The Power of Japanese Candlestick Charts

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THE POWER OF JAPANESE

CANDLESTICK CHARTS

Advanced Filtering Techniques for Trading Stocks, Futures, and Forex

REVISED EDITION

Fred K. H. Tam

Cover image: © iStockphoto.com/P2007

Cover design: Wiley

Copyright © 2015 by John Wiley & Sons Singapore Pte. Ltd.

Published by John Wiley & Sons Singapore Pte. Ltd.

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All rights reserved.

First edition published by Pelanduk Publications in 2001.

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Single Candlestick Patterns

Double Candlestick Patterns

Triple Candlestick Patterns

Multiple Candlestick Patterns

This book is about applying the popular time-tested Japanese candlestick technique to spot market turning points. After all, making money from the markets is all about predicting correctly when the market is about to turn, and the Japanese candlestick technique does this job superbly.

I find the candlestick technique very applicable for trading actively traded financial instruments such as stock indices, foreign exchange (forex), commodities futures, and stocks. This is because most, if not all, financial instruments tend to exhibit short-term rallies only to be followed by short-term corrections regardless of their time frames. Their trading cycle ranges from 5 to 15 candles (see Figure P.1 and Figure P.2).

Figure P.1 Gold 15-Minute (2014) – Trading cycles range from 5 to 15 candles

Figure P.2 Dow Jones Industrial Average Daily (2010) – Trading cycles range from 5 to 15 candles regardless of the periodicity of the chart

It is fun to be on the right side of the market, buying at or near market bottoms and selling at or near market tops. But the question is, “How do I know if today's market action constitutes a market bottom?” Conversely, after a sharp rally of a few sessions, what signals are there to tell you that your stocks have topped out and are due for a correction?

Questions like “Is this the right time to buy?” or “Is this the right time to sell?” have always been a talking point amongst traders and investors. The objective of this book is to provide an answer to these questions.

There are many techniques out there, mainly from the West, like the moving average, relative strength index, moving average convergence divergence (MACD), stochastic, momentum, Bollinger bands, Elliott waves, and so on, that can help you time your entry and exit. I strongly believe that these Western techniques should be part of a trader's arsenal.