Candlestick Strategies 5

 Hanging man

Hanging man candlestick formations are another reversal pattern. This formation typically happens following a prolonged uptrend each time a security moves significantly lower following the open, but rallies to close well above the intraday low. It is very important emphasize the hanging man pattern is really a warning of potential price change, not really a signal, in and of itself, to reach short.

“Hang ‘em high” (below ) includes an example found in Alcoa (AA ). On Feb. 15, Alcoa formed a hanging man pattern after a short uptrend, Alcoa opened at $9. 34 created a higher of $9. 36, a coffee of $9. 20 after which closed at $9. 32. So after made a low of $9. 20, Alcoa recovered and closed almost near its opening price.

A trader may need taken short positions when the Feb. 15 low of $9. 20 was taken in subsequent trading sessions. This happened on Feb. 19 when Alcoa opened at $9. 31. When the $9. 20 level was broken, shorts may need been initiated, having a stop loss set in the Feb. 15 high of $9. 36. In later trading sessions, Alcoa reached a coffee of $8. 30.

Although they‘re relatively reliable, candle patterns are only one tool inside a trader’s toolbox. Traders should integrate candlestick analysis, moving averages, Bollinger bands, price patterns (for example triangles ) and indicators (for example stochastic or CCI ) to attain trading decisions. In fact, the break of the simple trendline is really a powerful message that shouldn‘t be ignored, particularly when done about of reversal formations.

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Candlestick Strategies (2)

DOJI
The Doji  is one of the most important candlestick patterns. A doji formation is a single-candle pattern. It occurs when prices opened and closed at the same level. A doji represents equilibrium between supply and demand, a tug of war that neither the bulls nor bears are winning. Traders should not take action on the doji alone. Always wait for the next candlestick to make an appropriate trade.
After a long uptrend, the appearance of a doji can be an ominous warning sign that the trend has peaked or is close to peaking. The converse holds true for a downtrend. When assessing a doji, always take careful notice of where the doji occurs. If the security you’re examining is still in the early stages of an uptrend or downtrend, then it is unlikely that the doji will mark a top, but it could precede a pause in the current trend move. It can be viewed as a pivot.
“Top marker” (below) includes an example of a successful doji pattern. As shown in the daily chart, the S&P 500 started its rally from June 25, 2013, reached a high of 1709 on Aug. 2, and then on Aug. 5, the index opened at 1708 and closed at 1707.41. The open and the high were almost the same, which are the qualifications for the doji candlestick pattern.


Confirmation of a new downtrend came on Aug. 6 when the S&P 500 broke the Aug. 5 low of 1703 and closed at 1697.3. A reasonable stop loss could have been placed at the Aug. 5 high of 1709.

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Candlestick Strategies (1)

Candlestick are one of the most powerful technical analysis tools in the trader’s toolkit. They are also one of the most prevalent. Most technical analysis programs use candlesticks as the default mode of charting. Used correctly, candlesticks can give a signal in advance of much other market action. They can be a leading indicator of market activity.
But familiarity doesn’t necessarily breed expertise. There are perhaps more than 100 individual candlesticks and candlestick patterns. This is a daunting amount of information for a trader to understand and apply.
As with most things, some candlestick patterns are more useful than others. Here, we will take a look at some of the most viable for stock traders. These are candlestick patterns that experience shows have the most relevance to making consistently profitable trading decisions. Used correctly, they should increase the accuracy of your predictions.

Candle basics
For those not familiar with the details of candlestick charting, it’s important to go over the fundamentals. The difference between the open and the close is called the “real body” of the candlestick. The higher of these values creates the upper extreme of the real body, and the lower of these values creates the lower extreme. The amount the stock rose in price above the real body is called the upper shadow. The amount that the stock fell below the real body is called the lower shadow.
If the candle is green or white, it means the lower extreme is defined by the opening price and that the stock’s price rose during the period being charted. If the candle is red or black, then the lower extreme identifies the closing price, and the stock fell during the period.
Candles may be created for any time period: Monthly, weekly, hourly or even a minute. Regardless of the time frame, candlesticks should not be judged in isolation; traders should always look for follow-up action to confirm any signals during the following applicable period.

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