How to Master Candlestick Charting with Steve Nison's Beyond Candlesticks
If you are interested in learning how to use candlestick charts to analyze the financial markets, you may want to check out Steve Nison's book Beyond Candlesticks: New Japanese Charting Techniques Revealed. This book is a sequel to his classic Japanese Candlestick Charting Techniques, which introduced the Western world to the power of candlestick analysis.
In Beyond Candlesticks, Nison expands his coverage of candlestick patterns and strategies, and introduces some new techniques that are based on Japanese market practices. He also shows how to combine candlestick charts with other technical tools, such as moving averages, trendlines, Fibonacci retracements, and more.
Some of the topics that Nison covers in Beyond Candlesticks include:
How to identify and trade the most profitable candlestick patterns, such as doji, harami, engulfing, piercing line, dark cloud cover, morning star, evening star, hammer, hanging man, shooting star, and more.
How to use candlestick charts to spot reversals and continuations in the market trends.
How to apply candlestick analysis to different time frames, markets, and trading styles.
How to use candlestick filters and confirmations to improve your trading accuracy and reduce false signals.
How to use renko charts, kagi charts, three-line break charts, and point-and-figure charts to complement your candlestick analysis.
How to use candlestick charts to identify support and resistance levels, breakouts, gaps, and chart patterns.
How to use candlestick charts to measure market sentiment and psychology.
Beyond Candlesticks is a comprehensive and practical guide that will help you master the art of candlestick charting. Whether you are a beginner or an experienced trader, you will find valuable insights and tips that will enhance your trading performance and profitability.
You can download a PDF version of Beyond Candlesticks from this link, or you can buy a hard copy from Amazon.
In this section, we will look at some examples of how to use candlestick charts in different market scenarios. We will use the daily chart of the S&P 500 index as our reference.
Example 1: Bullish Reversal with Morning Star
The morning star is a three-candle pattern that indicates a potential bullish reversal in a downtrend. It consists of a long bearish candle, followed by a small candle (either bullish or bearish) that gaps below the first candle, and then a long bullish candle that gaps above the second candle and closes above the midpoint of the first candle.
In the chart below, we can see an example of a morning star pattern that formed in late October 2020. The S&P 500 index was in a downtrend since early September, and reached a low of 3233.94 on October 30. The next day, a small doji candle formed, indicating indecision and a possible change in momentum. On November 2, a large bullish candle opened above the doji and closed above the midpoint of the previous bearish candle, completing the morning star pattern.
This pattern signaled a bullish reversal in the market trend, and the index rallied for the next few weeks, reaching a new all-time high of 3645.99 on November 9.
Example 2: Bearish Continuation with Falling Three Methods
The falling three methods is a five-candle pattern that indicates a continuation of the existing downtrend. It consists of a long bearish candle, followed by three small candles (either bullish or bearish) that move within the range of the first candle, and then another long bearish candle that closes below the low of the first candle.
In the chart below, we can see an example of a falling three methods pattern that formed in late January 2021. The S&P 500 index was in a downtrend since mid-January, and reached a low of 3723.34 on January 29. The next day, a long bearish candle opened lower and extended the decline. The following three days, three small candles formed within the range of the previous bearish candle, indicating consolidation and hesitation. On February 4, another long bearish candle opened lower and closed below the low of the first bearish candle, completing the falling three methods pattern.
This pattern confirmed the continuation of the downtrend, and the index dropped further to a low of 3685.14 on February 5. 061ffe29dd