The Thrill of Discovering New Candlestick Trend Reversal Patterns

One of the main reasons for the existence of Japanese Candlesticks and for their increasing popularity is their ability to spot trend reversal patterns even before they emerge. All traders want to know the answer to the question “What is the market going to do next?” The Candles go a very long way toward answering that question.

Candlestick practitioners are detectives. They are on a constant expedition to find reversal patterns, of which there are about 15 which are most often seen. Many of them have descriptive names, because they look like their namesakes – for instance, the “Shooting Star,” the “Dark Cloud Cover,” and the “Hammer.” They are very quick and easy to remember. It is a real pleasure and immensely satisfying to find one during the hunt, because history shows that they very often are accurate predictors of a major trend change, which can lead to much improved success in trading and investing.

The “standard,” or well-known, Candlestick reversal patterns sport variations of themselves, the existence of which the literature acknowledges but pays them little attention, as if they are just an afterthought. Now, however, we have come to understand that these variations, or “unorthodox trend reversal patterns,” deserve recognition in their own right as separate and independent entities which bear within themselves much of the “DNA” of their parents and have the same predictive capability.

As an example, the kickoff of the Great Rally of 2009 was marked by the emergence in March 2009 of the “Tokyo Express” reversal pattern (in the Dow Industrials), which is a variation of the well-known “Morning Star.” Likewise, the mid-flight “double kick” of the Rally in July 2009 featured the “Kobe Cruiser” reversal pattern, which drove the market all the way to the top end of the Rally in April 2010.

Unorthodox Candlestick reversal patterns appear in bear markets, too, as mirror images of their bullish counterparts. As examples, we see the “Osaka Clipper” in the Pound/Dollar in August 2009 and the “Hokkaido Hustler” in U.S. Treasury Notes in December 2009.

It is an even greater joy to identify a potential new variation on the standard Candlestick reversal patterns and to watch it grow; and then, if its prediction lives up to its promise, to recognize it as a new entity worthy of consideration as a separate pattern – and to give it a name of its own.

William Kurtz 
August 8, 2010.

The author is a long-time investor and retired attorney. He has passed the NASD Series 65 Investment Adviser exam. He owns CandleWave, LLC, which publishes his Investment Newsletter. He is the developer and owner of the “Candelaabra” technical analysis system, which excels in ferreting out Reversals of Trend as they are forming and even before they emerge. He is the author of his new book “Candlesticks For Brighties.”

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