Thursday, May 11, 2006

Japanese Candlestick Clusters - More Reliability

Multiple candlesticks reinforce the possibility of a reversal. For example, if we see an upward trend peaked by a shooting star and the following candlestick is also a reversal sign – or sign of indecision by the market – say a filled in spinning top. Then we can be more confident of predicting a downward reversal. In this scenario I would personally like to see one more bearish candlestick before I entered a ‘sell’ A case in point - see below



In our example from the chart above, we see a bullish shooting star followed by a spinning top and bearish shooting star - Which also falls through our simple moving average (red wavy line). Ordinarily we would see this as a clear reversal, but if we wait for another sign of confirmation we see an additional spinning top - advising us to wait. And indeed the chart does go into a series of spinning tops - indicating no clear direction. It's just as important to know when NOT to trade.

That's all folks happy trading
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