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Japanese Candlesticks Theory

Continuation Patterns

As the Japanese say: "When it is time to sell – sell, when it is time to buy – buy, when it is time to rest – rest". Most of the continuation patterns signal that the market has resumed the trend taken before the continuation pattern emerged.

Gaps

When bar low is above the prior bar high, or when bar high is below the prior bar low we see the formation of a price gap. In the future gaps will be support or resistance levels. If prices rebound and gapping disappears but opposite to the prevailing trend market participants are still aggressive then wait for the reversal. As a rule once the gap is formed price moves back so it is a good time to initiate a position. Place Stop Loss orders under (above) the gap when opening a buy (sell) position.

Analysis rules:

• If once a gap has appeared and you have register from eight to ten rising highs (falling lows) then wait for the correction. As in the Japan saying: "Stomach is 80% full".
• If gap is not closed within next three bars then wait that the market will move in the gap direction.
• Once three gaps have been formed upward (downward) wait for the high (bottom). Once the third gap has formed and you see the reversal pattern the prevailing trend is about to change.

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