The rules of procedure of long candlestick introduction I conclude as below:
1. If Abs (C0 - O0)> = 3 * abs (C1 - O1), long body. So if the length of body (the absolute difference of open and close values on one day is greater or equal to three times of the length of body in the previous period then the body of the candlestick is called long candlestick. The method is called as method 1 by us.
2. If the body of candlestick > = 1,3 times of the averages length of the length of body in a certain period (usually 10 days), so the body is called long body of candlestick. This method is called as method 2 by us.
3. If abs (O-C) / (H-L) > 60% so the body is called long body. This method is called as method 3 by us.
4. If Abs (O-C) / (H-L) > 60% and the length of body of the candlestick > = 1,3 of the averages length of body so it is called as long body. This method is called as method 4 by us.
Which method are the most appropriate? it is certainly very depend on your preference. Although the above formulations are quite representative, but unfortunately, these rules can only identify the existence of long candlestick body, so that based on this thing, further, I developed the special formations that can identify the presence of candlestick formation.
Furthermore, I also developed the specific methods by myself to identify the long of body of the candlestick that I produced from a combination of all the methods above, especially Method 1 and Method 2.
But certainly I do not want to say that my method is the most appropriate method and the other is wrong, however, the most appropriate method is the method which can provide the most accurate analysis, so each method has its limitations respectively.
For example is Method 1, by using this method you will find the difficulty to identify the candlestick that consists of several long candlestick alternately. Such as formations of three white soldiers.
In candlestick analysis is known a formations called the three white soldiers that identified by the appearance of the three of long white candlestick that appear alternately with the highest point on the rise. Until this basic understanding maybe it will not cause confusion. But if you look at the ideal formation picture of the three white soldiers you may be confuse. In various books on candlestick, ideal formation of formed from three white soldiers formations of candlestick are described as follows:
In the method 1 has clearly mentioned that the long white candlestick should have a body length > = 3 times of the length of the previous candlestick body. Look at the picture above, what is the candle b has a length > = 3 times of the length of candlestick? no! so by using method 1 is clear that candlestick of b and c may not be said to be a long candlestick. But if you read the various theories about the Candlestick, once again the above picture is an ideal example of the formation of the three white soldiers.
Confuse? The same thing was happened with me when I started to learn the candlestick analysis method. And at that moment I conclude that to identify whether a candlestick can be classified as long, short or doji candlestick, then the length of candlestick body must be compared with the averages size of the previous candlestick.
Therefore, further, I developed a method to identify the length of candlestick body. I developed this method from Method 1 and Method 2.
If at Method 1 the candlestick is identified as a long if its body length > = 3* of previous candlestick body, then I identify a long candlestick with a candlestick with a body length > = 2* the averages length of candlestick body in observation period.
Furthermore, I identify the body of a candlestick as the short candlestick if the length of candlestick body is less than or equal to ½ of the averages length of the candlestick body in observation period. Moreover to identifying a candlestick body in the observation period. While to identifying a body candlestick as short / doji candlestick, I identified it as a candlestick with the length of candlestick body less than or equal to ½* of the length of the short candlestick body and for candlestick that has a medium body length I identifying with a candlestick with a body length of more greater or equal to ½ * of the averages length of the candlestick body in observation period and smaller than 2* of the averages length of candlestick body in observation period. Mathematically the identification of the length of candlestick body by using the method I developed can be written as follows:
Long candlestick body > + 2* Average candlestick body
½ * average candlestick body < = medium candlestick body < 2* average candlestick body
½ * ½ * average candlestick body < = short body candlestick < ½ * average candlestick body
doji candlestick body < ½ * ½ * average candlestick body
If the method 2 is applied in the rules above, the formula will be
Long candlestick body > = 1,3 * average candlestick body
1 / (1,3) * average candlestick body < = Medium candlestick body < 1,3 * average candlestick body
1 / (1,3) * 1 / (1/3) * Average candlestick body < = short candlestick body < 1 / (1,3) * average candlestick body
doji candlestick body < 1 / (1,3) * 1 / (1,3) * Average candlestick body
Numeral 2 and 1,3 in the equations above, then we call as multiplier where its value will not be rigid and limit to numeral 1,3 and 2 only, because you certainly can just change the value of multiplier according to the nature of the data that you observe, but of course in outline, multiplier value will be greater than 1.
If the multiplier is symbolized with MLT by us, then the above formulation can be transformed into candlestick formula
Long candlestick body > = MLT * Average candlestick body
1 / (MLT) * Average candlestick body < = medium candlestick body < MLT * Average candlestick body
1 / (MLT) * 1 / (MLT) * Average candlestick body < = short candlestick body < 1 / (MLT) * Average candlestick body
doji candlestick body < 1 / (MLT) ^ 1 / (MLT) * Average candlestick body
If previously we have discussed on how to identify the long, medium, short and doji candlestick, so now we will discuss about how we identify the long, medium, short and very short shadow.
Identification of shadow is not less important than identification of the body, however shadow will show the power of attraction of selling and buying action during the trading period.
The principle I used in identifying long / category of the shadow, the same as the previous principle I used in identifying the length of candlestick body, for details see the formula below,
Long shadow > = MLT * Average candlestick body
1 / (MLT) * average candlestick body < = medium shadow <MLT * Average candlestick body
1 / (MLT) * 1 / (MLT) * average candlestick body < = short shadow < 1 / (MLT) * average candlestick body
Very short shadow < 1 / (MLT) * 1 / (MLT) * average candlestick body
Furthermore, considering there are two shadows in a candlestick (upper and lower shadow), so the above formulation can be developed into:
Long upper shadow > = MLT * Average candlestick body
1 / (MLT) * Average candlestick body < = medium upper shadow < MLT * Average candlestick body
1 / (MLT) * 1 / (MLT) * Average candlestick body < = short upper shadow < 1 / (MLT) * Average candlestick body
Very short upper shadow < 1 / (MLT) * 1 / (MLT) * average candlestick body
Long lower shadow > = MLT * Average candlestick body
1 / (MLT) * Average candlestick body < = Medium lower shadow < MLT * Average candlestick body
1 / (MLT) * 1 / (MLT) * Average candlestick body < = short lower shadow < 1 / (MLT) * Average candlestick body
Very short lower shadow < 1 / (MLT) * 1 / (MLT) * Average candlestick body
Where
Upper shadow = high - max (open, close)
Lower shadow = min (open, close) - low
MLT = multiplier (multiplier value that used should be the same with multiplier value used in the identification of body length)
Information
1. MLT / multiplier - the multiplier value can match with the nature of the data that you observe, but ideally the multiplier value must > 1
2. The average candlestick body is the average length of the n body (in accordance with the observation period) previous candlestick that you analyzed
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