JCPR Manual.pdf

Greg Morris’ Japanese CandlePattern Recognition MetaStock® Add-on Manual Printed in the USA All Rights Reserved Copyright © 2011 MetaStock 90 South 400 West, Suite 620 Salt Lake City, UT 84101 http://www.metastock.com Except as permitted by law, no part of this document may be reproduced or transmitted by any process or means without the prior written consent of Thomson Reuters, MetaStock, and Gregory L. Morris. By publishing this document Thomson Reuters, MetaStock, and Gregory L. Morris do not guarantee that any information contained herein is or will remain accurate or that use of the information will ensure correct and faultless operation of the relevant product or service. MetaStock and Gregory L. Morris provide products and services as tools to be used by investors who are aware of the risk inherent in securities trading, not as recommendations to buy or sell. Thomson Reuters, its agents, affiliates, and employees shall not be held liable to or through any user for any loss or damage whatsoever resulting from reliance on the information contained within this document or through the use of Thomson Reuters products or services. This product is not a recommendation to buy or sell, but rather a guideline to interpreting the specified analysis methods. This information should only be used by investors who are aware of the risk inherent in securities trading. Thomson Reuters, MetaStock, and Gregory L. Morris accept no liability whatsoever for any loss arising from any use of this product or its contents. Table of Contents Chapter 1 - Introduction..................................................7 Welcome ................................................................................. 7 Benefits of this Add-on .......................................................... 7 Background ............................................................................8 How to Use this Manual .........................................................9 Chapter 2 - Getting Started ...........................................11 To Install the Add-on ............................................................ 11 Chapter 3 - Components Included ................................ 13 Indicators Included ...............................................................13 Explorations and System Tests Included .............................13 Expert Advisors Included ......................................................13 Templates Included ..............................................................13 Chapter 4 - Analyzing Candle Patterns......................... 15 Pattern Breakdown .............................................................. 15 Pattern Breakdown Example ...................................................... 15 Pattern Detail Information ................................................... 16 Price Based Support and Resistance ................................... 19 Candle Pattern Filtering ...................................................... 19 Ideal Acceptable Candle Patterns and Variations .............. 19 More reversal patterns than continuation patterns ................... 20 More bullish reversals than bearish reversals ........................... 20 A Pattern is Identified but Changes Color .......................... 20 A Clear Top/Bottom Was Made and There Was No Candle Pattern ................................................................................. 21 Some Japanese Candle Patterns Do Not Appear ................ 21 Chapter 5 - Greg Morris’ Indicators ............................. 25 Personal Note from Greg Morris ..........................................25 JCPR Candle Trend ..............................................................25 JCPR Support & Resistance .................................................26 JCPR Filtering Binary ...........................................................26 Greg Morris’ Japanese Candle Pattern Recognition Manual iii .. 27 Filtering Bearish Reversal Patterns ............................................ 35 Three Outside Down ............ 34 Morning Doji Star ............................................................ 29 Reversal Patterns .......................................................................................................................................... 33 Doji Star ....................................... 35 Three Outside Up + .......................... 27 Chapter 6 ...........31 Engulfing .. 29 Included Candle Patterns ........................................................................................ 34 Abandoned Baby + ............................ 33 Meeting Line + ....................................................................................................... 34 Evening Doji Star + ................................................................................................... 32 Doji Star + .................................................... 31 Engulfing + ........... 34 Abandoned Baby ............................................................. 34 Breakaway + ............................................................................... 27 Filtering Bullish Reversal Patterns ...........................................................Table of Contents JCPR Filtering Binary Example ....... 32 Harami ................................................ 32 Dark Cloud Cover .................................................................................. 34 Evening Star .......................................................................................... 35 Kicking + ..................... 35 Three Inside Up + ......................................................................................................................................................................................... 32 Piercing Line + ........................................................................................31 Harami + ............................... 36 Kicking ................................ 33 Morning Star + ........................................................ 32 Harami Cross + ..... 33 Three Black Crows ........................................ 36 Three Stars in the South + ................................................................................................................................. 36 Unique Three River + ..Candle Patterns ........................................................29 Continuation Patterns .............................................................................................................................................................................................................................................................................. 36 Concealing Baby Swallow + .......................................................... 33 Three White Soldiers + ................................................ 36 iv Greg Morris’ Japanese Candle Pattern Recognition Manual .............. 32 Harami Cross ............................30 Candle Pattern Images .................................................................................................................................................................................................................................................... 35 Three Inside Down + .......................... 33 Meeting Line ........................................................................................................................................................................................................ ........................................................................................Common Questions ...............................45 Greg Morris’ Japanese Candle Pattern Recognition Manual v ..................36 Homing Pigeon + ............................................................................................................................................... 40 Upside Gap Three Methods + ..........................................................................38 Rising Three Methods + .................................................................. 40 Downside Gap Three Methods + ........................................38 Two Crows .........................................38 Separating Lines + ........... 37 Deliberation ............................43 Can you use candle patterns on intraday or weekly data? .............................................................................................45 JPCR Filtered Reversal Patterns ...........................................................................43 What mistakes do I see the most in the analysis of candle patterns? ............................................................................................................................................................................Table of Contents Stick Sandwich + ........................................................44 What do you use to determine the Trend? ... 37 Upside Gap Two Crows .................................................................................................................................................................................................................................39 Side by Side White Lines .......................................Understanding Explorations and System Tests .......................... 40 Three Line Strike .....................................44 Chapter 8 ...............................................................................................45 JCPR Filtered Reversal Patterns Confirm ............................................................................39 Three Line Strike + ...38 Falling Three Methods .............................................................. 43 Why are single-day candles not part of this product? ......................................................................................................... 40 Chapter 7 .39 Upside Tasuki Gap + .. 37 Identical Three Crows ................................................. 45 JCPR Reversal Patterns ...45 JCPR Reversal Patterns Confirmed ...................................39 Downside Tasuki Gap ..................................38 Separating Lines ...................... 37 Matching Low + .... 37 Advance Block ..............39 Side by Side White Lines + .. 37 Ladder Bottom + .................................... ............................ 54 Descriptions of JCPR Filtering Indicators ....................... 64 The System Test Report ......................47 JCPR:Japanese Candle Pattern Recognition ...........................Using Explorations ...................................................................................... 61 Chapter 13 ........Understanding Templates...................................................................67 Chapter 14 .......................................Using Expert Advisors ......... 55 Chapter 12 .....................Using Indicators ................... 47 JCPR Expert Commentary Example .............. 69 To View the Expert Commentary .....70 Chapter 15 .......Using System Tests............................73 vi Greg Morris’ Japanese Candle Pattern Recognition Manual ......................................................................53 Descriptions of JCPR Clean Chart ........71 Chapter 16 ................................................................63 To Run a System Test ......................................................... 53 JCPR Filtering Indicators .....57 The Exploration Report ........................................................63 Personal Note from Greg Morris . 55 To Plot an Indicator ............54 JCPR Filtering Indicators Example .....Table of Contents Chapter 9 ........................................53 JCPR Clean Chart .........................................................48 Chapter 10 ...Using Templates ............................................................................................................Understanding Expert Advisors ..............................................Sources.................................................................................................................................................................57 To Run an Exploration ............ 71 To Apply a Template to an Open Chart ...........63 Changing the System Tests ......54 Chapter 11 ................................47 Expert Commentary ........................... 53 JCPR Clean Chart Example ................. 69 To Attach Experts to Your Charts .... 5. 2.C HAPTER 1 I N TR O DUC TI O N Welcome Congratulations on your purchase of Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. Greg Morris’ Japanese Candle Pattern Recognition Manual 7 . An expert that gives you details on each pattern. A new trend measure that is used by the software to find patterns that you can use outside of this software for your other analysis. 6. An automatic identification of price based support and resistance levels used by the software to help identify the best patterns. Accurate identification of real Japanese candle patterns. A number of explorations to help you find candle patterns and filtered candle patterns. Benefits of this Add-on So what does Greg Morris’ Japanese Candle Pattern Recognition do for you? Below are several key things this MetaStock add-on provides. 1. 4. which can also be used outside of this product for your other analysis. 7. Filtered candle patterns based upon classic technical indicators and volume. And much more. This product was designed to help you quickly identify real Japanese candle patterns and offer a number of different ways to use them in your trading. 3. However. the rest obtained their knowledge from us. There are many books out now on candle patterns and most software programs have candlestick charting capability. The book was first published in 1992 and on its 3rd edition with a vast amount of statistics. very few have the correct methodology (original Japanese).Greg Morris 8 Greg Morris’ Japanese Candle Pattern Recognition Manual . with two exceptions. It was the first time I had ever heard of "Hi Ashi. Note: I find it amusing that in new books on candlesticks. For additional study I humbly recommend you refer to the 3rd edition of my book. He was intent on teaching me the art and also helping in translating many of the books that are listed at the end of this manual (see Sources)." which is what the Japanese call their candlestick chart. This product uses ONLY the candle patterns that came from original Japanese literature. but please realize they are NOT real Japanese candle patterns. the single day patterns. Candlestick Charting Explained. The Three Outside and Three Inside patterns were created when I was at N-Squared Computing to enhance the Engulfing and Harami patterns. and many others that were created to fill holes in the Japanese literature. the Three Outside and Three Inside patterns are generally included as if they are actual Japanese candle patterns. This product follows closely the details laid out in the book. published by McGraw-Hill. I traveled to Japan and stayed with Takehiro Hikita who was an active red bean and rice trader in Yokohama. There was a large contingent of Japanese traders present and they presented their charting techniques. AZ in 1988. I think only Steve Nison and I did any original research. I cover all of the patterns included in this product. They do that quite well. .Chapter 1: Introduction Background I attended a Market Technician Association seminar in Phoenix. I was working with N-Squared Computing then and we decided to create a charting product using Japanese patterns with automatic recognition capability. Chapter 1: Introduction How to Use this Manual If you are comfortable with basic tasks in MetaStock. If you are a beginning user. this manual is all you need to learn to use Greg Morris’ Japanese Candle Pattern Recognition. Chapter Number Chapter Title Contents Two Getting Started Instructions on how to install and run Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on Three Components Included Overview of the components included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on Four Analyzing Candle Basic information about interpreting candle patterns Patterns Five Greg Morris’ Indicators Descriptions of the included indicators Six Candle Patterns Images of the candle patterns used with this add-on Seven Common Questions Answers to common questions you might have about this add-on Eight Understanding Explorations and System Tests Descriptions of the included Explorations and System Tests Greg Morris’ Japanese Candle Pattern Recognition Manual 9 . read the MetaStock Getting Started manual before using this add-on. Below is a summary of the content contained in each chapter. Chapter 1: Introduction Chapter Number Chapter Title Contents Nine Understanding Expert Advisors Descriptions of the information contained within the Expert Advisor Commentary Ten Understanding Templates Descriptions of the included templates Eleven Using Indicators Instructions on how to add the Greg Morris’ Japanese Candle Pattern Recognition indicators to a chart Twelve Using Explorations Instructions on how to run an Exploration on the Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-On pattern scans Thirteen Using System Tests Instructions on how to run a System Test on the Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-On pattern scans Fourteen Using Expert Advisors Instructions on how to run an Expert on the Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-On pattern scans Fifteen Instructions on how to apply the Greg Morris’ Japanese Candle Pattern Recognition templates to a chart 10 Using Templates Greg Morris’ Japanese Candle Pattern Recognition Manual . Chapter 1: Introduction Chapter Number Chapter Title Contents Sixteen Sources Sources used in the creation of this add-on Greg Morris’ Japanese Candle Pattern Recognition Manual 11 . Chapter 1: Introduction 12 Greg Morris’ Japanese Candle Pattern Recognition Manual . If your drive has a different letter assigned. then click Start > Run. OR For Vista and Windows 7 users. Right click on the Setup.exe file and choose Run as Administrator.EXE. type D:\SETUP. 3 Click OK.C HAPTER 2 G ETTING S T A R T E D Included in this chapter are instructions on installing Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. The setup starts automatically. 2 In the Open box. To Install the Add-on Step Action 1 Insert the Program CD into your CD/DVD drive. 4 Follow the on-screen instructions to complete the installation. Type D: in the Run box and Click OK. OR If the auto-run feature of Windows is not enabled on your system. use that letter instead of "D. Greg Morris’ Japanese Candle Pattern Recognition Manual 11 . Note: "D" represents the letter assigned to your CD-ROM drive. . expert advisors. and templates included with Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. system tests. Indicators Included • • • JCPR Candle Trend JCPR Support & Resistance JCPR Filtering Binary Explorations and System Tests Included • • • • JCPR Reversal Patterns JCPR Reversal Patterns Confirmed JPCR Filtered Reversal Patterns JCPR Filtered Reversal Patterns Confirm Expert Advisors Included • JCPR:Japanese Candle Pattern Recognition Templates Included • • JCPR Clean Chart JCPR Filtering Indicators Greg Morris’ Japanese Candle Pattern Recognition Manual 13 .C HAPTER 3 C OMPONENTS I N C L U D E D Below is a summary of the indicators. explorations. . Therefore. if you combined all the days of the pattern into a single candlestick. Pattern Breakdown The concept behind Pattern Breakdown is fairly simple. the Evening Star breakdown is fully supportive and adds to the quality of the pattern.C HAPTER 4 A N ALYZI NG C ANDLE P AT T ER NS Below you will find basic information on analyzing candle patterns. below is the Evening Star pattern (bearish reversal) with the breakdown to the right of the arrow. would the interpretation support the pattern or not? For example. This concept is dealt with in the Expert (see To View the Expert Commentary) and the scoring system (see JCPR Expert Commentary Example). Pattern Breakdown Example Evening Star Pattern (Bearish Reversal) Greg Morris’ Japanese Candle Pattern Recognition Manual 15 . basically. The single candlestick line is known as a shooting star which is also bearish. A number of patterns have breakdowns that are not supportive. 79 1.77 1. % Loss: Net Profit/Net Loss: 1 2 3 4 5 6 7 69 64 62 61 60 59 59 3.63 4.98 7.82 Each pattern (bullish + and bearish -) has a box with the following information.39 -4.55 1.13 -5. Section Displayed Information Pattern Name + for bullish .43 1.23 1.92 -4.Chapter 4: Analyzing Candle Patterns Pattern Detail Information Below is an example of the pattern information box which is located in Greg Morris’ book Candlestick Charting Explained. % Gain: % Losers: Avg.98 6.06 -3.42 -3.for bearish Symbol MTL+ is the symbol used in MetaStock Type R = reversal C = Continuation Japanese Name The Romanized name Trend Required Yes No 16 Greg Morris’ Japanese Candle Pattern Recognition Manual . Pattern Name: MTL+ Japanese Name: Trend Required: Frequency (MDaysBP) Matching Low + niten zoko/kenuki Yes Confirmation: 590 Frequent Type: R+ No Pattern Statistics from 7275 Common Stocks with over 14.37 31 36 38 39 40 41 41 -2.48 1.6 Million Days of Data Interval (Days): % Winners: Avg.71 5.75 -5.65 1.42 5.64 6. Average. one that seemed to never work well. and one that seemed to always work well. Frequency (MDaysBP) The number of mean (average) days between patterns with a classification of Quite Frequent. Those that seemed to work well all of the time do not need confirmation (No). Rare. Frequent. Greg Morris’ Japanese Candle Pattern Recognition Manual 17 . and Extremely Rare. Those that never seemed to work well need confirmation (Required).Chapter 4: Analyzing Candle Patterns Section Displayed Information Confirmation Required Suggested No Note: Confirmation was an attempt to identify candle patterns that universally fell into two categories. Interval (Days) The 7 different days of performance. meaning that confirmation is suggested. therefore they were placed in the Suggested category. A third category was derived because some of those that were originally in the "worked well" category still had a few statistics that were not good. % Wins) values (i.e. If all trades produced either a gain or a loss (i. it can be a positive or negative number. 18 Greg Morris’ Japanese Candle Pattern Recognition Manual . then the Net Profit/Loss per Trade value can also be calculated as follows: Net Profit/Loss per Trade = (% Winners x Avg Win) + (% Losers x Avg Loss) (Net Profit / Net Loss) IMPORTANT: A good candlestick pattern will have positive Net Profit/Loss per Trade values across many time frames. Because the New Profit/Loss per Trade is the average result for all trades (winning. The Net Profit/Loss per Trade value is the sum of all individual trade results divided by the number of trades. And among those patterns producing a net profit per trade. you want a pattern whose losing trades produce on average limited losses. and losing trades). it means the average trade produced a net profit. If the Net Profit/Loss per Trade value is negative.e. breakeven.00 trade results). If the Net Profit/Loss per Trade value is positive. there were no 0. Candlestick patterns are not perfect.00% Avg Loss value).Chapter 4: Analyzing Candle Patterns Section Displayed Information Net Profit / Net Loss per Trade The Net Profit/Loss per Trade value is the average percent gain (or loss) for all trades. it means the average trade produced a net loss. a -3.00% Avg Loss value is better than a -6. Note: These statistics are automatically incorporated into the candle pattern scoring system in this product. the better patterns will be those with smaller Avg Loss (100 .. so when a trade doesn't work out.. or even zero. This software has an automatic support and resistance calculator built in and is also part of the expert scoring technique. However. you are getting an emotionally driven sell signal prior to getting a technically based price sell signal. this unique tool can be used for all of your other technical analysis. I call this period of time when %D is above 80 the bearish pre-signal area. Candle Patterns illustrates the candle patterns included in this product. it is just a matter of time before it will drop back below 80 for a sell signal. If you consider a common technical indicator such as Stochastics %D. This is to show you the "ideal" pattern. Of course the inverse is to find bullish reversal patterns when %D is in its bullish pre-signal area below 20. Candle Pattern Filtering Candle pattern filtering was developed by Greg Morris in the very early 1990s as an attempt to enhance the quality of signals generated from candle patterns. The concept is really quite simple. you cannot have the identification parameters too Greg Morris’ Japanese Candle Pattern Recognition Manual 19 . the better then generally are. we know that whenever %D rises above 80. as the closer they are to ideal. You can then see how the pattern identified by the software can vary from the ideal. Ideal Acceptable Candle Patterns and Variations Chapter 6. In fact. Price based means the support and resistance lines are horizontal. but you must have some feel for what it should look like.Chapter 4: Analyzing Candle Patterns Price Based Support and Resistance You will find that when candle patterns occur near support or resistance levels that are price based they will generally work better than when they are not. I have kept the parameters fairly tight on the identification engine. One rarely finds the ideal pattern in real life and trading. So now if you also can find a bearish reversal candle pattern that occurs while %D is above 80. The three vertical lines that precede the patterns are to show where the preceding trend was from. Note: The code to identify candle patterns has been set to show the absolute minimum requirements for a pattern. In this product there are 38 reversal patterns and 15 continuation patterns. More bullish reversals than bearish reversals If you have ever studied long term charts of the markets or stocks. A Pattern is Identified but Changes Color The pattern identification process begins with the oldest data loaded and moves forward from there. If they are descending. if you did not take a position in the early stage of the trend. they rarely offer a trading opportunity. the emotions are quicker and bottoms tend to be more sharp and defined. at bottoms. you can quickly see that when they are developing tops. Because of this you may see patterns being identified that are not picture perfect. then the preceding trend is up. I felt it was better to keep the pattern identification code as flexible as possible. they are usually long drawn out affairs (distribution). Continuation patterns are more a sign of confirmation that the trend is still in place. the continuation would be a second opportunity to place a trade. While the continuation patterns should not be ignored. This is why there are more bullish reversal patterns than bearish reversal ones. However.Chapter 4: Analyzing Candle Patterns tight or there would be very few candle patterns appear. In this product there are 21 bullish reversal patterns and 17 bearish reversal patterns. then the trend is down. Many times a pattern such 20 Greg Morris’ Japanese Candle Pattern Recognition Manual . More reversal patterns than continuation patterns I think it should be obvious that identifying the beginning and end of a trend is more important for trading than the identification of a trend that is continuing. if they are rising. However. the decision making of selling is more difficult for most investors. However. One cannot expect a candle pattern to identify each top or bottom.6 Million days of data. For example. The experimental data was accomplished on a list of 7275 common U. it was included because it was a pattern that was discussed in one of the Japanese books. in fact. However.S. which would be a Three Outside Up pattern.it is the later pattern that you should consider. there were no computers and it was strictly a visual process. Greg Morris’ Japanese Candle Pattern Recognition Manual 21 . the pattern "3 Stars in the South+" appears so infrequently that I deem it as almost useless. Sometimes you might see a blue continuation pattern turn into a green bullish pattern. then followed by a day where the close is higher. Both patterns are identified. I had to interpret the discussion and convert it into computer code for identification. Remember. When I was translating the Japanese literature many of the patterns. Some Japanese Candle Patterns Do Not Appear My goal with this product was to include all of the real Japanese candle patterns. it just won't happen. after you study a number of charts you will see that they still do a good job of identifying most tops and most bottoms. then only the first part of the pattern will show. stocks. A Clear Top/Bottom Was Made and There Was No Candle Pattern Candle patterns are not to be traded solely by themselves.Chapter 4: Analyzing Candle Patterns as a bullish engulfing pattern is identified. There were only 35 occurrences in over 14. The other instance of change is when the trend measure changes from bullish to bearish in the middle of a developing pattern. Both are still identified. most of the patterns were discussed in general terms. just the coloring changes . "Unique 3 River Bottom" only occurred 36 times. There are a handful of patterns that are extremely rare (detailed discussion in my book "Candlestick Charting Explained") that do not appear unless searching through vast amounts of data. Here is a list of the rare patterns: Pattern Name Frequency (mean days between patterns) Concealing Baby Swallow+ 59.333 22 Greg Morris’ Japanese Candle Pattern Recognition Manual .839 Downside Tasuki Gap- 20. For reference purposes I have also included a list of rare patterns first.571 Breakaway+ 97.their frequency could improve over time or get worse.679 Advance Block- 60.Chapter 4: Analyzing Candle Patterns which included large data histories that totaled over 14.6 Million days of data.557 Three Line Strike- 17.952 Abandoned Baby- 89. what should you do? I suggest that you make a note of it but do not act upon it.295 Side by Side White Lines- 47. when you see one of these extremely rare patterns. if ever.260 Two Crows- 34. Remember this: These are just statistics and all based upon past data .833 Abandoned Baby+ 87.109 Side by Side White Lines+ 16.506 Ladder Bottom+ 25.598 Downside Gap 3 Methods- 18.365 Upside Tasuki Gap+ 18.338 3 Line Strike+ 20. So.278 Stick Sandwich+ 19.402 Upside Gap 3 Methods+ 21. You just need to be aware of the fact that they are rare and not be concerned if you don't see them often. 344 Upside Gap 2 Crows- 317.391 Unique 3 River Bottom+ 405.143 Greg Morris’ Japanese Candle Pattern Recognition Manual 23 .Chapter 4: Analyzing Candle Patterns Here is a list of extremely rare patterns: Pattern Name Frequency (mean days between patterns) In Neck Line- 239.556 3 Stars in the South+ 417. . The JCPR Candle Trend indicator takes into consideration the true range of prices and expands or contracts based upon those ranges to follow the trend adaptively. The default value of 15 is used in the product. the JCPR Support and Resistance Indicator can be used outside of this add-on. you can set it at 50. If you wanted to look at longer term trends. to see longer trends similar to a 50 day average. you have access to these indicators from the usual indicator selection process in MetaStock. While it is used within this product to identify trends. Likewise. you have complete access to it and can change the number of periods if you wish to identify longer trends of data. For example. just increase the input value as appropriate. However. You can change the input value to increase or decrease the trend measure. In other words. I think you will find that horizontal support and resistance lines are much better than slanted ones. Personal Note from Greg Morris The JCPR Candle Trend is a new indicator I created that is a powerful trend measure of the market. Greg Morris’ Japanese Candle Pattern Recognition Manual 25 .C HAPTER 5 G RE G M O R R I S ’ I NDICATORS This MetaStock add-on comes with three powerful indicators that you can use outside of the add-on. JCPR Candle Trend The JCPR Candle Trend is a new method of identifying short term trends and is used in Greg Morris' Candle Pattern Recognition automatically. it is also provided so that you can use it anywhere in MetaStock for any other trend analysis you would like to do. and DI (Directional Movement). The input value is set at 126 and is the number of periods (days) that it looks back in the data to calculate the lines. Sometimes it will encompass more data and widen the support and resistance lines but not always. You can increase the look back periods to expand the concept. Each indicator carries the following weight: 9%D 14%D DI 20 10 10 The binary oscillates between +40 and -40. 26 Greg Morris’ Japanese Candle Pattern Recognition Manual .Chapter 5: Greg Morris’ Indicators JCPR Support & Resistance The JCPR Candle Support and Resistance indicator is the one used in this product to automatically calculate the support and resistance lines. JCPR Filtering Binary This binary uses a combination of 3 indicators. 14 day Stochastic %D. 9 day Stochastic %D. or even +40. whenever the indicator is above 20 and the prices are in an uptrend. then you are requiring all 3 indicators to be in their signal areas (see above chart). Note: You can use values other than +20 as the bearish reversal filter. Greg Morris’ Japanese Candle Pattern Recognition Manual 27 .Chapter 5: Greg Morris’ Indicators JCPR Filtering Binary Example Filtering Bearish Reversal Patterns To utilize this as a bearish pattern filter. any bearish reversal pattern will be considered filtered. that pattern has a better chance at being right than if the Filtering Binary were above -20. any bearish reversal pattern will be considered filtered. If you use +40. whenever the indicator is below -20 and the prices are in an downtrend. In other words. In other words. that pattern has a better chance at being right than if the Filtering Binary were below 20. Filtering Bullish Reversal Patterns To utilize this as a bullish pattern filter. such as +30. . Reversal Patterns Abbrevi Pattern Name ation E+ EH+ HHC+ HCPL+ DCDS+ DSML+ ML3WS+ 3BCMS+ ESMDSEDS+ AB+ ABB+ Engulfing + Engulfing Harami + Harami Harami Cross + Harami Cross Piercing Line + Dark Cloud Cover Doji Star + Doji Star Meeting Line + Meeting Line Three White Soldiers + Three Black Crows Morning Star + Evening Star Morning Doji Star Evening Doji Star + Abandoned Baby + Abandoned Baby Breakaway + Greg Morris’ Japanese Candle Pattern Recognition Manual 29 .C HAPTER 6 C A N D LE P AT T E RN S Included Candle Patterns The following candle patterns are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. Chapter 6: Candle Patterns Abbrevi Pattern Name ation 3IU+ 3ID+ 3OU+ 3ODK+ KU3R+ 3SS+ SKS+ CBS+ HP+ LB+ MTL+ G2CITCDAVB2CContinuation Patterns Abbrevi Pattern Name ation SL+ SLR3M+ F3MTG+ TGSS+ 30 Three Inside Up + Three Inside Down + Three Outside Up + Three Outside Down Kicking + Kicking Unique Three River + Three Stars in the South + Stick Sandwich + Concealing Baby Swallow + Homing Pigeon + Ladder Bottom + Matching Low + Upside Gap Two Crows Identical Three Crows Deliberation Advance Block Two Crows - Separating Lines + Separating Lines Rising Three Methods + Falling Three Methods Upside Tasuki Gap + Downside Tasuki Gap Side by Side White Lines + Greg Morris’ Japanese Candle Pattern Recognition Manual . Candle Pattern Name Engulfing + Image Candle Pattern Name Image Engulfing - Greg Morris’ Japanese Candle Pattern Recognition Manual 31 .Chapter 6: Candle Patterns Abbrevi Pattern Name ation SS3LS+ 3LSG3M+ G3M+ ONIN- Side by Side White Lines Three Line Strike + Three Line Strike Upside Gap Three Methods + Downside Gap Three Methods + On Neck Line In Neck Line - Candle Pattern Images Below are images of the candle patterns used in Greg Morris’ Japanese Candle Pattern Recognition. Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Harami + Harami - Harami Cross + Harami Cross - Piercing Line + Dark Cloud Cover - 32 Image Greg Morris’ Japanese Candle Pattern Recognition Manual . Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Doji Star + Doji Star - Meeting Line + Meeting Line - Three White Soldiers + Three Black Crows - Image Greg Morris’ Japanese Candle Pattern Recognition Manual 33 . Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Morning Star + Evening Star - Morning Doji Star - Evening Doji Star + Abandoned Baby + Abandoned Baby - 34 Image Greg Morris’ Japanese Candle Pattern Recognition Manual . Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Image Breakaway + Three Inside Up + Three Inside Down + Three Outside Up + Three Outside Down - Greg Morris’ Japanese Candle Pattern Recognition Manual 35 Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Kicking + Kicking - Unique Three River + Three Stars in the South + Concealing Baby Swallow + Stick Sandwich + 36 Image Greg Morris’ Japanese Candle Pattern Recognition Manual Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Homing Pigeon + Ladder Bottom + Matching Low + Upside Gap Two Crows - Identical Three Crows - Deliberation - Image Greg Morris’ Japanese Candle Pattern Recognition Manual 37 Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Advance Block - Two Crows - Separating Lines + Separating Lines - Image Rising Three Methods + 38 Greg Morris’ Japanese Candle Pattern Recognition Manual . Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Image Falling Three Methods - Upside Tasuki Gap + Downside Tasuki Gap - Side by Side White Lines + Side by Side White Lines - Greg Morris’ Japanese Candle Pattern Recognition Manual 39 . Chapter 6: Candle Patterns Candle Pattern Name Image Candle Pattern Name Three Line Strike + Three Line Strike - Upside Gap Three Methods + Downside Gap Three Methods 40 Image + Greg Morris’ Japanese Candle Pattern Recognition Manual . the close of the second day is just barely into the body of the first day. Greg Morris’ Japanese Candle Pattern Recognition Manual 41 . Note: The second day’s opening is below the first day’s low. the close of the second day is at the low of the first day. Also.Chapter 6: Candle Patterns Candle Pattern Name Image On Neck Line - Candle Pattern Name Image In Neck Line - Note: The second day’s opening is below the first day’s low. Also. . Can you use candle patterns on intraday or weekly data? Of course you can.C HAPTER 7 C OMMON Q UE STIONS Below you will find answers to commonly asked questions. The trading activity for the last 4 days of the week would not be seen in a candlestick. the open. In fact. Here is what I say about single day candlesticks: They are not candle patterns in that you cannot see the evolution of trader psychology through multiple days like you can on candle patterns that are more than one day. that time period is just the next data tick. the high is the high for the week (could occur on any day). I don't recommend it. Greg Morris’ Japanese Candle Pattern Recognition Manual 43 . however. it could occur on any day of the week). with the close on Friday. not a lot of time to develop a thought. The Japanese were adamant about the period of time between the close of one day and the open of the next day as being critically important to the psychological evolution of traders in developing the pattern. if it works for you. use it. high. nor ignored. the close is Friday's close. as with any art form. and the low is the low for the week (again. Weekly truly voids the concept as the open is Monday's open. With intraday charts. Why are single-day candles not part of this product? Every day the market sends a message. However. I also say single candlesticks still send a message that should neither be traded. and low could all occur on Monday. and many tend to ignore this critical element in pattern identification. right? What is it reversing? It is reversing the preceding trend. In an uptrend you can only have bearish reversal and bullish continuation patterns and in a down trend you can only have bullish reversal and bearish continuation patterns. Second. Pattern analysis in isolation is poor analysis. 44 Greg Morris’ Japanese Candle Pattern Recognition Manual .Chapter 7: Common Questions What mistakes do I see the most in the analysis of candle patterns? Let's begin with a question! If you find a bullish reversal candle pattern. And remember. If the midpoint of the body of the first day was above the 10 period average. if it is bullish reversal. I used a 10 period exponential average to determine the trend. then the trend was up. what does the mean? First it is supposedly reversing something. and in my book. wouldn't the preceding trend have to be down? Yes. In this software product I created a much more sophisticated method of determining trend. it can be used as a trend measure for your other technical analysis. It reacts to price changes and price ranges with greater accuracy than the previously used average. What do you use to determine the Trend? Originally. JPCR Filtered Reversal Patterns The exploration and system test identify reversal patterns that are filtered with 14 day Stochastics %D. Greg Morris’ Japanese Candle Pattern Recognition Manual 45 . JCPR Filtered Reversal Patterns Confirm The exploration and system test identify filtered reversal patterns (using 14 day %D) that also have a following day in the appropriate direction. JCPR Reversal Patterns Confirmed The exploration and system test identify reversal patterns that also have the next day close in the appropriate direction the pattern was calling for.C HAPTER 8 U NDERSTANDIN G E XPLORATIONS AND S Y ST E M TE ST S The following explorations and system tests are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. JCPR Reversal Patterns The exploration and system test identify only reversal patterns. . C HAPTER 9 U NDERSTANDIN G E XPER T A D VI S O R S JCPR:Japanese Candle Pattern Recognition Expert Commentary Besides the automatic identification of candle patterns. Greg Morris’ Japanese Candle Pattern Recognition Manual 47 . An example of the Expert Commentary is shown below with a corresponding explanation of each section. the Expert Commentary is loaded with additional information to help you surmise the quality of the current candle pattern. 48 Greg Morris’ Japanese Candle Pattern Recognition Manual .Chapter 9: Understanding Expert Advisors JCPR Expert Commentary Example Item Description of the Information in the Commentary Available on each day in your data and is always part of the Expert Commentary. • The Trend analysis for this stock is Bullish or Bearish. in this case it is Bullish. the stock being analyzed is BK. • The current close of the selected date is shown. • In this example. even if a previously identified pattern is selected. then it receives 15% in the scoring. the support and resistance lines are still only associated with the last day of data.There are four columns of information in the Pattern Score data: •Pattern Score: lists the five different components that make up the Pattern Score •Score: is the percentage that is awarded when it meets the various components' criteria •Maximum Possible: shows the fixed maximum that a component can contribute to the Pattern Score •Qualifiers: is a list of the various sub-components that contributed to the Score Support / Resistance If a pattern falls on the appropriate support (bullish reversal) or resistance (bearish reversal) line and any part of the data (within the high low range of the entire pattern) is touching the line. If the last day of a candle pattern is selected. The Pattern Scoring will ONLY appear when there is a reversal candle pattern that has been completed on the last day of the data loaded. these will not change.Chapter 9: Understanding Expert Advisors Item Description of the Information in the Commentary The support and resistance levels are always shown based upon the last part of the loaded data. Caution: If you are viewing the Expert Commentary on any data other than the last day loaded. This section of the Expert Commentary will not appear on any other selected date in the data. not the day selected. it receives the full 25% in the scoring. If the body of the pattern falls over the line. they remain for your reference only. If selecting a day other than the last day (default). This is because the support and resistance calculations are ONLY accomplished on the last part of the loaded data. Greg Morris’ Japanese Candle Pattern Recognition Manual 49 . it will identified here. Obviously the performance based upon the next day after the pattern is most important and hence carried most of the weight. The various codes are assigned from A to H based upon the weighted score of the two categories used. Therefore the filtering component could be 0%. 10%. A = 15% B = 12% C = 9% D = 6% E = 3% F .H = 0% 50 Top 25% of all statistics in both categories. 20%. % Loss using a combination of performance periods.DI (DI = Directional Indicator) 10% Please note that these indicators are used for both bullish and bearish reversal patterns. Greg Morris’ Japanese Candle Pattern Recognition Manual . % Loss category. Not in the top 25% or bottom 25% in either category Bottom 25% in one or both categories. 30%. so if the prices move in that direction initially. Top 25% in Net Profit / Net Loss.or 40% depending upon which measures are met. but bottom 25% in Avg. 9%D 9 period %D Stochastic (> 80 or < 20) 20% 14%D 14 period %D Stochastic (> 80 or < 20) 10% DI +DI > or < .Chapter 9: Understanding Expert Advisors Item Description of the Information in the Commentary Filtered A filtered pattern is one that is supported by at least one to three technical indicators. the pattern did its job. Top 25% in the Net Profit / Net Loss category. % Loss. Statistics The determination of the statistical computation was based upon a weighted average of the Net Profit / Net Loss and Avg. Top 25% in the Avg. Candle patterns only make short term predictions about trend reversal and continuation. then 0% is the score. Greg Morris’ Japanese Candle Pattern Recognition Manual 51 . Links to separate html files are included. if the breakdown supports the pattern (Y). If the pattern breakdown does not support (N). These html files have additional information regarding the candle patterns. 10%. Breakdown The contribution to the Pattern Score is simply.Chapter 9: Understanding Expert Advisors Item Description of the Information in the Commentary Volume Volume support is important as the psychological evolution of a pattern unfolds. the contribution to the Pattern Score would be 15%. 5%. Possible scores would be 0%. The percentages used are as follows: VL VI VC Volume on the last day > than the 15 day average of volume Volume increased on each day of the pattern Volume on last day > volume on other days 5% 5% 5% If all the volume conditions were met. or 15%. then 5% is awarded. If a pattern is selected. this is what the commentary will look like. 52 Greg Morris’ Japanese Candle Pattern Recognition Manual . but it is not the last day of the data loaded.Chapter 9: Understanding Expert Advisors If there is no pattern selected in the expert. this is what the commentary will look like. C HAPTER 1 0 U NDERSTANDIN G TEMPLAT E S JCPR Clean Chart Descriptions of JCPR Clean Chart This template displays the following components: • • • • Candles Support Lines Resistance Lines Trend JCPR Clean Chart Example Greg Morris’ Japanese Candle Pattern Recognition Manual 53 . Chapter 10: UnderstandingTemplates JCPR Filtering Indicators Descriptions of JCPR Filtering Indicators This template contains the following components: • • • • Candles Support Lines Resistance Lines Filtering Indicators • Stochastics %D 9 Day • Stochastics %D 14 Day • Directional Movement • • JCPR Support & Resistance Volume Data JCPR Filtering Indicators Example 54 Greg Morris’ Japanese Candle Pattern Recognition Manual . 4 From the Inner Windows list. • • • JCPR Candle Trend JCPR Support & Resistance JCPR Filtering Binary To Plot an Indicator Step Action 1 Select the chart. Greg Morris’ Japanese Candle Pattern Recognition Manual 55 . 3 Select the indicator(s) in the Indicators list. 5 Click OK. choose the inner window to plot the indicator in. 2 Choose Insert>Indicators.C HAPTER 1 1 U SING I NDICATORS The following indicators are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. . • • • • JCPR Reversal Patterns JCPR Reversal Patterns Confirmed JCPR Filtered Reversal Patterns JCPR Filtered Reversal Patterns Confirmed To Run an Exploration Step Action 1 Click . The Explorer dialog box opens.C HAPTER 1 2 U SING E XP LO RATIONS The following explorations are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. Greg Morris’ Japanese Candle Pattern Recognition Manual 57 . 3 Click Add Securities. The Select Securities dialog opens.Chapter 12: Using Explorations Step 2 Action Select the scan and click Explore. The Add Securities dialog opens. 58 Greg Morris’ Japanese Candle Pattern Recognition Manual . Note: It is recommended that you select Local Data to reduce processing time. Chapter 12: Using Explorations Step 4 Action Select the items to explore. Greg Morris’ Japanese Candle Pattern Recognition Manual 59 . Note: To select all the items in a folder. choose Tools > Select all. 5 Click Open. 7 60 When the exploration is complete. Greg Morris’ Japanese Candle Pattern Recognition Manual . click Reports. The exploration will begin and the Exploration Status dialog opens.Chapter 12: Using Explorations Step 6 Action Click OK. periodicity and exploration information Buy column Displays the stocks with a current buy opportunity (listed with a 1 in the buy column). Rank the list by clicking on the column header Short column Displays he stocks with a short opportunity (listed with a 1 in the short column).Chapter 12: Using Explorations The Exploration Report Item Name Description Results tab Displays all results generated during the scan Rejects tab Displays all stocks rejected during the scan Exploration tab Displays the column formulas. filter rule. Rank the list by clicking on the column header Open Chart Opens the chart in MetaStock (highlight a stock/ stocks and click Open Chart) Save List Saves this scan into your Favorites folder Close Closes the Exploration Report dialog Greg Morris’ Japanese Candle Pattern Recognition Manual 61 . . if the price moves more than 3% below the highest high value set in the last 15 days. The opposite is for shorting. If the stops is not hit. Use the system tests with caution. Personal Note from Greg Morris System Tests serve many purposes.C HAPTER 1 3 U SING S Y ST E M TE ST S The following system tests are included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. Currently the stop loss function is set as follows: • • Once in a trade. it is stopped and awaiting the next candle pattern. but I will adamantly state here that trading solely on candle patterns is not wise. I strongly suggest before you edit any test. make a copy of the original code so that you can recover if necessary. then an opposing candle pattern will trigger the next trade. Greg Morris’ Japanese Candle Pattern Recognition Manual 63 . • • • • JCPR Reversal Patterns JCPR Reversal Patterns Confirmed JCPR Filtered Reversal Patterns JCPR Filtered Reversal Patterns Confirmed Changing the System Tests The system tests that are included in this product are not password protected so that you can change the stop loss function. The Select Systems dialog opens. 64 Greg Morris’ Japanese Candle Pattern Recognition Manual . The Select System Tester . 2 Click New Simulation.System View opens.Chapter 13: Using System Tests To Run a System Test Step Action 1 Click . Chapter 13: Using System Tests Step Action 3 Select the test and click Next. 6 Click Open. Greg Morris’ Japanese Candle Pattern Recognition Manual 65 . 5 Select the items to explore. The Add Securities dialog opens. 4 Click Add Securities. The Select Securities dialog opens. 9 Click Start. The System Testing Options dialog opens. click View Results. 8 Select the options for the system test and click Start. The Begin Trading Simulation dialog opens.Chapter 13: Using System Tests Step Action 7 Click Next. 66 Greg Morris’ Japanese Candle Pattern Recognition Manual . 10 After the simulation is completed. twice to sort descending View Opens the Result Details dialog Greg Morris’ Japanese Candle Pattern Recognition Manual 67 .Chapter 13: Using System Tests The System Test Report Item Name Description Profitable Displays profitable trades produced with the stocks system in green NonDisplays non-profitable trades produced with profitable the system in red stocks Report columns Sorts data in the column(s) in ascending or descending order. Click on any of the columns in the report to sort. Click once to sort ascending. Chapter 13: Using System Tests 68 Greg Morris’ Japanese Candle Pattern Recognition Manual . To Attach Experts to Your Charts Step 1 Action Open a chart. Buy and sell signals will appear on the chart. • JCPR Japanesse Candle Pattern Recog. 3 Select the Expert and click Attach.C HAPTER 1 4 U SING E XP ER T A D VI S O R S The following expert advisor is included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. Greg Morris’ Japanese Candle Pattern Recognition Manual 69 . 4 Click Close. 2 Click . The signals will update as new data is added to the chart. The Expert Advisor dialog opens. 3 Choose Expert Advisor > Commentary. The Commentary Window will open.Chapter 14: Using Expert Advisors To View the Expert Commentary Step Action 1 Open a chart with an Expert Advisor attached. 70 Greg Morris’ Japanese Candle Pattern Recognition Manual . 2 Right-click on an open area of the chart. Greg Morris’ Japanese Candle Pattern Recognition Manual 71 . 4 Choose the template from the Apply Template dialog. • • JCPR Clean Chart JCPR Filtering Indicators To Apply a Template to an Open Chart Step Action 1 Open the chart. 2 Right-click on the chart. choose Apply Template.C HAPTER 1 5 U SING TEMPLAT E S The following template is included in Greg Morris’ Japanese Candle Pattern Recognition MetaStock Add-on. 3 From the shortcut menu. The Apply Template dialog opens. The layout appears. 6 Click Open. 72 Greg Morris’ Japanese Candle Pattern Recognition Manual .Chapter 15: Using Templates Step Action 5 Activate the checkbox next to Use Template’s periodicity. Hikita had written about this a decade before so his experience was invaluable.attacking methods on imported soybeans and how to profit from it. Many cases were presented where the actual details were insufficient to completely develop the concept .Sohba Okuno Hosomichi.C HAPTER 1 6 S O U R CE S While in Japan in 1991. Takehiro. 1978. The world of Soybeans . Toyo Keizai Shinpoh Sha. Hikita. Shigeru. Tohshi Nipoh Sha. Morris. but my focus was on obtaining the various candle patterns and the details of their construction. Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures.keep in mind that much of this is long before computers and basic technology. Ryan. Kichitaro. Hikita. Shin Shuu-Ashi Tohshi Hoh .Tohkel to Kakuritus de Toraeru. New weekly chart method . New York: McGraw-Hill.based on statistics and probability. Sakimono Keisen . Daizu no Sekai . 2006.Strategies for the investor. 1991. We strived to obtain patterns as close as possible with the information provided. 1978. helped me translate most of the following books.Yunyu Daizu no Semekata Mohhekata. Litchfield. 3rd ed. Gregory. Greg Morris’ Japanese Candle Pattern Recognition Manual 73 . Takehiro. Kaburagi. IOM Research Publications.explained in a detailed way to be an expert in trading. Kabushiki Keisen no Mikata Tsukaikata Tohshika no Tameno Senryakuzu. 1977. Futures charts . Kisamori. They were rich with market history. my friend Takehiro Hikita. How to read and apply charts on stocks . IOM research Publications. the speed like wind.To be confident of victory on stock investments. Diamon Sha. Taichi. A picture of the stock chart. fire... Note: Steve was one of the first to write about Japanese candlesticks and coined many of the translated names . 1991. Tokyo: Toyo Keizai Shinpoh Sha. A classroom on charting.. Analysis of Stock Price in Japan.. Yasui. Note: The above reference was an excellent source for many of the candle patterns. New York: New York Institute of Finance.that battle like fire. Ltd. 1990. Rin . 2nd updated 3rd ed. Ku .I have not changed that. Steve. Yoshimi. Tokyo: Nippon Technical Analysis Association. Tokyo: Tokyo Futures Trading Publishing Co. Toshikazu. Japan Chart Co. Japanese Candlesticks Charting Techniques. 1981.Chapter 16: Sources Nison. Kenji. Yatsu. 74 Greg Morris’ Japanese Candle Pattern Recognition Manual . 1988. Ohyama. Toshihihko. 1986. This idiom originated from the Chinese battle strategy the Honma was said to have read. Seiki. The Sakata Rules are wind. and Zan . A genius trader Sohkyu Honma into his secret . and mountain. 1986. 1991. Tensai Shohbashi "Honma Shohkyu Hiden" Kabu Hisshoh Jyutsu. Nihon Shohken Shimbun Sha. The name Fuurin Kazan may be translated as Fu . Inn-Yoh Rohsoku-Ashi no Mikata . forest. Sakata Goho wa Fuurin Kazan . Kabushiki Keisen no Shinzui . 1991. Ltd. Japan Chart Co.Jissenfu ni Yoru..that quietness like forest. Toshihiko Yoshimi no Chato Kyoshitsu. Shimizu.In view of the actual record.that immobile positions like mountains.Nichi Bei Keisen Bunseki no Subete.Sohba Keisen no Gokui. How to read black and white / negative and positive candlefoot . The Japanese Chart of Charts.