Top 10 Most Ridiculous Names For Japanese Candlesticks
There's an old Japanese proverb that says,
"If you wish to know the road, inquire of those who have traveled it"
Technical Analysis is relatively new to us in the Western world. Charlie Dow wrote down his principles towards the end of the 1800s. But technicals can be traced all the way back to early 18th Century Japan when the Dijima Rice Exchange began to issue and accept rice warehouse receipts. These rice receipts were essentially the first futures contracts ever traded. My man Munehisa Homma originally started trading at his local rice exchange in the port city of Sakata. This is why you frequently come across the "Sakata Rules" regarding Japanese Candlesticks. After Homma dominated his local markets, he went to trade in what today we call Tokyo. In order to learn about the psychology of investors, Homma analyzed prices on the rice exchanges going back to the 1600s.
From Steven Nison:
"Technical Analysis is the only way to measure the emotional component of the market. We know that many times an ounce of emotion can be worth a pound of facts. How else to explain a sudden shift in the market without a change in the fundamentals?
A fascinating attribute to candle charts is that the names of the candle patterns are a colorful mechanism describing the emotional health of the market at the time these patterns are formed. After hearing the expression, "dark-cloud cover," would you think the market is in an emotionally healthy state? Oh course not! This is a bearish pattern and the name clearly conveys the unhealthy state of the market."
Some of the names of these candles make a lot of sense. But just for fun, here is a list of what I think are the top 10 most ridiculous names for Japanese Candlesticks:
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1) Abandoned Baby – A very rare top or bottom reversal signal. It is comprised of a doji star that gaps away (including shadows) from the prior and following sessions’ candlesticks. This is the same as a western island top or bottom in which the island session is also a doji.
2) Gravestone Doji – a doji in which the opening and closing are at the low of the session. It is a reversal signal at tops. The opposite of this doji is the dragonfly doji
3) Dark Cloud Cover – a bearish reversal signal. In an uptrend a long white candlestick is followed by a black candlestick that opens above the prior white candlestick’s high (or close) and then closes well into the white candlestick’s real body – preferably more than halfway.
4) Dumpling Tops – similar to the Western rounding top. A window to the downside is needed to confirm this as a top. Its bullish opposite is the frypan bottom.
5) Hanging Man – a top reversal that requires confirmation. The hanging man and the hammer are both the same type of candlestick line, with little or no upper shadow, at the top of the session’s range and a very long lower shadow. But when this line appears during an uptrend, it becomes a bearish hanging man. It signals the market has become vulnerable, but there should be bearish confirmation the next session with an open, and better is a close, under the hanging man’s real body. In principle, the hanging man’s lower shadow should be two or three times the height of the real body.
6) Petrifying Pattern – a two-candlestick pattern in which a small real body holds within the prior session’s unusually large body. The color of the second real body can be white or black. Also known as a harami cross, this pattern consists of a a doji on the second session instead of a small real body. An important top (bottom) reversal signal especially after a tall white (black) candlestick.
7) Piercing Pattern – a bottom reversal signal. In a downtrend, a long black candlestick is followed by a gap lower open during the next session. This session finishes as a strong white candlestick that closes more than halfway into the prior black candlestick’s real body.
8) Shaved Bottom – simply a candlestick with no lower shadow
9) Three Buddha Bottom – this is the same as the western Head and Shoulders. In Japanese terms, the three Buddha top is a three mountain top in which the central mountain is the tallest. This is the opposite.
10) Tweezer Top – when the same highs or lows are tested on back-to-back sessions. They are minor reversal signals that take on extra importance if the two candlesticks that comprise the tweezers pattern also form another candlestick indicator. For example, if both sessions of a harami cross have the same high, it could have more significance since there would be a tweezers top and bearish harami cross made by the same two candlesticks.
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And there you have it. The top 10 most ridiculous names for Japanese Candlesticks. All kidding aside, I really do find a lot of value in the visual benefits that candles bring to us technicians. I would only add that what these candlesticks are called is much less important than their actual implications. Candlesticks, like bars and lines, are just another way to visualize supply and demand. The best part is that these aren't estimates or anything that will eventually get revised. This is a representation of the only truth that we can count on: Price.
Related Posts:
Know Your Japanese Candlesticks (Nov 24th 2012)
How Do You Like Your Candles (Oct 29th 2013)
Source:
Japanese Candlestick Charting Techniques (Nison)