The Hindu Business Line : Trader's Corner

Do charts with the bullish three white soldiers and bullish engulfing candlestick pattern suggest that they should be bought? Dr K.K. Chandramohan

Basically, there are four types of chart constructions; bar chart, line chart (plotted using closing price only), point and figure chart and Japanese candlestick chart. The patterns in a Japanese candlestick chart play a vital role in forecasting the price movement of a particular stock.

Construction of the Japanese candlestick chart is simple and easy. The stock’s four price values for a given time period; opening price, lowest price, highest price and the closing price are used to plot each candlestick. In general there are two types of candlesticks; white candle and black candle. In a white candle, the stock should end the time period at a level higher than the opening price. The range between the open and close price is called the real body. In a black candle, the close is lower than the opening level.

Some of the more common candlestick patterns are doji, hammer, hanging man, engulfing patterns (bullish and bearish), dark cloud cover, piercing pattern, morning star, evening star, doji star and shooting star.

To answer the above question: Yes, the charts with the bullish three white soldiers and bullish engulfing candlestick pattern do suggest that they should be bought. The bullish three white soldiers pattern consists of three consecutive white real bodies. These candlesticks should open within the previous real body and it should close above the previous day’s closing price. Traders make use of this pattern to confirm a change in momentum and an alteration in the sentiment of investors. When a small black candlestick is followed by a large white candlestick, which totally engulfs the previous day’s small black candlestick, then the pattern is called a bullish engulfing candlestick pattern. This pattern usually appears at the end of a down trend.

For chart examples of candlesticks and patterns-log on to: http://marketchat.blogspot.com/ — D. Yoganand

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