Candle Charts Confirm Discovery of Powerful New Candlestick Reversal Pattern

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One of the outstanding attributes of Candlestick analysis is its utilization of candle charts in order to ferret out reversals of trend, either as they are nearing completion or even earlier. When we find a candlestick formation which we know has been a proven performer over the years, we are sure to pay special attention. Even more so, when one discovers a possible reversal pattern which does not appear in the standard literature but which one has reason to believe may possess the reversal potential of a classic candlestick chart pattern, it can be quite like finding a buried treasure trove.

We had written very recently about our discovery of a variation of the “Morning Star” Japanese Candlestick reversal pattern, and the possibility that it might possess some of the bullish characteristics of the original.

The classic “Morning Star” candlestick reversal pattern consists of three price bars. The first bar will be a tall black candle, indicating a strong “down day” in the market. The middle bar, which is the “Star” of the formation, will show a very tight range of prices between the opening price and the closing price, thereby constituting the so-called “real body” of the price bar; and the “real body” will be situated at, near, or below the closing price which is indicated by the tall black candle. The third bar will be a tall white candle, which denotes a strong “up day.” The completed pattern is considered to be a bullish signal.

There is a variation of the classic “Morning Star” which contains two “Stars” rather than one. We have written about it separately, and have given it a name of its own: the “Tokyo Express.” It turned out to be enormously powerful, in that it marked the ignition point of the Great Rally of 2009.

Today, we are discussing a three-Star variation of the Morning Star, a candlestick reversal pattern which completed on July 13, 2009. In our earlier comment about it, we made note of its appearance and wondered whether it might contain within itself the bullish promise of a rise in prices.

Now, just three days later, on July 16, we know the answer: it is indeed a powerful reversal formation. Since completion of the pattern until Closing of the market today, the Dow has gained 380 points!

Case closed. We are satisfied that we have indeed identified a powerful Candlestick Reversal Pattern which deserves recognition as a distinct pattern in its own right. We call it the “Kobe Cruiser.”