Market Flow Examples of the Evening Star The examples given below are in no respect an argument on the truth of the market or a depiction of how the market moves. They are provided solely to describe the characteristics of the market I believe individual traders should be aware of. They are only a few of the most probable cases (regarding the balance of power between the buyers and sellers) among the numerous possibilities where the criteria and formula of the evening star can be applied.
Trading Theory consists of a total of 26 waves, around 80 candle signals, and various candle group sections. As seen above in the case of the evening star, hundreds of
different cases can occur on the chart. By applying such a large collection of unique criteria and formulas, the buyer-seller balance in charts can be read more elaborately and in detail than any other existing theory or technique. However, based on my experience, in general, only 20 to 30 percent of the chart is worth looking into for a (mid to long-term) trade. As you study the Candle Timing Strategy, you will realize how jeopardizing, useless, and inefficient it is to scrutinize every single section for an entry signal. After acknowledging this, you will gradually overcome anxiety, be able to let go of your obsessions, and in the end, naturally grow more psychologically composed.
Introduction to the Candle Timing Strategy
The “Candle Timing Strategy” is a technique for finding the best entry and exit points by judging candles that appear in crucial areas. Learning and studying the strategy is similar to the process of practicing martial arts as a way of gaining enlightenment and expanding your awareness. The following are descriptions of the basic elements of the Candle Timing Strategy used to analyze the power balance between the buyers and sellers.
① The Form of Candles and Candle Groups
Acknowledging the form of candles and candle groups is the first step of analyzing candlestick charts. However, in the end, the trader needs to realize that although mastering form is necessary in the beginning, it’s not the key factor of the Candle Timing Strategy. This is because, keeping a flexible stance and applying the strategy in versatile ways is possible only when you’re not obsessed with form.
② Location
Whether or not a candle pattern is in a valid location as a signal or base of interpretation is determined primarily by factors such as: 1) the high/low lines, 2) the three main wave types, 3) candle groups, and 4) long-shadowed candle groups.
③ Previous Signals
The candle signal’s reliability can be determined and adjusted by combining it with preceding signals.
④ Missed Timing for Rise/Fall
The validity and reliability of a signal varies by whether or not the timing for fall/rise was previously missed. Despite a valid signal, if the timing for fall/rise is missed afterwards, it’s necessary to shift stances or pull out of the current position.
⑤ Following Signals
If a valid candle signal is followed by additional signals pointing the same direction, the signals become the more reliable. On the contrary, if an opposite signal appears, it must be reinterpreted along with the previous signal. Furthermore, if the market does not move in the course pre-determined by standards and formulas, a shift of stance is needed.
1) Straight Upward Movement
A straight upward movement means that the buyers are evidently in control and thus buy signals appearing amid it are the more reliable. In many cases, candle patterns amid it become highly reliable buy signals regardless of the base of interpretation that appeared beforehand and even without being combined with other signals.
There are largely four types of straight upward movements.
ⓐ Small waved, steady uptrend
The most common form of this type is the high-low bullish wave I. The movement is composed of small candles ascending steadily without forming any large waves.
ⓑ Short pullback section of uptrend
This type is a short pullback section forming after a strong rise mainly by large candles. It can also be part of a high-low bullish wave II, in short, a bullish flag, and sometimes a
high-low bullish wave I.
ⓒ End of long meandering section in uptrend
Preceded by a strong rise and a long meandering section composed mainly of rapid waves, this type is a steadily or strong upward move towards the previous high, which
occurs where the wave begins to widen.
ⓓ Strong upward section after downtrend
This type begins a certain distance up from the sideways section preceded by a strong rise from the bottom of the downtrend. A section rising steadily upwards from the bottom of a downtrend mainly by small candles can also be seen as a straight upward movement.
2) Straight Downward Movement
A straight downward movement means that the sellers are evidently in control and thus sell signals appearing amid it are the more reliable. In many cases, candle patterns amid
it become highly reliable sell signals regardless of the base of interpretation that appeared beforehand and even without being combined with other signals.
There are largely three types of straight downward movements.
ⓐ Small-waved, steady downtrend
The most common form of this type is the high-low bearish wave I. The movement is
composed of small candles descending steadily without forming any large waves.
ⓑ Small-bodied candle group after strong fall
This type refers to a small-bodied candle group moving sideways and forming an archlike gradual wave following a slight rise up after a strong fall.
ⓒ Steadily downward section after uptrend
It is the section that comes a certain period after a gradual move to the downside from the top of an uptrend that is composed of a small-bodied candle group progressively
opening and closing lower.
3) Beginning of Potential Bullish Reversal
A beginning of a potential bullish reversal is a section where the market is likely to reverse to the upside, and so naturally, buy signals appearing within it are highly reliable.
Buy signals such as a bullish rickshaw man or bullish flying squirrel in the beginning of a potential bullish reversal can be valid amid a straight upward movement as well. But, in
most cases, signals in the two locations are dealt with separately. The beginning of a potential bullish reversal can be largely divided into six types as
described below.
ⓐ Potential high-low bearish wave V section
The section that comes right after a large wave breaks below the low of a double bottom composed of noticeably large waves in a downtrend.