The Power of Japanese Candlestick Charts

Japanese candlestick charting is a highly effective method for timing the market for short-term profits. Unlike most western techniques—moving average, relative strength index, MACD, stochastic, Bollinger bands, or Elliot waves—candlestick charting signals are based on very close analysis of product price, producing accurate buy or sell signals between two and ten periods earlier than other techniques. In The Power of Japanese Candlestick Charts, noted author and futures trading expert Fred Tam offers a full and sophisticated range of charting techniques using candlestick methodology.

• Written by Fred K. H. Tam, a noted pioneer in exploring the Japanese candlestick methodology
• Ideal for anyone who wants to invest or trade in both the futures and stock markets
• Includes hundreds of illustrated charts

The Power of Japanese Candlestick Charts is a comprehensive and valuable guide to candlestick charting that is perfect for analysts, stock or day traders, and short-term position traders.

Index of Reversal Patterns ix

Index of Continuation Patterns xi

Preface xiii

Acknowledgments xxi

Part I Basic Candlestick Techniques

Chapter 1 Introduction 3

Historical Background 4

Reasons Candlestick Charts are So Popular Today 5

Construction of the Candlestick Chart 7

Construction of a Bar Chart 8

Chapter 2 Single Candle Types 11

Single Candles 11

The Doji 35

Chapter 3 The Umbrella Group 59

White Hammer or Hanging Man (Also Called White Umbrella Candle) 59

Black Hammer or Hanging Man (Also Called Black Umbrella Candle) 60

White Inverted Hammer or Shooting Star (Also Called Inverted White Umbrella Candle) 60

Black Inverted Hammer or Shooting Star (Also Called Inverted Black Umbrella Candle) 61

Chapter 4 Reversal Patterns 67

Introduction 67

Index of Reversal Patterns 69

Single Candlestick Patterns 70

Double Candlestick Patterns 90

Triple Candlestick Patterns 119

Multiple Candlestick Patterns 156

Chapter 5 Continuation Patterns 171

Introduction 171

Double Candlestick Patterns 172

Multiple Candlestick Patterns 185

Windows (Gaps) 192

Chapter 6 Summarizing Part I 209

Can One Trade the Market and Profit Just by Applying Candlestick Chart Analysis? 210

Candlestick Chart Analysis is Best Used in Conjunction with Technical Indicators 210

Conclusion 211

Part II Advanced Candlestick Techniques

Chapter 7 Filtering with Western Indicators 215

Using Filtering or the Rule of Multiple Techniques 216

Scenario 1: In the Case of a Bull Market or Bullish Trend 216

Scenario 2: In the Case of a Bear Market or Bearish Trend 216

Scenario 3: In the Case of Overbought or Oversold Situations 216

Filtering with Moving Averages 217

Filtering with MACD (Moving Average Convergence Divergence) 218

Filtering with Relative Strength Index 221

Filtering with Stochastic 224

Filtering with Momentum 229

Filtering with Williams’ Percentage Retracement 229

Filtering with Directional Movement Index 232

Filtering with Commodity Channel Index 235

Filtering with Volume 238

Filtering with Bollinger Bands 238

Filtering with Elliott Wave Theory 240

Chapter 8 P.I. System Trader 247

The P.I. System Trader Mimics Candlesticks 248

Trading Rules for P.I. System Trader 250

Advantages of P.I. System Trader 250

Chapter 9 Sakata’s Five Methods 253

Sakata’s Constitution and Sakata’s Five Methods 253

Sakata’s Constitution (Soba Sani No Den) 254

The Japanese Method of Three 254

Conclusion 267

Chapter 10 Computerized Candlestick Forecasting 273

The Era of Computerized Candlestick Scanning 274

Features of the Nison Candle Scanner 275

Nison Candle Highlighter on MetaTrader 4 Platform 280

Chapter 11 Conclusion: Facts about Candlesticks 285

About the Author 287

Reading List 289

Index 291

FRED K. H. TAM is a gold, silver, forex, stock indices, and stock trader for 30 years, and is the author of six books on the financial markets.

He is a full member of the Society of Technical Analysts, U.K., a Certified Financial Technician, and a Master of Financial Technical Analysis from IFTA. He is the first Malaysian to receive the MFTA award. Fred holds another Master of Philosophy (Technical Analysis) from Multimedia University, Cyberjaya, Malaysia. He also served as the principal lecturer of the Certificate in Financial Technical Analysis course at Open University Malaysia from 2007 to 2010. His students take the MSTA (UK) and CFTe (USA) exams, and passes have been impressive.

Fred uses a combination of Japanese candlestick and Western technical indicators to track the markets, and he has developed his own computerised trading system called the P.I. System Trader, which mimics candlestick reversal patterns and is excellent for trading fast-moving markets. He teaches and promotes technical analysis and makes speaking appearances in Indonesia, Singapore, as well as Malaysia. Mr Tam is now collaborating with Asia e University (AeU) to offer Malaysia's first EMBA (Financial Technical Analysis) Course.

www.f1traderacademy.com

For over 300 years, Japanese candlestick charts have been accurately predicting market movements and helping traders to profit from optimally timed market entries and exits. With The Power of Japanese Candlestick Charts, author Fred Tam explains how to integrate the visual, predictive power of candlestick charts with proven technical analysis to help traders, analysts, and investors maximize returns in any market.

The Japanese candlestick methodology is a very powerful short-term trading technique, and part of the reason is because it routinely triggers accurate buy or sell signals at least two periods, and sometimes up to ten periods, earlier than traditional Western indicators. This is because candlestick signals are based on a close analysis of the product price as related to an underlying knowledge of how greed, fear, and other factors drive investors' behavior in certain market conditions. The same technique can be equally successful when applied to long-term trading strategies, with only minor adjustments.

Traders will be convinced from the hundreds of charts illustrated in this book that Japanese candlestick signals lead Western technical indicators in timing market entry and exit. With examples taken directly from charts of leading international companies, currencies, and commodities, Fred Tam explains in detail how to create, read, and profit from candlestick charts. Candlestick charts provide numerous advantages over other charting techniques, including their unlimited versatility across time dimensions and multiple market applications, and readers will gain an understanding of how to leverage those advantages in stocks, futures, and currency trading.

The Power of Japanese Candlestick Charts delves into the effectiveness of the methodology as a stand-alone technique, but Fred Tam contends that candlesticks are most profitable when integrated with trend analysis and technical indicators such as Moving Average, RSI, Momentum, MACD, Stochastic, DMI, CCI, Percent R, Bollinger Bands, and Elliott Wave Theory, among others. It is this holistic and integrated investment approach that Mr. Tam is uniquely positioned to provide to readers, and it is why this book is an invaluable resource for profit-driven traders, technical analysts, and investors.

A comprehensive guide to profiting from candlestick charting techniques

Japanese candlestick charting is a time-tested and highly effective method for timing the market for short-term and long-term profits. With hundreds of illustrated charts taken from leading international companies, currencies, and commodities, noted author and futures trading expert Fred Tam demonstrates the predictive power of candlestick charting signals and how to properly integrate them with proven Western technical analysis techniques to maximize returns in any market.

The Power of Japanese Candlestick Charts explores the many advantages of the candlestick charting methodology, including:

• Leading Indicator – the ability to show reversal signals earlier than Western charting techniques
• Visual – pictorial chart construction allows traders to immediately recognize buy and sell signals
• Versatile – can be used alone or with Western technical analysis techniques
• Flexible – can be used across any time dimension and with any market or multiple markets simultaneously

Candlestick charting is a proven methodology as a stand-alone market analysis tool, but Fred Tam contends that it is even more powerful when combined with trend analysis and technical indicators like Moving Average, RSI, Momentum, MACD, Stochastic, DMI, CCI, Percent R, Bollinger Bands, and Elliott Wave Theory. The Power of Japanese Candlestick Charts is a comprehensive and valuable guide to candlestick charting that is perfect for analysts, stock or day traders, and short-term position traders.