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Indecision
and Continuation Patterns
Individual
candlesticks or candlestick patterns tend to be most useful in
helping to spot market reversal tops or bottoms, but they can also
provide information as a trend is unfolding. Some candlesticks
suggest that bullish and bearish traders may have achieved some kind
of balance and the market can’t decide which way to go next, or the
candlestick pattern may just be setting up to continue the trend
that is already in place. “Windows” (gaps to Westerners) could
indicate either.
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Indecisive
Candlesticks
Perhaps the
best-known candlesticks reflecting an indecisive market are a group
of individual candlesticks known as doji. A doji has no real
body – that is, the open and the close are equal. A doji indicates
no net price movement from the first price to the last price
recorded during the predefined time interval that formed the
candlestick. A doji indicates a lack of progress, a standoff, and an
equal balance between the forces of supply and demand. A doji also
implies uncertainty about the trend. |
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Bullish Doji |
Bearish Doji |
The bulls and
bears are said to be in a "tug of war" that has reached a
standstill. The implication is that whatever trend that existed
before the doji now has lost momentum and is vulnerable to
correction or reversal so it may be either a bullish or bearish
candlestick, depending on its location on the chart. Doji are
frequently seen as part of a larger pattern.
Long-legged
doji has very long upper
and lower shadows and indicates a trend reversal.
Rickshaw man
is a specific type of long-legged doji where the open and close are
in the middle of the price range.
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Dragonfly
doji has a long lower
shadow and no upper shadow. Following an uptrend, it indicates a
bearish trend reversal. |
Four price
doji has only one price
for the period – that is, the open, high, low and close prices are
all the same. It indicates an unusually quiet market.
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Gravestone
doji has a long upper
shadow and no lower shadow – that is, the open and close are at the
low of the period. Following an uptrend, the longer the upper
shadow, the more bearish the indication. Following a downtrend, the
gravestone doji can indicate an upside reversal, but that requires a
bullish confirmation in the following period. |
Tri-Star
is a rare but significant reversal pattern formed by three dojis,
the middle one a doji star that gaps away from the previous
period’s doji. Tri-Star often follows a trend of long duration that
has run its course. The three dojis clearly indicate a loss of
momentum and an exhaustion of the existing trend.
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Spinning Top
A spinning top
is similar to a doji, but it has a real body – that is, the open and
close are not the same – and shadows that are longer than its real
body. The shade (white or black) of the real body is unimportant.
Spinning tops indicate indecision, a standoff of bullish and bearish
forces. Several spinning tops together often mark a point of price
trend change. |
Continuation
Patterns
A continuation
pattern suggests that the trend in place should stay in place or
resume. Flag formations and triangles in Western analysis are pauses
or consolidation areas where the market seems to take a little
breather to let prices adjust to conditions. Candlestick charts also
feature similar patterns.
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Rising Three
Methods
The rising
three methods pattern occurs in an uptrend and is composed of five
candlesticks. The first is a long white candle. The next three
periods produce three small real bodies, two of which are black and
all of which are contained within the range of the first long white
body. The fifth candlestick is another long white candlestick that
closes at a new high and confirms resumption of the uptrend. |
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Falling
Three Methods
The falling
three methods pattern occurs in a downtrend and is composed of five
candlesticks. The first is a long black candle. The next three
periods produce three small real bodies, two of which are white, and
all of which are contained within the range of the first long black
body. The fifth candlestick is another long black candlestick that
closes at a new low and confirms resumption of the downtrend.
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Separating
lines bullish |
Separating
lines bearish |
Separating
Lines
Separating
lines are a continuation pattern in either an uptrend or downtrend.
In an uptrend, a black candlestick is followed by a white
candlestick with the same opening price. In a downtrend, a white
candlestick is followed by a black candlestick with the same opening
price. In either case, the existing trend continues.
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Bullish on
Neck Line and in Neck Line
Bullish on neck
line and in neck line candlesticks are small one-day contratrend
reversals that do not amount to much. In an uptrend, there is a gap
up open followed by some continuation up to a new high. A mild
reversal by the close produces a black candlestick, but the downward
movement is not enough to produce a negative net price change close
to close. The uptrend resumes the next session. Bearish on
Neck Line and in Neck Line
Similarly,
bearish on neck line and in neck line candlesticks are small one-day
contratrend reversals that do not amount to much. In a downtrend,
there is a gap down open followed by some continuation down to a new
low. A mild reversal by the close produces a white candlestick, but
the upward movement is not enough to produce a positive net price
change close to close. The downtrend resumes the next session.
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Side-by-Side
White Lines
Side-by-side
white lines occur after a window (gap) within an existing trend, up
or down. The second line is an inside day, with a lower high and
higher low. This marks consolidation, and the existing trend
quickly resumes.
Windows
The window, known as a gap in
the West, occurs anytime when the current price range does not
overlap the previous period’s price range. Windows are usually
continuation patterns indicating the existing trend before the
window is likely to continue after the window. For the trend to
continue, the window should function as a support in an uptrend or
as resistance in a downtrend. The window should not be closed, or
filled in, on a closing price basis. If the window is closed on a
closing price basis, the trend is over.
Source:
VantagePoint Intermarket Analysis
Software |
Windows are very
powerful and important indications of demand and supply. Windows
following congestion patterns validate the new trend direction,
giving the same signal as Western breakaway gaps.
Rising
Window
For a rising
window, the current period’s low is higher than the previous
period’s high, leaving an upside gap on the chart. A downward
reaction or correction against the uptrend is likely to find support
within the window – that is, the previous period’s high should offer
support to any downward reaction against the uptrend.
Falling
Window
For a falling
window, the current period’s high is lower than the previous
period’s low, leaving a downside gap on the chart. An upward
reaction or correction against the downtrend is likely to find
resistance within the window – that is, the previous period’s low
should offer resistance to any upward reaction against the
downtrend. |
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Tasuki gap
bottom
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Tasuki Gap
Tasuki gap is
the name of a brief, contratrend retracement that may enter the area
of a recent window but does not close the window on a closing price
basis. |
Tasuki gap
top
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Meeting Line
Meeting line is
defined by a window (gap) in the direction of the prevailing trend
on the open, but the close reverses to meet the previous period’s
close. This should not happen if the trend is to continue, so the
trend is likely to reverse.
Source:
VantagePoint Intermarket Analysis Software
Three
Windows
Three windows
often signal the end of a move. The first gap is the breakaway gap
that initiates a move. The second gap is a continuation gap or
measuring gap that often occurs halfway into a move. The third gap
is an exhaustion gap that occurs at the end of a move. Three
falling windows are three downside gaps followed by a bullish
white candlestick to indicate selling pressure is exhausted.
Three rising windows are three upside gaps followed by a bearish
black candlestick to indicate buying pressure is exhausted.
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Candlestick Chart Basics
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Indecision and Continuation
Candlesticks
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Candlestick Reversal Bottoms
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Candlestick Reversal Tops
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Quick Guide to Main Patterns
Main Trading
Resources Section
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