The basics of technical analysis of the Japanese candlesticks
The shapes of fractured candlesticks
The continuation
«THREE IDENTICAL BLACK CROWS»
Comments
A bearish shape of fracture. A confirmation is not required.
This shape is a special case of the “Three Black Crows” shape discussed earlier. The difference is that the second and third black bars open at or near the closing level of the previous bar.
The rules of definition
- Three long black days resemble steps down.
- Next day starts near the closing of the previous day.
Scenarios and psychology behind the shape
This shape is similar to a panic selling, which should trigger an additional downward movement. The closing of each day establishes a mark for the opening prices for the next trading day. This shape shows a complete lack of interest of the buyers.
The flexibility of the shape
Since this shape is a special version of the “Three Black Crows” shape, there is virtually no flexibility.
The shape’s fracture
As the “Three Black Crows” shape, the “Three Identical Black Crows” shape transforms into a long black candlestick. It fully supports a bearish tendency of this shape.
«BREAKTHROUGH»
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| A bovine “Breakthrough” | A bearish “Breakthrough” |
Comments
A confirmation is recommended, especially for a bearish “Breakthrough” shape.
A bovine “Breakthrough”
A bovine “Breakthrough” shape occurs at the lower trend and indicates the acceleration of the sales to a potential oversold situation. The shape begins with a long black day, followed by another black day which body makes a downward jump. After the downward jump, the next three days set consistently lower prices. All the days of this shape are black, with the exception of the third day, which can be either black or white. Three days after the jump are similar to the “Three Black Crows” shape in a way that their top and bottom are consistently below. The last day completely crosses out small black days and closes within a jump between the first and second day.
A bearish “Breakthrough”
A bearish “Breakthrough” shape includes a jump in the direction of the trend, followed by three consecutive days with a higher price. In an uptrend, a long white day is being formed. The next day, prices make an upward jump to form another white day. This is followed by two days, which set higher prices. The color of the days should be white only with one exception: the third day of the shape or the second day after the jump, can be either black or white, until the new top price is defined (formed). The bottom prices set three days after the jump, should also be higher than each bottom price of the previous day. The meaning of this shape is that the prices have risen in the direction of the trend and an overbought situation develops. The last day sets the trend’s fracture, closing within the jump of the first and second days.
The rules of definition
- The first bar is long, has a color, and makes a jump in the direction of the trend.
- The second bar has the same color and the body, makes a jump in the direction of the trend.
- In the third and forth bars, the trend’s direction is kept, with consistent higher closings in the direction of the trend.
- The fifth bar has a long body and an opposite color; it closes within the jump, triggered by the first and second bars.
Scenarios and psychology behind the shape
It is important to understand what this shape does: the trend has increased with a big jump, and then begins to pull back, but is still moving in the same direction. The trend’s worsening is quite clearly seen in this shape. Finally, a break in the opposite direction completely catches the price’s action of the previous three days. The fracture provokes the fact that the jump has not been filled. A short fracture has occurred.
The flexibility of the shape
Since the shape is rather complicated, it is difficult to consider its flexibility. As long as the general position is kept, this shape can offer some flexibility. More than three days may pass after the jump, until the last day will be closed within the initial jump. The presence of at least two days is also possible after the jump.
The shape’s fracture
A bovine “Breakthrough” shape transforms into a possible “Hammer” shape. A situation is possible when the second day jump is high and is followed by a significantly lower price on the third and forth days. This surely supports the shape.
A bearish “Breakthrough” shape transforms into a long candlestick with a white body by the lower end of the range. There are chances that this candlestick will not be a “Shooting Star” due to a large space on the second day and higher prices following it. This means that a bearish “Breakthrough” requires a further confirmation before the sale’s start.
«TWO CROWS»
Comments
A bearish shape of fracture. A confirmation is required.
This shape is only good for the upper fracture or a bearish shape. The upper trend is supported by a long white bar. The next bar makes a much higher jump, but closes near its bottom, which is still above the body of the first candlestick. The next (third) bar opens within the second black body, followed by sale into the body of the first bar. This closes the jump and gives us a shape similar to the “Dark Clouds Curtain”, as if the last two days of the “Two Crows” shape were combined into a single candlestick. The fact that this jump was completed so quickly, eliminates the traditional gap analysis, which would have indicated the trend’s continuation.
The rules of definition
- The trend continues to be a long white day.
- The second day makes an upward jump and is a black day.
- The third day is also black.
- The third day opens within the body of the second day and closes within the body of the first day.
Scenarios and psychology behind the shape
The market had a stretched upward movement. A jump followed by a lower closing of the second day shows that a weakness has occurred in the increase. The third day opens higher, but not above the opening of the previous day, and then a sale starts. This sale closes far in the body of the first day. This action fills the jump right after the second day. A bovine tendency rapidly disappears.
The flexibility of the shape
The “Two Crows” shape is a bit more bearish than the “Two Ascending Crows.” The third day is a long black day, which should close only inside the body of the first day. The longer this black day is, the lower it will close on the first day, and the more bearish tendency this shape has.
The shape’s fracture
The “Two Crows” shape transforms into a possible “Shooting Star” shape. This supports a bearish tendency of the “Two Crows” shape.
An example for the shape’s search on the real market
Instrument – USD/JPY. Period – D1
Shape – «TWO CROWS»
Have a successful trading!
The Megadroid team