle 13: The Shooting Star Can Wound
- Candle 14: The Inverted Hammer Indicates The Shorts May Be Ready To Cover
- Candle 15: The Harami is “Pregnant” With Possibilities
- Candle 16: The “Full” Marubozu Is a Candle Without Shadows
- Candles 17-18 High Wave and Spinning Top Express Doubt and Confusion
- Candle 19: The Ominous Call of Three Black Crows
- The Four Types of Gaps: Common, Continuation, Breakaway and Exhaustion
- Candlestick Theory on Gaps
- Synthesis of Western Wisdom and Eastern Insight