Contents
Contents  PFP Candlestick Training

This help files has been provided for all Pattern Forecaster Plus users to assist them in learning and using the ancient art of Japanese Candlesticks for trading.  This help file should not be considered the end all, be all training document for Japanese Candlesticks.  Within this help file, I will attempt to disclose and discuss many of the common Japanese Candlestick pattern formations, their meanings and how one should interpret them, as well as discuss many of the common facts and fictions about Japanese Candlesticks.

The Beginning of Japanese Candlesticks

Japanese Candlestick Fictions

Japanese Candlestick Facts

Japanese Candlestick Patterns

Learning to Read and Understand a Candlestick Chart

Other investment resources and training tools can be accessed by visiting my web site and clicking on the RESOURCES button.  My web site address is http://www.ment.com

All contents and information herein is exclusively owned by Matheny Enterprises.  Copyright Matheny Enterprises 1998.  The Pattern Forecaster Plus (PFP) is a trademark of Matheny Enterprises.  This file is protected by US copyright laws and International copyright treaties.

Contact Matheny Enterprises at:

33332 Nottingham Way, Unit C

Dana Point, California  92620  USA

Phone : (714) 240-6977

Fax : (714) 248-8747

E-mail : Bmatheny@ment.com


The Beginning of Japanese Candlesticks

The Japanese Candlestick trading technique was created in the 14th century by a man named Sokoyu Homma.  Mr. Homma was adopted, at a young age, by a fairly wealthy family who grew rice in the city of Sakata.  At the time, rice was, and still is, a very important part of the Japanese culture.

When Mr. Homma was a young adult, he began interacting with and tracking the activities of the local Wet Market where all types of goods were sold and traded, including rice baskets.  He soon realized that if he to identify the price increases and decreases of the markets local goods, he could make money buying, selling and trading the goods at the wet market.

Mr. Homma began tracking the related prices of the goods that were being sold, purchased and bartered at the local market.  Over time, he created his first charting method to track these prices  called the Anchor Chart.  The Anchor chart is believed to have been an adaptation of a style of chart developed in Europe.  The Anchor chart was the predecessor to the candlestick chart.  The Anchor chart reflected the open, high, low and closing price of a respective trading session, but was somewhat difficult to read, Homma revised the chart and developed what is now the candlestick chart from the anchor chart.

Mr. Hommas original conception of the candlestick pattern formations is now called the Sakatas Five Methods.  The Sakatas Five Methods technique consists of five (5) individual pattern groups as well as the Samni No Den.  All of the patterns included within this group are based on the number three (3).  The number three (3) is believed to be a very powerful number and the cultural belief in Japan is that this number has a divine power.  This original group of patterns consists of the following types of patterns:

Samni No Den

The Samni No Den is a theory Mr. Homma adopted to assist in his trading.  This is much like risk management and the rules of how to trade any market.  It consisted of the following (these are not direct quotes):

A.	If one is long the market and it rises by 100 points, one should purchase another contract.

B.	If one is short the market and it falls by 100 points, one should sell another contract.

C.	If one enters a trade and it results in losses, one should stay out of the market for a while and re-evaluate one position.

D.	One should not always be buying or selling the markets, often one should stay out of the market.

E.	Any market will typically react based on the laws of the Three Levels.  The Three Levels teaches us that any market move will typically consist of three (3) advancing trend waves and two (2) declining retracement waves (in the case of a bullish trend), or three (3) declining trend waves and two (2) advancing retracement waves (in the case of a bearish trend).  The initial two (2) trend waves will be followed by one (1) retracement wave.  After the third trend wave is completed, one should expect the market to reverse trend and begin the Three Levels method in the reverse direction.  This theory is very similar to the basic principles of the Elliot Wave Theory

The Patterns within the Sakatas Five Methods

Three Mountains

    This pattern formation is similar to the Western Head and Shoulders formation and the

    inverted Head and Shoulders formation.

Three Gaps

    This pattern formation describes the belief that if a market generated three (3) price

    gaps within a defined trend, the market is believed to have reached the exhaustion point.

Three Parallel Lines

    This pattern formation describes the ability of a market to show its intention to continue

    trending.  When three (3) candles of the same color and of large size appear side-by-

    side, the belief is that the market is growing in strength in the direction of the side-by-

    side lines.

Rising and Falling Three Methods

    This pattern formation is again an illustration of the markets ability to continue trending.

    This pattern is created when three (3) small opposite colored candles fall within the

    range of the first and last primary colored candles with the last candle closing higher, or

    lower, than the first.

Three River Morning & Evening Stars

    This pattern formation is a classic bottom (BUY) or top (SELL) formation.  The actual term Three River refers to a battle for farmland between three farmers where a forked river separated the three farmlands.  When one farmer was able to takeover one of the others farmland, that farmer now had the advantage in the battle.  Thus, the Three River Star formations represents a shift in the advantage of the two (2) forces of the market (buying and selling).

More information on this subject can be found in a book titled The Japanese Chart of Charts authored by Seiki Shimizu.


Japanese Candlestick Fictions

Many of the common misconceptions of the Japanese Candlestick technique are described herein.  It is important for investors to understand these concepts so they can attempt to steer away from these issues.  If you dont know they are incorrect, you may trade based on an ill-conceived concept.

1.	All candlestick pattern formations will predict a future price move.

2.	Dojis always appear at market tops and bottoms

3.


Japanese Candlestick Facts

This section will illustrate the facts about Japanese Candlesticks and assist you in using the Candlestick technique.  The facts detailed herein can be generally applied to any candlestick chart (or market).  Although, sometimes the markets move in such a way that some of these facts may not apply.

1.	Candlesticks are a Leading Indicator.

2.	Candlesticks will provide investors with a keen insight on the markets.

3.	Candlesticks can be used on any chart that includes the open, high, low and closing price.

4.	The term Candlesticks translates to Nihaba Ashi in Japanese.  This term refers to the lower portion of the leg and is commonly used to describe Foot Prints in Japan.

5.	Mr. Homma, the original developer of the candlestick technique, became a millionaire by using his techniques.

6.	Candlesticks should be used with other Western technical indicators to better predict a potential future market move.

7.	Conservative investors should wait for confirmation signals to identify entry and exit positions.

8.	Aggressive investors should may enter and exit positions without waiting for confirmation signals.

9.	ALL investors should regularly refer to a Weekly chart to better understand the markets overall trending capabilities.  Weekly charts can also be used by position traders (long-term) to clearly identify major tops and bottoms.

10.


Japanese Candlestick Patterns

This section describes and details many of the Japanese Candlestick pattern formations.  PFP users should refer to this section to gain a better understanding of the types of Candlestick formations that may appear within a chart and how to interpret them.

    Engulfing Bullish/Bearish Lines

    Bullish/Bearish Harami Lines

    Dark Cloud Cover Pattern

    Incomplete Dark Cloud Cover Pattern

    Piercing Line Pattern

    Thrusting Pattern

    Three River Evening Star Pattern

    Three River Morning Star Pattern

    Inverted Hammer/Shooting Star Pattern

    Hammer/Hangman Pattern

    True Doji Patterns

    Doji Pattern Formations

    Tweezers Tops Patterns

    Tweezers Bottoms Patterns

    Side-by-side Bullish Lines

    Side-by-side Bearish Lines

    Bullish Three Gaps Pattern

    Bearish Three Gaps Pattern

    Doji Star & Star Patterns


Engulfing Bullish/Bearish Patterns
Engulfing Bullish/Bearish Lines

The Engulfing Bullish pattern is formed when a white candle is completely engulfed by a larger black candle after an extended down trend.  In some cases, this pattern will form after a retracement of a bullish trend to begin another bullish rally.

The Engulfing Bullish pattern represents a complete reversal of a previous bearish trend.  This type of pattern is a very common type of bottom reversal formation and is commonly found at the beginning of bullish rallies.  Confirmation of this type of pattern would occur with a following session that is a white candle and closes higher with a higher high and low price.

A variation of the Engulfing Bullish pattern is the Last Engulfing Bullish pattern.  This pattern looks similar to the example above and is found after an extended bullish trend.  The Last Engulfing Bullish pattern represents the bulls final attempt to drive the market higher.  If one is long and a Last Engulfing Bullish pattern forms, one should identify a protective stop level near the lows of the Last Engulfing Bullish pattern to protect any profit in the trade.

The Engulfing Bearish pattern is the reverse of the Engulfing Bullish pattern.  It is formed when a black candle is completely engulfed by a larger white candle after an extended up trend.  The Engulfing Bearish pattern is commonly found at market tops and at the beginning of a bearish price decline.

Again, a variation of this pattern is called the Last Engulfing Bearish pattern.  This variation is commonly found after an extended down trend and represents the bears final attempt to drive the market price lower.  If one is short and a Last Engulfing Bearish pattern forms, one should identify a protective stop level near the highs of the Last Engulfing Bearish pattern to protect any profit in the trade.

Western traders call this type of pattern an Outside Day because the current sessions range completely engulfed the previous sessions range.

The Engulfing Bullish and Engulfing Bearish patterns can also be found at corrections in a long-term market trend.  When the market attempts to breathe by correcting from its original trend before resuming the original trend, often an Engulfing pattern will form.  Investors should be aware of this formation because the market may not correct far enough for any profits to result in the trade.  Investors should use a protective stop level to protect against such unwanted losses.


Bullish/Bearish Harami Lines

The Bullish Harami Line is a common type of bullish reversal pattern.  The formation of a Bullish Harami line does not indicate that the investor should take action (buy or sell).  It simply means that the market MIGHT reverse to the up side.  Investors should always wait for confirmation of this type of pattern formation before entering a position.

The Bearish Harami Line is a common type of bearish reversal pattern.  The formation of a Bearish Harami lin does not indicate that the investor should take action (buy or sell) either.  It simply implies that the market MIGHT reverse to the down side.  Investors should always wait for confirmation of this type of pattern formation before entering a position in the market.

Harami lines are very common within the market.  They often form within congestion (or consolidation) of a market trend.  Investors should not be mislead by the formations of Harami lines in a congesting market trend.  Wait for a confirmation of the Harami line formation before entering a position.  Also, investors should watch the chart for signs that the markets activity after the Harami line has broken above or below the previous trading range.  This type of market breakout is a much better sign that the market may continue to trend.

The term Harami translates to Pregnant in Japanese.  The actual meaning of the term is a body within a body.


Dark Cloud Cover
Dark Cloud Cover Pattern

The Dark Cloud Cover pattern is formed when a white candle is followed by a black candle that opens higher than the white candles close and when the black candle closes below the mid-point of the white candles body.  If the black candle is not able to close below the mid-point of the white candles body, then one should consider the formation as Incomplete Dark Cloud Cover formation.

The Dark Cloud Cover pattern is a good indicator of potential bearish market reversals.  Often the Dark Cloud Cover pattern will form at the exact high (end) of a bullish trend.  Conservative investors should also wait for confirmation of this pattern formation.  Confirmation of any bearish pattern occurs when a bearish pattern is followed by a black candle with a lower close, lower high and lower low price.

Notice:  Sometimes, by the time the confirmation candle is formed, the majority of the bearish trend has occurred.  By this I am attempting to inform investors that sometimes as aggressive short position after a Dark Cloud Cover pattern has formed will result in good profits by the time the confirmation candle forms.  Aggressive investors should always use a protective stop level to protect against unwanted losses.  An appropriate protective stop level for the Dark Cloud Cover pattern would be at, or near, the highs of the Dark Cloud Cover pattern.


Incomplete Dark Cloud Cover Patterns
Incomplete Dark Cloud Cover Pattern

The Incomplete Dark Cloud Cover pattern is formed when a white candle is followed by a black candle that opens higher than the white candles close and when the black candle is not able to close below the mid-point of the white candles body.

The Incomplete Dark Cloud Cover pattern is a good indicator of potential bearish market reversals when it is a confirmed signal.  Often the Incomplete Dark Cloud Cover pattern will form at the exact high (end) of a bullish trend, or just prior to a correction of a bullish trend.  All investors should also wait for confirmation of this pattern formation before entering a market position.  Confirmation of any bearish pattern occurs when a bearish pattern is followed by a black candle with a lower close, lower high and lower low price.

The Incomplete Dark Cloud Cover pattern is also VERY common within a bullish trend as the market attempts to breathe.  Any market will attempt to breathe within a trend.  The way a market breathes, for example, is to correct from its overall trend for a short period of time before resuming the original trend again.  This type of market price activity is commonly caused by short-term investors pulling profits.

Notice:  Sometimes, by the time the confirmation candle is formed, the majority of the bearish trend has occurred.  By this I am attempting to inform investors that sometimes as aggressive short position after a Dark Cloud Cover pattern has formed will result in good profits by the time the confirmation candle forms.  Aggressive investors should always use a protective stop level to protect against unwanted losses.  An appropriate protective stop level for the Dark Cloud Cover pattern would be at, or near, the highs of the Dark Cloud Cover pattern.


Piercing Line Pattern

The Piercing Line pattern is formed when a black candle is followed by a white candle that opens below the close of the previous black candle and closes above the mid-point of the black candles body.  It is the reverse and inverse of the Dark Cloud Cover pattern.

The Piercing Line pattern is not very common.  It represents a potential bullish market reversal.  Conservative traders should wait for confirmation of this pattern.  Confirmation of any bullish pattern occurs when the bullish pattern is followed by a white candle with a higher close, higher high and higher low.

Much like the Dark Cloud Cover pattern, the Piercing Line pattern can form within a down-trend as the market breathes.  This is why confirmation of the Piercing Line pattern is important for investors and why investors should attempt to gauge the markets conditions before acting on this pattern formation.


Thrusting Pattern

The Thrsting Line pattern is formed when a black candle is followed by a white candle that opens below the close of the previous black candle and is not able to close above the mid-point of the black candles body.  This pattern is the reverse and inverse of the Incomplete Dark Cloud Cover pattern.

The Thrusting Line pattern is not very common.  It represents a potential bullish market reversal only when two of these patterns appear within a down trend.  Conservative traders should wait for confirmation of this pattern before entering a market position.  Confirmation of any bullish pattern occurs when the bullish pattern is followed by a white candle with a higher close, higher high and higher low.

Much like the Incomplete Dark Cloud Cover pattern, the Thrusting Line pattern can form within a down trend as the market breathes.  This is why confirmation of the Thrusting Line pattern is important for investors and why investors should attempt to gauge the markets conditions before acting on this pattern formation.


Three River Evening Star Pattern

The Three River Evening Star pattern formation occurs when a white candle is followed by a gapping star (any color), then followed by a black candle that is gapping below the star candle.  This pattern formation represents a potential market top formation, and/or a sell signal.  This pattern formation is unique because it not only identifies a potential market top, but it identifies a resistance level.  The resistance is found at, or near, the high of the star candle.

The Three River Evening Star pattern is somewhat rare and can sometimes be found within a consolidating market.  When the Three River Evening Star pattern is found after an extended bullish trend, it will often identify a potential market top.  When the Three River Evening Star pattern is found within market consolidation, one should not expect the market to form a top and immediately sell-off.  If the Three River Evening Star pattern is found within market consolidation and the Doji Star is well above the consolidation level, one should expect the resistance level to hold and the market to eventually sell-off.

This pattern will also be precluded by a Doji Star pattern formation.  The Doji Star pattern will form prior to the completion of the Three River Evening Star pattern.  Doji Star patterns are typically found at, or near, market tops or bottoms.  Although, sometimes a Doji Star pattern can form within a trend as the market attempts to break above or below a previous support or resistance level.

The story behind the Three River patterns is as follows:

In Japan, there were three rice farmers on three separate rice farms, all separated by a river which joined between their farms.  One day, the farmers began fighting for control of each others land to grow more rice.  The battle continued for many days until one farmer managed to takeover one of the other farmers rice fields.  The farmer who gained control of two rice farms had the obvious advantage and finally took over the last rice farm.


Three River Morning Star Pattern

The Three River Morning Star pattern formation occurs when a black candle is followed by a gapping star (any color), then followed by a white candle that is gapping above the star candle.  This pattern formation represents a potential market bottom formation, and/or a buy signal.  This pattern formation is unique because it not only identifies a potential market bottom, but it identifies a support level.  The support is found at, or near, the low of the star candle.

The Three River Morning Star pattern is somewhat rare and can sometimes be found within a consolidating market.  When the Three River Evening Star pattern is found after an extended bearish trend, it will often identify a potential market bottom.  When the Three River Morning Star pattern is found within market consolidation, one should not expect the market to form a bottom and immediately rally.  If the Three River Morning Star pattern is found within market consolidation and the Doji Star is well below the consolidation level, one should expect the support level to hold and the market to eventually rally.

This pattern will also be precluded by a Doji Star pattern formation.  The Doji Star pattern will form prior to the completion of the Three River Morning Star pattern.  Doji Star patterns are typically found at, or near, market tops or bottoms.  Although, sometimes a Doji Star pattern can form within a trend as the market attempts to break above or below a previous support or resistance level.

The story behind the Three River patterns is as follows:

In Japan, there were three rice farmers on three separate rice farms, all separated by a river which joined between their farms.  One day, the farmers began fighting for control of each others land to grow more rice.  The battle continued for many days until one farmer managed to takeover one of the other farmers rice fields.  The farmer who gained control of two rice farms had the obvious advantage and finally took over the last rice farm.


Inverted Hammer/Shooting Star Pattern

The Inverted Hammer and Shooting Star patterns are part of a larger group of candlestick patterns called the Umbrella Lines.  The Umbrella line candles include the Inverted Hammer, the Hammer, the Shooting Star and the Hangman.  This pattern group can form in either color (black or white).  This pattern group is one of the only pattern types that is irrelevant of candle color.  The other pattern types that shares these conditions are the Doji pattern group and the Doji Star pattern group.

The Inverted Hammer and the Shooting Star patterns are the exact same candle formation.  What makes this type of candle an Inverted Hammer is when this candle forms after a market down trend.  Then it is said that the market is attempting to hammer out a bottom (like the Japanese did to create their copper woks).  Confirmation of the Inverted Hammer pattern will generate a buy signal.

When this type of candle is found after an up trend and is gapped above the previous candle, it is considered a Shooting Star because of it resemblance to a star shooting across the night sky with a long tail.  Confirmation of the Shooting Star pattern will generate a sell signal.

Notice:  Investors should continually watch for Dojis and the Umbrella group of candles.  These candle types will typically precede a major market reversal.  In fact, many investors have told me these types of candles are some of the most important candle types for investors to use.


Hammer/Hangman Pattern

The Hammer and Hangman patterns are part of a larger group of candlestick patterns called the Umbrella Lines.  The Umbrella line candles include the Inverted Hammer, the Hammer, the Shooting Star and the Hangman.  This pattern group can form in either color (black or white).  This pattern group is one of the only pattern types that is irrelevant of candle color.  The other pattern types that shares these conditions are the Doji pattern group and the Doji Star pattern group.

The Hammer and the Hangman patterns are the exact same candle formation.  What makes this type of candle a Hammer is when this candle forms after a market down trend.  Then it is said that the market is attempting to hammer out a bottom (like the Japanese did to create their copper woks).  Confirmation of the Hammer pattern will generate a buy signal.

When this type of candle is found after an up trend it is considered a Hangman because of it resemblance to a man hanging from a noose.  Confirmation of the Shooting Star pattern will generate a sell signal.

Notice:  Investors should continually watch for Dojis and the Umbrella group of candles.  These candle types will typically precede a major market reversal.  In fact, many investors have told me these types of candles are some of the most important candle types for investors to use.


True Doji Patterns

A true Doji is created when the open and close for a single session are exactly the same.  These types of Dojis are called a Doji Cross.  Dojis are a sign of market consolidation and represent a potential market reversal.  Often, Dojis form in thinly traded markets, during market consolidation, at market tops and bottoms, or just prior to a market reversal.

The first example above is that of a Long Legged Doji, or a large Doji line.  Large Dojis occur when the high to low range is great and the open and close are equal.  The second example is that of a Small Doji Line.  Small Dojis occur when the high to low range is rather small and the open and close are equal.

Dojis also form in groupes called Doji Clusters.  These Doji Clusters often form just prior to a big market move, or near the end of a consolidation period.  Doji Clusters can be very important pattern formations for investors to watch for.  Also, look through a chart to see if these Doji Clusers have formed in the past.  This will give you a good indication if they will form again.


Doji Pattern Formations

Dojis can also form if the open and close prices are not equal.  For these types of Dojis to form, the open to close price ratio must be very close.  As a good general rule, the open to close range should be equal to, or less than, 10% of the high to low range.

When a Doji forms with an opening and closing price that are not equal, the color of the Doji (black or white) is not really important to the candle.  Although, in some cases the color may provide some clue as to the potential future price move of the market, investors should not rely on this technique.

The first example above is that of a Long Legged Doji, or a large Doji line.  Large Dojis occur when the high to low range is great and the open and close are equal.  The second example is that of a Small Doji Line.  Small Dojis occur when the high to low range is rather small and the open and close are equal.

Dojis also form in groupes called Doji Clusters.  These Doji Clusters often form just prior to a big market move, or near the end of a consolidation period.  Doji Clusters can be very important pattern formations for investors to watch for.  Also, look through a chart to see if these Doji Clusers have formed in the past.  This will give you a good indication if they will form again.


Tweezers Tops Patterns

The Tweezers pattern is the only candlestick pattern that is based on the highs or lows and not the body of the candles or the shape of the candles.  The Tweezers Tops pattern occurs when two candles form with the exact same high price.  These two candles can be side-by-side, or separated by a few other candles.

The Tweezers Tops pattern identifies a resistance level at the high prices.  When the Tweezers Tops pattern confirms with a black candle that closes lower, a lower high and a lower low, the Tweezers Tops pattern will generate a sell signal.

Investors should also notice that Tweezers patterns are VERY common in thinly traded markets and can also be found within congestion bands.  Investors should ignore the Tweezers patterns within a thinly traded market and should pay close attention to Tweezers patterns within a congestion band.  Tweezers patterns within a congestion band can be used to determine where and when previous support and resistance levels identified by the Tweezers patterns has been broken.  Once these support and resistance levels have been broken, investors should watch for the market to continue higher or lower from these levels.


Tweezers Bottoms Patterns

The Tweezers pattern is the only candlestick pattern that is based on the highs or lows and not the body of the candles or the shape of the candles.  The Tweezers Bottoms pattern occurs when two candles form with the exact same low price.  These two candles can be side-by-side, or separated by a few other candles.

The Tweezers Bottoms pattern identifies a support level at the low prices.  When the Tweezers Bottoms pattern confirms with a white candle that closes higher, a higher high and a higher low, the Tweezers Bottoms pattern will generate a buyl signal.

Investors should also notice that Tweezers patterns are VERY common in thinly traded markets and can also be found within congestion bands.  Investors should ignore the Tweezers patterns within a thinly traded market and should pay close attention to Tweezers patterns within a congestion band.  Tweezers patterns within a congestion band can be used to determine where and when previous support and resistance levels identified by the Tweezers patterns has been broken.  Once these support and resistance levels have been broken, investors should watch for the market to continue higher or lower from these levels.


Bullish Side-by-side Lines
Side-by-side Bullish Lines

Bullish Side-by-side lines are part of the Sakatas Five Methods theory that is the fundamental basis of candlesticks.  This pattern is formed when three larger sized white candles form one after another without any gaps separating them.  This pattern formation is called Three White Soldiers.

The Three White Soldiers pattern is a bullish continuation pattern and is actually showing that the market is accelerating upward.  Ideally, one would expect another type of pattern prior to the Three White Soldiers that would have generated a buy signal.  Then the Three White Soldiers pattern may form to indicate the trend in gaining strength.


Bearish Side-by-side Lines
Side-by-side Bearish Lines

Bearish Side-by-side lines are part of the Sakatas Five Methods theory that is the fundamental basis of candlesticks.  This pattern is formed when three larger sized black candles form one after another without any gaps separating them.  This pattern formation is called Three Crows.

The Three Crows pattern is a bearish continuation pattern and is actually showing that the market is accelerating downward.  Ideally, one would expect another type of pattern prior to the Three Crows that would have generated a sell signal.  Then the Three Crows pattern may form to indicate the trend in gaining strength.


Bullish Three Gaps Pattern

The Bullish Three Gaps pattern occurs when a series of three bullish price gaps form with a bullish trend.  These gaps do not need to be consecutive and often span more than 30 trading sessions before completing the pattern formation.

The Bullish Three Gaps pattern is an exhaustion signal that indicates the bullish trend is likely to end soon.  After the three gaps pattern forms, the market is not likely to reverse immediately.  It may still take a few trading sessions, and possibly a consolidation of the market trend before the market reverses.


Bearish Three Gaps Pattern

The Bullish Three Gaps pattern occurs when a series of three bullish price gaps form with a bullish trend.  These gaps do not need to be consecutive and often span more than 30 trading sessions before completing the pattern formation.

The Bullish Three Gaps pattern is an exhaustion signal that indicates the bullish trend is likely to end soon.  After the three gaps pattern forms, the market is not likely to reverse immediately.  It may still take a few trading sessions, and possibly a consolidation of the market trend before the market reverses.


Doji Star Pattern
Doji Stars & Stars

A Doji becomes a Doji Star when it gaps above or below the previous candles body.  If the Doji does not gap above the previous candles body, it is simply considered a Doji and will likely form a Harami Line pattern.

When the Doji Gaps above the previous candles body, it is considered to be in the Star formation.  As we have learned earlier, when a Doji Star forms, it may continue to form into a Three River Evening pattern, or a Three River Morning pattern.  Also, sometimes the Umbrella group of candles can be considered Dojis because the have a very small body compared to the shadows range.  Therefore, the umbrella candles can sometimes be considered Stars if the body of the Umbrella line gaps above or below the previous candles body.

The other type of candle formation that can be considered a star is small lines (any small candlestick  white or black).  Again, these candles must gap above or below the previous candles body  just as all the others to be considered a Star.


Learning to Read & Understand Candlestick Charts
Learning to Read and Understand Candlestick Charts