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Terms of the Trade
CANDLESTICK TERMS
REAL BODY
The real body is the 2-dimensional rectangle made by the difference between the open and close of the trading day.
The real body will be white on days that the stock closes higher than it opens, and black on days that it closes
lower than it opens.
UPPER AND LOWER SHADOWS
The upper shadow is the vertical line drawn from the top of the candlestick's real body to the day's high. The
lower shadow is the vertical line drawn from the bottom of the candlestick's real body to the day's low.
SPECIAL CANDLESTICKS
LONG DAY
A candlestick that has a long day is one in which there has been a big difference in opening and closing price
compared with typical trading days in the previous five to ten days.
SHORT DAY
A candlestick that has a short day is one in which there has been a small difference in opening and closing price
compared with typical trading days in the previous five to ten days.
MARUBOZU
A marubozu candlestick is one that exhibits no (or very little) upper or lower shadow. For a white candlestick
this means that its open is equal to its low, and its close is equal to its high. For a black candlestick it means
that its open is equal to its high, and its close is equal to its low.
SPINNING TOP
A spinning top is candlestick with a small real body and long upper and lower shadows.
DOJI
A doji is the most extreme case of a spinning top. It occurs when the real body exists as a line (when the day's
open and close are the same). A long legged doji has long upper and lower shadows. A gravestone doji has a long
upper shadow and no lower shadow. A dragonfly doji has no upper shadow and a long lower shadow. And a four price
doji has no upper or lower shadows (the open, high, low, and close are the same).
STAR
A star is a small real body that gaps above or below a long candlestick occurring the previous day.
UMBRELLA and INVERTED UMBRELLA
An umbrella is similar to a dragonfly doji: a small real body with no upper shadow and a long lower shadow. An
inverted umbrella is similar to a gravestone doji: a small real body with a long upper shadow and no lower shadow.
ANALYSIS TERMS
An indicator is a group of candlesticks (as many as five or as few as one) that meet a set of predetermined criteria.
These criteria may include prior trend, real body and/or shadow length, long and short days, opening and closing
gaps, etc. Associated with each indicator are a trend (bullish or bearish) and a pattern (reversal or continuation)
that should ensue for the short-term.
The term trend is used to sum up the general movement of a stock's value over a period of time. If a stock's price
is generally increasing over a short period of time it is said to be in a bullish trend. If a stock's price is
generally decreasing over a short period of time it is said to be in a bearish trend.
In candlestick charting the previous trend is used as a criteria for identifying most indicators. The method we employ is the Three Line Break graph; a technique that is well-suited to candlestick charting.
When an indicator is identified, a pattern is associated with it. This pattern could be a Continuation pattern,
meaning that if a stock is in a bullish trend it should continue to stay bullish, or if a stock is in a bearish
trend it should continue to stay bearish. If the pattern is a Reversal pattern, it means that if a stock is currently
bullish it likely to turn bearish, or if it is bearish it is likely to turn bullish
Reliability is a term we use to loosely classify how adequate indicators are at determining the short-term future
of an investment. Some indicators are, of course, more decisive than others (the indicators that take a three or
more days develop or those that have strong candlesticks, such as stars or marubozus tend to have a higher rate
of success). We have segregated indicators by High, Moderate, and Low reliability's based on their success rates
on historical market data.
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