Candlesticks ... and their use (maybe)

Ever since we did that tutorial on hikkake I've been thinking ...

>Not again!
Pay attention! Instead of just looking at the closing price of a stock we really should look at the open, the high and the low and even the volume.

After all, if you're a trader, you've got to be interested in all of them.
In fact, the closing price is probably the least inportant, because it depends so much upon when the market closes.

If the market closed at 3:30 pm or 4:30 pm, instead of 4, then the close may be affected quite a bit, but the other three prices probably wouldn't.

>Unless the high or the low occurred at the close.
Well, yes ... but think of all the information available at a glance, in a candlestick.
Each day you've got the high and low and open and close and the "body" is coloured black or white to indicate whether the close is smaller or larger than the open.

>And that's good?


Figure 1

Look at this candlestick chart:

You can stare at it for hours, trying to identify patterns, what the traders are thinking, how it affects the prices throughout the day, when ...

>Yeah, so?
Can you see where the closing price exceeded $26.00? See that white candlestick?
That occurred on May 27/05. That was the high for about two months.
Can you see any candlestick pattern that might have indicated that it was a good time to sell?
>No ... but what did the stock do after May 27?
Here are the daily closing prices:

>I can't see any particular pattern ... can you?
Uh ... no, but then I'm just learning about this candlestick stuff.
But see that low about May 11? Here's the candlestick pattern  
>Doji star?
Yes. A doji is when the open and close are the same ... or almost the same, so the "body" is thin.
If a doji follows a black candlestick and is succeeded by a white whose body is well into the black body, that's a doji morning star.
>Do you know what you're talking about?
That's unlikely ... but I'm larnin'.
What I need is a spreadsheet that picks out dojis and hammers and ...

Figure 2

Remember some of the patterns we identified in the hikkake tutorial?

>Mamma mia!
Aah, we haven't scratched the surface. This candlestick stuff should be great fun!  

Remember that candlestick charts had been used in Japan for centuries, but in the 1930s, a fellow who called himself Ichimoku Kinko Hyo (which apparently means "equilibrium-chart-at-a-glance", the word "ichimoku" meaning "glance"), spent years analyzing candlestick charts and generating trading signals and ...
>Can we study those?
Patience, I'm still learning and ...
>Where's the spreadsheet?
I want it to identify a bunch of patterns and ...
>So where' IS it?
Patience! I'm still working on it ... and (so far) it looks like this:  

... where we're looking for hammers & dojis (to see when they might signal an uptrend or downtrend).

  • Type in a Yahoo stock symbol
  • Click the Download button ... to download about 2 years worth of daily prices
  • Click one of the radio buttons ... to see where they occur on the 2-year chart
  • Move the "slider" to get a 3-week and 6-week closeup
  • Have a coffee, stare in awe ... and try to find interesting patterns
>What's that stuff at N2 and O2?
A doji, for example, requires that open = close, or |open - close| = $0.00.
You can change that to |open - close| ≤ $0.01 by changing N2.
Also, a hammer has a shadow length and a body length.
If you want the shadow to be at least 3 times the body, change O2 to 3.
(Sorta like Figure 3.)

>Okay, but how do I get the spreadsheet?
Almost forgot. Just click the picture above.

Figure 3

The spreadsheet may change from time to time ... even if the picture above don't
There's an explanation sheet which looks like this.

See also candlestick patterns

for part II