Über die Autorin bzw. den Autor

Gregory L. Morris is a portfolio manager for PMFM, Inc., managing the PMFM Core Advantage Portfolio Trust mutual fund. One of the world's leading experts on candlestick charting, Morris is a consultant and the former CEO of MurphyMorris.com, which he and a partner founded and later sold to StockCharts.com. He is the author of The Complete Guide to Market Breadth Indicators, along with numerous articles for professional publications, and has spoken to thousands of traders and investors at industry conferences around the world.

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The classic Japanese candlestick reference, updated with all-new insights and tools to improve your predictive accuracy

Candlestick Charting Explained takes the subjectivity out of Japanese candlestick analysis by providing you with standardized, straightforward coverage of 89 powerful candlestick patterns. Inside you will learn what they indicate about current trader behavior and how you can use each to instantly improve your market knowledge and analytical precision.

In this revised and expanded third edition, candlestick expert Greg Morris updates his influential guidebook with valuable new material and patterns to give you:

• Thorough coverage of candlestick patterns to allow instant analysis of investor attitude and probable market direction
• Methods for integrating candlesticks with traditional Western charting analysis for enhanced signal verification
• Completely new section by Ryan Litchfield dedicated to "Trading with Candlesticks"
• Current insights into trader psychology, and how it impacts interactions between buyers and sellers

Its in-depth exploration of traditional as well as all-new candlestick charts, Candlestick Charting Explained will show you how to make candlestick charting a logical, understandable, and profitable component of your current trading program.

Empower your trading with Japanese candlestick charting

Japanese candlestick charts dramatically improve your understanding of short-term (less than a week) market sentiment, making you a much more informed and focused trader of stocks, futures, and indices. The bestselling Candlestick Charting Explained focuses on the patterns themselves and highlights the key facts you need to know to apply each pattern to your trading. For each of 89 distinctive candle patterns, its standardized format provides you with:

• Commentary--Description of pattern and significance of its name, insights into unique features, and other concise explanation
• Rules of Recognition--Simple rules for quick, accurate identification along with precise, day-by-day descriptions of pattern development
• Scenarios and Psychology Behind the Pattern--Trading scenarios that could have led to the pattern's development, with general discussion of the psychology of each
• day's action
• Pattern Flexibility--Situations that change the pattern's effectiveness with explanations of allowable deviations from the classic pattern
• Pattern Breakdown--Instructions for reducing the pattern to a single candle line and whether or not outside confirmation is suggested or unnecessary
• Related Patterns--Patterns that have similar formations, could be considered variations, or are a part of this pattern
• Example--A graphic example of the pattern to both aid in recognition and eliminate costly confusion in pattern identification

Additional information and insights present different interpretations of candlesticks based on intraday instead of end-of-day events and action, improving signal reliability. The author's unique candle pattern filtering concept, instrumental in answering the "how" question, is updated to utilize today's larger universe of stock data. An all-new chapter provides practical application and perspective traders need to view candles in the context of today's computer-driven marketplace.

For millions of traders, candlesticks have become a key tool in creating and verifying trading signals. Candlestick Charting Explained is the only book you need to start integrating their proven versatility and effectiveness into your technical trading program.

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CANDLESTICK CHARTING EXPLAINED

McGraw-Hill

Contents

Chapter One

Japanese candlestick analysis is a valid form of technical analysis and should be treated as such. Promoters of instant wealth will always misdirect and abuse their rights, but in the end, they are not around long enough to cause any substantial damage. One should always look into any new technique with a healthy amount of skepticism. Hopefully, this book will keep that skepticism under control and unnecessary.

TECHNICAL ANALYSIS

When considering technical analysis, one should remember that things are quite often not always what they seem. Many facts that we learn are not actually true; and what seems to be the obvious, sometimes is not. Many people believe water runs out of a bathtub faster as it gets to the end; it doesn't. Some people may drink like a fish, but fish don't drink. George Washington neither cut down a cherry tree, nor threw a silver dollar across the Potomac. Dogs don't sweat through their tongues, Audi automobiles never mysteriously accelerated, and the Battle of Bunker Hill was not fought at Bunker Hill (Breed's Hill).

A good detective will tell you that some of the least reliable information comes from eye witnesses. When people observe an event, it seems their background, education, and other influences color their perception of what occurred. A most important thing that detectives try to do at a crime scene is to prevent the observers from talking to each other, because most would be influenced but what others say they saw.

Another curious human failing becomes a factor when we observe facts. The human mind does not handle large numbers or macro ideas well. That thousands of people die each year from automobile accidents raises scarcely an eyebrow, but one airplane crash, killing only a few people, grabs the nation. We are only modestly concerned that tens of thousands of people are infected with AIDS, but we are touched deeply when presented with an innocent child that has been indirectly infected. If a situation is personalized, we can focus on it. We can become deluded by our emotions, and these emotions can affect our perceptions. When our portfolios are plunging, all of the fears that we can imagine are dragged out: recession, debt, war, budget, bank failures, etc. Something is needed to keep us from falling victim to everyday emotion and delusion; that something is technical analysis.

Almost all methods of technical analysis generate useful information, which, if used for nothing more than uncovering and organizing facts about market behavior, will increase the investor's understanding of the markets. The investor is made painfully aware that technical competence does not ensure competent trading. Speculators who lose money do so not only because of bad analysis, but because of their inability to transform their analysis into sound practice. Bridging the vital gap between analysis and action requires overcoming the threats of fear, greed, and hope. It means controlling impatience and the desire to stray away from a sound method to something new during times of temporary adversity. It means having the discipline to believe what you see and to follow the indications from sound methods, even though they contradict what everyone else is saying or what seems to be the correct course of action.

JAPANESE CANDLESTICK ANALYSIS

As a new and exciting dimension of technical analysis, Japanese candlestick charting and candle pattern analysis will help people who wish to have another tool at their disposal; this tool will help sort and control the constant disruptions and continuous outside influences on sound stock and futures market analysis.

What does candlestick charting offer that typical Western high-low bar charts do not? As far as actual data displayed—nothing. However, when it comes to visual appeal and the ability to see data relationships easier, candlesticks are exceptional. A quick insight to the recent trading psychology is there before you. After a minimal amount of practice and familiarization, candlesticks will become part of your analysis arsenal. You may never return to a standard bar chart.

Japanese candlesticks offer a quick picture into the psychology of short-term trading, studying the effect, not the cause. This places candlesticks squarely in the category of technical analysis. One cannot ignore the fact that prices are influenced by investors' psychologically driven emotions of fear, greed, and hope. The overall psychology of the marketplace cannot be measured by statistics; some form of technical analysis must be used to analyze the changes in these psychological factors. Japanese candlesticks read the changes in the makeup of investors' interpretations of value. This is then reflected in price movement. More than just a method of pattern recognition, candlesticks show the interactions between buyers and sellers. Japanese candlestick charting provides insight into the financial markets that is not readily available with other charting methods. It works well with either stocks or commodities. Related analysis techniques, such as candlestick filtering and CandlePower (candle volume) charting, will add to your analysis and timing capabilities.

This book not only will serve as a complete guide to Japanese candlestick charting and candle pattern analysis, but will also provide conclusive evidence of the usefulness of candlestick patterns as an analysis tool. All methods of analysis and all assumptions will be opened and unobstructed. You will, after reading this book, either begin to use candlesticks to assist in your market analysis and timing or be confident enough in them to further your own research into candlestick analysis.

JAPANESE CANDLESTICKS AND YOU

Once you become accustomed to using candlestick charts, you will find it disconcerting to be limited to a standard bar chart. Without candlesticks, you will feel that you are not seeing the complete picture—that something is missing. Besides providing the quick and easy pattern recognition, candlesticks have great visual appeal. The data relationships almost jump off the page (or computer screen), hardly the case with bar charts.

CANDLESTICK CHARTS VERSUS BAR CHARTS

Throughout this book, the assumed time period will be a single day of trading. It should be understood that a bar or candle line can represent any trading period, not always just a day. However, daily analysis is probably the most common and will thus represent the period of trading for this book. Additionally, the mention of inventors, speculators, and traders will be used throughout with no attempt to classify or define them.

Standard Bar Charts

The data required to produce a standard bar chart consists of the open high, low, and close prices for the time period under study. A bar chart consists of vertical lines representing the high to low range in prices for that day. The high price refers to the highest price that the issue traded during that day. Likewise, the low price refers to the lowest price traded that day.

For years, the only other price element used in bar charting was the close price. The close was represented on the high-low bar as a small tick mark extending from the bar out to the right. Recently, bar charting has incorporated the open price by another small tick on the...