Bloomberg Visual Guide to Candlestick Charting

386 Pages·2012·13.11 MB·English

by  Thomsett, Michael C.

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Bloomberg Visual Guide to
Candlestick Charting
How to Use This Book
T e Bloomberg Visual series is meant to serve as the Q Do It Yourself: Worksheets, formulas, and calculations.
all-encompassing, yet easy-to-follow, guide on today’s Q Bloomberg Functionality Cheat Sheet: For Bloomberg
most relevant f nance and trading topics. T e content terminal users, a back-of-the-book summary of rel-
truly lives up to the series name by being highly visual; evant functions for the topics and tools discussed.
all charts are in color and presented in a large format
for ease of use and readability. Other strong visual attri- For e-reader users, T e Bloomberg Visual series is
butes include consistent elements that function as ad- available as an enhanced e-book and of ers special fea-
ditional learning aids for the reader: tures, like an interactive Test Yourself section where
readers can test their newly honed knowledge and skills.
Q K ey Points: Primary ideas and takeaways, designed to T e enhanced e-book version also includes video tuto-
help the reader skim through def nitions and text. rials and special pop-up features. It can be purchased
Q D ef nitions: Terminology and technical concepts that wherever e-books are sold.
arise in the discussion.
Q S tep-by-Step: Tutorials designed to ensure that read-
ers understand and can execute each section of a mul-
tiphase process.
Bloomberg Visual Guide to
Candlestick Charting
Michael C. Thomsett
BLOOMBERG PRESS
An Imprint of
Copyright © 2012 by Michael C. T omsett. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, elec-
tronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best ef orts in preparing this book, they
make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specif cally
disclaim any implied warranties of merchantability or f tness for a particular purpose. No warranty may be created or extended by
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All charts reprinted with permission from Bloomberg. Copyright 2011 Bloomberg L.P. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
T omsett, Michael C.
Bloomberg visual guide to candlestick charting / Michael C. T omsett.
p. cm. – (Bloomberg visual guide series)
Includes bibliographical references and index.
ISBN 978-1-118-09845-5 (pbk.); ISBN 978-1-1181-7392-3 (ebk); ISBN 978-1-1181-7393-0 (ebk); ISBN 978-1-1181-7394-7 (ebk);
ISBN 978-1-1181-7655-9 (ebk); ISBN 978-1-1181-7656-6 (ebk); ISBN 978-1-1183-1320-6 (ebk)
1. Stocks–Charts, diagrams, etc. 2. Investment analysis. I. Title. II. Title: Visual guide to candlestick charting.
HG4638.T458 2012
332.63’2042–dc23
2011029124
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Contents
Introduction: The Value of Candlestick Charting vii Appendix: Bloomberg Functionality Cheat Sheet 370
Bibliography 371
Q Chapter 1: Types of Charts 1
Index 372
Q Chapter 2: The History of Candlesticks 11
An Era of Commerce and Growth 11
The God of the Markets 12
Candlesticks Come to America 13
Q Chapter 3: Candlesticks and Their Attributes 15
The Importance of Long Candlesticks 18
The Opposite: The Extremely Narrow-Range Session 18
Attributes Missing in Candlestick Analysis 19
Q Chapter 4: Pitfalls of Candlesticks 21
Q Chapter 5: Confi rmation 29
Q Chapter 6: The Six Basic Candlesticks 31
Q Chapter 7: Candlestick Alphabetical Entries 36
Q C hapter 8: Noncandlestick Confi rmation
Indicators and Terms 246
v
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Introduction: The Value of
Candlestick Charting
Today, a majority of chartists and technicians are famil- 2. Valuable conf rmation. Technicians know that any
iar with candlestick charting patterns. However, many indications of signif cance (breakout and a new trad-
chartists are not certain about how to interpret the doz- ing range, resistance or support testing, and gapping
ens of indicators found through candlestick analysis, or action, for example) need to be conf rmed before en-
how to use candlesticks along with other indicators to try or exit should occur. But how do you conf rm and
conf rm reversal and continuation forecasts. T is has then decide before the important and expected price
led to the desire among traders for a consistent, reliable, movement takes place? T e answer is found in can-
and powerful system that supplies them with more and dlesticks. Anticipating price movement rather than
better information. following it helps every trader improve the timing of
As a part of this desire among traders for more and entry and exit through the use of candlesticks to con-
better information, the enthusiasm for candlesticks as f rm traditional charting patterns and indicators.
informative representations of price movement is due to 3. V ariety of indications. T ere are dozens of candlestick
their many attributes, including: indicators, and each has a specif c name. How many?
1. I nstant recognition. T e signif cance of a series of T is book def nes and illustrates approximately 200
candlesticks is recognizable at a glance. A strong candlesticks and related terms. T e distinction be-
upward or downward movement is visible not only tween the number of sessions involved with a partic-
because of the direction of price trends, but also ular candlestick indicator can be confusing; for this
because of the color of candlesticks. T e strength reason, the terms used in this book are “sign” (single
or weakness of momentum is further visible in the candlestick), “move” (two-session indicators), and “pat-
evolving height of candles, the volatility of trading tern” (three sessions). While the time span of sessions
range, and the special meaning of exceptionally large may vary from seconds or minutes up to hours, days, or
or small sessions. even weeks, the chart examples provided in this book
vii
viii Q Introduction: The Value of Candlestick Charting
are those of daily charts; and the sessions are described Q C onf rmation. T e key to all technical analysis is con-
as “days”—however, the observations of indicators and f rmation, the verif cation of what one indicator re-
their meaning apply equally to charts of all durations. veals with the same prediction of ered by a separate
4. A pplicability for a range of trading purposes. Candle- indicator.
stick signs, moves, and patterns provide valuable Q T e six basic candlesticks. Although there are dozens
price movement insight for a range of purposes. T ese of possible candlestick indicators and combinations,
can be used not only as conf rmation tools, but also they all consist of combining six basic candle types.
to augment day trading or swing trading strategies,
Q C andlestick alphabetical entries. T is section contains
timing of options trades, identif cation if current price
entries with descriptions as well as two illustrations
volatility, and even for timing of purchases as part of a
for each: a small view of the candlestick followed by an
value or growth investing strategy.
actual example on a chart of one of 50 selected stocks.
T is book provides a convenient and easy-to-use
Q N oncandlestick conf rmation indicators and terms.
summary of candlestick patterns. It is arranged in the
T ese are traditional Western indicators (as opposed
following chapters:
to Eastern, or candlestick types) used to conf rm what
Q T ypes of charts. Candlesticks are the most valuable of candlesticks f rst predict, or that predict changes that
charting systems; this section compares them to line are then conf rmed by candlestick indicators. T e sec-
charts and OHLC varieties. tion also explains principles of technical analysis re-
lated to overall methods, or to both Eastern and West-
Q T e history of candlesticks. Here are brief explana-
ern charting techniques.
tions of where Japanese candlesticks were f rst used
and how they became popular in American technical Q Answers to Test Yourself, for e-book users, are provid-
analysis. ed through the previous sections of the e-book. T ese
consist of multiple-choice, true/false, and chart-
Q C andlesticks and their attributes. T is is a summary of
completion exercises.
the parts of the candlestick and what each reveals, in
terms of shape, size, and color. Q B loomberg systems. A brief explanation of how the
Bloomberg terminal provides basic keystroke com-
Q P itfalls of candlesticks. Like all systems, candlesticks
mands to begin the process of using candlesticks and
cannot guarantee 100 percent accuracy in timing of
their charts.
entry or exit. T ey can provide improvement over ana-
lytical skills and the timing of entry and exit. However, T e stock charts employed are those of 50 well-known
traders should be aware of the pitfalls within the world listed companies, shown in three-month timeframes.
of candlesticks as well as the advantages. Additionally, many of the alternative charting types and