Candlesticks Chp 4 Reversal Pattrns Flashcards
Reversal Patterns are what technicians watch for price clues alerting them to ___________ and _________
a shift in market psychology and trend
the term “reversal pattern” is somewhat of a misnomer. Hearing that term may lead you to think of an old trend ending abruptly and then reversing to a new trend. This rarely happens. Trend changes usually occur __________________________
slowly, in stages, as the underlying psychology shifts gears.
A trend reversal signal implies that the prior trend is likely to change, but not _____________ ___________.
necessarily reversing
More indicative of trend change than reversal.
It is prudent to think of reversal patterns as _________________
trend change patterns rather than outright reversals.
Successful trading entails having both the _________ and __________ on your side.
Trend and probability on your side.
reversal indicators are the market’s way of providing a road sign, such as “Caution—Trend in Process of Change.” In other words, ______________________________.
the market’s psychology is in transformation.
You should adjust your trading style to reflect the new market environment.
An important principle is to initiate a new position (based on a reversal signal) only if that signal is _____________________________. Example
in the direction of the major trend.
Let us say, for example, that in a bull market, a top reversal pattern appears. This bearish signal would not warrant a short sale. This is because the major trend is still up. It would, however, signal a liquidation of longs. We could then look for a bullish signal on the correction to buy since the prevailing trend was higher.
______________ are candles with very long lower shadows and a small real body at the top end of the range. These lines are fascinating in that these lines can be either bullish or bearish according to ________________________.
the market environment
If an umbrella line emerges during a downtrend, it is a signal that ___________________________. In such a scenario, this umbrella line is labeled a _____________.
the downtrend should end
a hammer,
as in “the market is hammering out” a base. The Japanese word is takuri. This word means “trying to gauge the depth of the water by feeling for its bottom.”
an umbrella line after a decline is a bullish signal called a _________
a hammer.
If an umbrella line emerges after a rally, it is a potential top reversal signal ominously called ___________________
a hanging man.
The name “hanging man” is derived from the fact that it looks like a hanging man with dangling legs.
In regards to umbrella /hammers and hanging man lines ………what does “buy from below and sell from above.” mean?
it’s a bullish sign after a falling market (“buy from below”) and potentially a bearish sign after a rising market (“sell from above”).
The hammer and hanging man can be recognized by three criteria:
- The real body is at the upper end of the trading range. The color of the real body is not important.
- It has a long lower shadow that should be at least twice the height of the real body.
- It should have no, or a very short, upper shadow.
There are three aspects that differentiate the hanging man from the hammer—
trend, extent of the move before the candle line, and confirmation
- Specifically: Trend: A hammer must come after a decline. A hanging man must come after a rally.
- Extent of the move before the candle line: A hammer is valid even if it comes after a short-term decline, but a hanging man should emerge after an extended rally, preferably at an all-time high.
- Confirmation: As will be addressed later, a hanging man should be confirmed, while a hammer need not be.
In regards to a hammer or hanging man the ___________er the lower shadow, the ___________er the upper shadow; the ________er the real body, the more meaningful the bullish hammer or bearish hanging man.
longer
shorter
smaller
The color of the real body of the hammer can be .
green or red the success of the hammer is not dependent on the color of its real body.
Successful trading with candle charts requires an understanding not only of the candle patterns, but also of _____________ and _________________.
where the candle pattern appears
and
in the context of risk/ reward analysis.
Is the hammer a bearish or bullish sign?
Bullish
Is the hanging man a bearish or bullish sign?
Bearish
The hanging man has the same shape as the hammer; the only difference is that a hanging man _______________
comes after an advance
Because a long lower shadow is viewed as a plus, and since the hanging man has such a shadow, it is especially important that one wait for bearish confirmation with the hanging man. At a minimum this would be
a lower opening under the real body of the hanging man. But I usually recommend a close beneath the hanging man.
The reason for waiting for a close under the hanging man’s real body is that if the market closes lower the next day, ___________________________
those who bought on the open or close of the hanging man day (and lots of trading occurs at these two times) are now left “hanging” with a losing position.
I would also like to see the hanging man at ___________________________or _______________________. In this scenario the longs entering on the hanging man session are in their position at new highs, thus making them more nervous. Consequently, those longs might decide to ________________________________________
an all-time high, or at least at a high for a significant move
back out of their now losing position. That could cascade into more selling pressure.
if the market does not close under the hanging man’s real body, then the bull trend .
remains entrenched
