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 “Evening Star” 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.
One day’s experience following completion of a candlestick pattern does not a trend make. Even so, I have noticed that an imperfect Evening Star, in particular, is quite reliable; and that when it appears the reader is justified in taking appropriate action so as to capture the promise of the pattern.
So much valuable information could be added to the standard Japanese Candlestick textbooks if more attention were to be paid to candle patterns which are less than perfect.
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