Candlestick Reversal Examples from the Week of June 4th, 2007

These are some candlestick reversal patterns from the week of June 4th, 2007.

BULLISH ENGULFING PATTERN

This is the chart for MER on June 8th, 2007. In the two black boxes above are examples of BULLISH ENGULFING PATTERNS. Notice how the green candles engulf not only the previous bar but ones two and three bars away. With this trade you would have taken a lot of volatility before the stock made its move. It’s important to place your stops in these trades, not move them and disregard both the NYSE open book and the time and sales. Focus strictly on the candlesticks.

BEARISH ENGULFING PATTERN

This is the chart for NYX on June 5th, 2007. This could actually be viewed as a double pattern confirmation. First the shooting star pattern with the long tail showing that the price tried to continue it’s upward motion before falling. The long red bar engulfs both the shooting star and the green bar in the period before it confirming the pattern.

Also notice the crosshairs at the very bottom of the chart demonstrating a Hammer Reversal pattern at the end of the move confirming either a long entry or the covering of your short position.

HAMMER SIGNAL

This is the chart for GS on June 8th, 2007. This is an example of a hammer reversal signal with the tail of candle two times (or more) longer than the body at the bottom of a downtrend. Again this trade due to its price and volatility calls for more risk than an average trade but the reward on the initial move was more than 1.5 points. This trade was also call for a

tighter than usual stop loss due to the excessive volatility.

SHOOTING STAR

This is the chart for MER on June 7th, 2007. Inside the black box is an example of a shooting star reversal pattern. The stock is in an obvious downtrend and the short term reversal pattern is the hammer at the bottom of the chart. Many of these shooting star patterns can be easily identified by an exaggerated tail. Many times you may see two or three tails before the price actually moves. It's important to wait for the candles to completely close before you make a decision.

MORNING STAR PATTERN

This is the chart for NYX on June 6th, 2007. In the black box at the bottom of the chart is an example of a morning star pattern. The trade is obviously trending lower before the pattern and it shows a sharp down trending red bar followed by the morning star doji pattern. The confirming third bar completely engulfs both previous bars signifying a change in the trend. Because of the heavy downward trend in a trade like this, you would want to put your stop loss higher than normal to protect against additional selling.

EVENING STAR PATTERN

This is the chart for GS on June 7th, 2007. In the black box above is an example of an evening star pattern. It’s a long green bar followed by a doji pattern (indecision) then confirmed by an engulfing red bar. The stop loss on this trade should be placed just behind the top of the doji. I've been noticing these patterns more and more. Many times I wont wait for the third red confirmation bar to close before entering my position. My entry would be as the bar is forming about halfway down the green candle. -MM