The following is a list of terms used in association with Japanese Candlestick Analysis. Some terms are purely of Western origin; others are purely of Japanese origin. Many are used for description in both Western and Japanese techniques, becoming intermingled through the years. Read below to further your stock analysis education.
After a move downwards, prices push sharply lower on heavy volume. If prices move higher from these levels, a selling climax has occurred.
The downward movement of prices.
The extreme price movement outside the body of a candle creates the shadows. The lower shadow extends from the bottom of the body to the low price of the day. The upper shadow extends from the top of the body to the high price of the day.
A candlestick with no lower shadow.
A candlestick with no upper shadow.
Simple moving averages
The smoothing of price data where prices are added together, and then averaged. The term moving is included due to the fact that as each new day’s information is added to the numbers, the oldest data is dropped.
When prices break below a congestion area, and then spring right back above the broken support area, it has produced a bullish signals.
A small body that gaps away from the previous long body. A star indicates the reduction of force illustrated by the previous long candle. A star following a long black body is called a raindrop.
An oscillator that measures the relative position of closing prices compared to the trading range over a specified period of time. %K indicates the fast stochastic, %D indicates the slow stochastic.
An obvious level where buyers are shown to step in and hold prices above that level.
The number of trades occurring during a specific time interval.
A price level that prices have to stay above or below for a specific period of time to confirm that a technical level has been broken.
A price’s prevalent directional movement.
A line that can be drawn along a series of highs or lows. This requires at least two points for a line to be drawn. The more points that are associated with the line, the more strength the trend-line carries.
Trend reversals (or reversal indicators)
Price action that indicates the high probability of a trend reversing its direction.
Tweezer tops or bottoms
Highs or lows of a trend that are duplicated in back to back trading days or within the next few sessions. The name is derived from the price movement to those levels forming a tweezer-like visual. It is a minor reversal signal, however, its significance becomes greater if the highs or lows are touched with long shadows or if the identical bottoms are part of another reversal signal.
A gap in prices to the upside.
The price movement that carries prices through and above observed resistance areas. If these new price levels do not hold and prices pull back under the breached resistance level, it is called an upthrust. It now becomes a bearish signal.
Prices that are trading higher.
V bottom or top
A sharp reversal forming a V pattern at the bottom of a trend or an inverted V at the top of a trend.
The total number of shares or contracts trading in a given day on that trading entity.
Weighted moving average
A moving average where the most recent data is given greater value than the oldest data.
The same as a Western gap. Windows can indicate the beginning of a strong trend as well as the end of a trend, exhaustion window. As Western technicians say that prices will always fill the gap, the Japanese expect to close the window.
Yin and Yang
The Chinese name for the black (Yin) and the white (Yang). Good and bad, positive and negative.
To learn more from Stephen, be sure to sign-up for his free 12 Signals To Master Any Market pdf ebook.