Faithful Unorthodox Candlestick Pattern

Much is written in the standard Japanese Candlestick textbooks about the standard candle patterns and their degree of predictive reliability. Hardly anything is said about variations of those patterns. The reader is left with a dearth of information about applying personal judgment to those less-than-ideal formations in the quest for predictive reliability.

Over a long course of time, I have found that it is very worthwhile to pay attention to candle patterns which are less than perfect in their construction. An excellent example has just now arisen in the Daily charts of the Dow Industrials – today being July 29, 2008. After a considerable advance, we see a (relatively) tall white candle on July 22, followed by a Spinning Top Star, a little higher than the tall white, on July 23; and then a tall black candle which began at the level of the Star. A more perfect formation would have occurred had the Star been completely above both the tall white and the tall black.

Nevertheless, that three-bar formation was close enough to “perfect” to catch the eye and allow a prediction that prices would fall thereafter. Prices were about level the next day; but the day after that (yesterday, July 28) produced another tall black candle and a 239 point decline in prices.

It is suggested that the standard Japanese Candlestick textbooks might be enhanced by the addition of special sections which would demonstrate the power of candle formations which are less than classically perfect but which, nevertheless, possess predictive power.