Practical Trend Analysis by Michael C. Thomsett

Author:Michael C. Thomsett
Language: eng
Format: epub
Publisher: De|G Press
Published: 2019-07-15T00:00:00+00:00

An analysis of the popular continuation candlestick patterns demonstrates that these generalizations can serve as guidelines for the timing of trades.

Long Candlesticks

Long candlesticks were previously introduced and explained as part of reversal. The length of the candlestick does not refer to a specific number of points because scaling is not the same for every chart. Rather, a “long” candlestick must be defined as a session that is exceptionally long in comparison to typical sessions before and after.

Key Point: A “long” candlestick is a relative signal. Due to dissimilar scaling of charts, it is defined as long compared to other signals close by and not based on the number of points of price movement.

The long candlestick may be either a reversal or a continuation signal. As a continuation signal, the proximity of the long candlestick is crucial to its power. For example, in Figure 6.14 two long candlesticks were located, the first marking the point of reversal and the second providing continuation in conjunction with a newly established level of rising support.

Figure 6.14: Long candlesticks

Source: Chart courtesy of StockCharts.com The downtrend lasting six weeks concluded with the first long white candlestick. Although subsequent price movement tested the rising support level, it was apparent that the consistent downward price movement had been halted. But was it a reversal? The second long white session was exceptionally long, making the uptrend effective and providing continuation as well. The new support level held even as price breadth narrowed in the last part of December.

As the rising support moved, the level of resistance was marked at $62.50 per share. The brief move above this level at the end of November failed, strengthening resistance at this level. It continued to hold through the next two months as well, setting up an ascending triangle. This was a strong second confirmation that the primary bull trend was holding and gaining in strength.

Long candlesticks must be judged as “context” indicators. While specific reversal and continuation signals cannot be switched, several indicators (especially single-session ones) take on meaning based on the context of their appearance. Long candlesticks are one example.

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