of five candle lines, it is somewhatrare to find in its classic form. Some leeway can be allowed in the range ofthe reaction days. They may go slightly above or below the range of thefirst day. It is best, if this is allowed, that they cover the range of the firstday completely. If they do not and tend in one direction, the pattern canbecome a Mat Hold pattern, if it occurs in an uptrend.
Figure 4-15A
The Rising Three Methods pattern reduces to a long white candlestick,which fully supports the bullish continuation (Figure 4-13). The FallingThree Methods pattern reduces to a long black candlestick, which fullysupports the bearish continuation (Figure 4-14).
Related PatternsA pattern similar to the bullish Rising Three Methods is the Mat Holdpattern. It is also a bullish continuation pattern but allows greater flexibility in the reaction days. That is, the small black days that are between thetwo long white days do not have to be within the range of the first whiteday. These reaction days are generally higher relative to the first candlestick. Seeing the two patterns side-by-side will show that the uptrend was,and is, much stronger for the Mat Hold pattern.
Continuation Patterns
Chapter 4Figure 4-158
Separating Lines(iki chigai sen)Confirmation is required, especially for the bullish case.
CommentaryThe Separating Lines have the same open and are opposite in color. Theyare similar, but opposite of the Meeting Lines. The second day of thesepatterns is a Belt Hold candlestick. The bullish pattern (Figure 4-16) has awhite bullish Belt Hold and the bearish pattern (Figure 4-17) has a blackbearish Belt Hold. Ikichigaisen means lines that move in opposite directions. Sometimes these are called Dividing (furiwake) Lines.
Rules of Recognition1. The first day is the opposite color of the current trend.
2. The second day is the opposite color of the first.
Chapter 43. The two bodies meet in the middle, at the open price.
Scenarios and Psychology Behind the PatternAn uptrend is in place when a long black day occurs. This is not normalfor a strong market and will produce some skepticism. However, the nextday opens much higher, in fact, it opens at the previous black day's opening price. Prices then move higher for the rest of the day and close higher,which suggests that the prior uptrend should now continue. This scenariois for the bullish Separating Line; the bearish scenario is quite similar, butopposite.
Pattern FlexibilitySeparating Lines should each be long lines: however, there is no requirement that this be so. Strong furiwake lines would be two long bodieswithout any shadows (marubozu) at the points where they meet.
The bullish Separating Lines pattern reduces to a Long-Legged Doji line(Figure 4-18). A Doji, and especially the Long-Legged Doji, represents
Continuation Patterns
indecision in the market and therefore does not fully support the bullishcontinuation of this pattern. The bearish Separating Lines pattern reducesto a candle line with a black body near the lower portion of the range(Figure 4-19). This line can be considered bearish and therefore supportsthe bearish continuation pattern.
Related PatternsThe Meeting Lines, which are not continuation, but reversal patterns, aresimilar in concept.
ExamplesFigure 4-20A
Continuation Patterns
Chapter 4Figure 4-20B
Mat Hold(uwa banare sante oshf)Bullish continuation pattern.No confirmation is required.
Figure 4-21
CommentaryThe Mat Hold pattern is a modified version of the Rising Three Methods.The first three days start out like the Upside Gap Two Crows, with theexception that the second black body (third day) dips into the body of thefirst long white day (Figure 4-21). This is followed by another small blackbody that closes even lower, but still within the range of the first whitebody. The fifth day sees a large gap opening, with a strong rise to a closeabove the high of the highest of the three black days. This suggests that thetrend will continue upward and that new positions can be taken here.The Mat Hold Pattern shows greater strength as a continuation signalthan the Rising Three Methods. The reaction days are basically higher thanthe ones in the Rising Three Methods. In other words, the Mat Hold doesnot take quite the rest, or break from trend, that the Rising Three Methodsdoes.
Continuation Patterns
Chapter 4
Rules of Recognition1. A long white day is formed in an uptrending market.2. A gap up with a lower close on the second day forms almost astar-like day.3. The following two days are reaction days similar to the RisingThree Methods.
Pattern BreakdownThe bullish Mat Hold pattern reduces to a long white candlestick, whichfully supports its bullish continuation (Figure 4-22).Figure 4-22
4. The fifth day is a white day with a new closing high.
Scenarios and Psychology Behind the PatternThe market is continuing its rise, with a long white day confirming thebullish action. The next day prices gap open and trade in a small range,only to close slightly lower. This lower close (lower than the open) is stilla new closing high for the move. The bulls have only rested, even thoughthe price action surely brings out the bears. The next couple of days causesome concern that the upward move may be in jeopardy. These days openabout where the market closed on the previous day and then close slightlylower. Even by the third such day, the market is still higher than the openof the first day (a long white day). An attitude that a reversal has faileddevelops and prices rise again to close at a new closing high. This fullysupports the bulls' case that this was just a pause in a strong upward trend.
Pattern FlexibilityThe arrangement of the three small black days should show consecutivedeclines, much like the Rising Three Methods. The reaction days are altogether higher than those in the Rising Three Methods.
Related PatternsRising Three Methods is a more rigid pattern. Even though this patternbegins somewhat like the Upside Gap Two Crows, the closing of the thirdday into the body of the first day eliminates that possibility. One must alsobe on guard for a possible Three Black Crows pattern starting with thesecond day, especially if it is a long day.
Continuation Patterns
Three-Line Strike(sante uchi karasu no bake sen)Confirmation is definitely required.
commentaryThis is a four-line pattern that appears in a defined trend. It can be lookedupon as an extended version of either the Three Black Crows pattern(bearish) or the Three White Soldiers pattern (bullish). This pattern is aresting or pausing pattern; the rest is accomplished in only one day. Breaksin trend are almost always healthy for the trend. Some Japanese literaturerefers to this pattern as the Fooling Three Crows for the bearish version.The bullish case could also be called Fooling Three Soldiers.
Bullish Three-Line StrikeThree white days with consecutively higher highs are followed by a longblack day (Figure 4-24). This long black day opens at a new high and thenplummets to a lower low than the first white day of the pattern. This typeof action completely erases the previous three-day upward march. If theprevious trend was strong, this should be looked upon as just a setback
Chapter 4with some profit taking. This last day is considered a liquidating day,which will give the upward trend needed strength.
Bearish Three-Line StrikeA downtrend is accentuated by three black days that each have consecutively lower lows (Figure 4-25). The fourth day opens at a new low, thenrallies to close above the high of the first black day. This last long whiteday completely negated the previous three black days. This day should belooked upon as a day when shorts were being covered and the down moveshould continue.
Continuation Patterns
causes the market to move strongly in the opposite direction. This actioncauses considerable soul searching, but remember that this move completely eradicated the previous three days. This surely dried up the shortterm reversal sentiment and the trend should continue in its previousdirection.
Pattern FlexibilityThe amount of the initial gap in the direction of trend and the amount thefourth day moved would be strong indication's of the success of thispattern as a continuation pattern.
Rules of RecognitionBullish Three-Line Strike1. Three days resembling Three White Soldiers are continuing anuptrend.2. A higher open on the fourth day drops to close below the open ofthe first white day.
Bearish Three-Line Strike1. Three days resembling Three Black Crows are continuing a downtrend.2. A lower open on the fourth day rallies to close above the open ofthe first black day.
The bullish Three-Line Strike pattern reduces to a Shooting Star line andis in direct conflict with the bullishness of this pattern (Figure 4-26). Thebearish Three-Line Strike pattern reduces to a Hammer and is also in directconflict with this pattern's bearishness (Figure 4-27).
Scenarios and Psychology Behind the Pattern
Related Patterns
The market has continued in its trend, aided by the recent Three BlackCrows or Three White Soldiers pattern, as the case may be. The fourth dayopens in the direction of the trend, but profit taking or short covering
There is a hint of Three White Soldiers and Three Black Crows in thesepatterns, but their influence is quickly negated with the strong reaction daythat follows.
Continuation Patterns
Chapter 4
Upside Gap Three Methods and DownsideGap Three Methods(uwa banare sanpoo hatsu oshi and shita banare sanpoo ippon dachi)Confirmation is suggested.
Rules of Recognition1. A trend continues, with two long days that have a gap betweenthem.2. The third day fills the gap and is the opposite color of the first twodays.
Scenarios and Psychology Behind the PatternThe market is moving strongly in one direction. This move is extendedfurther by another day that gaps even more in the direction of the trend.The third day opens well into the body of the second day, then completelyfills the gap. This gap-closing move should be looked upon as supportingfor the current trend. Gaps normally provide excellent support and/or resistance points when considered after a reasonable period of time. Becausethis gap is filled within one day, some other considerations should bemade. If this is the first gap of a move, then the reaction (third day) can beconsidered as profit taking.
Pattern Flexibility
CommentaryThis is a simplistic pattern, quite similar to the Upside and DownsideTasuki Gaps, that occurs in a strong trending market. A gap appears between two candlesticks of the same color (Figures 4-29 and 4-30). Thiscolor should reflect the trend of the market. The third day opens within thebody of the second candlestick and then closes within the body of firstcandlestick (bridging the first and second candles), which would also makeit the opposite color of the first two days. This would, in traditional terminology, close the gap.
No significant flexibility is suggested, as this is a fairly simple concept andpattern. The first day could be opposite in color to the second day withoutmuch change in the pattern's interpretation.
Pattern BreakdownThe bullish Upside Gap Three Methods pattern reduces to a Shooting Starline (Figure 4-31) and the bearish Downside Gap Three Methods patternreduces to a Hammer line (Figure 4-32). These are two patterns (when allare considered) that do not reduce to the single line that supports thebullish or bearish nature of the pattern.
continuation Patterns
Related PatternsThese are somewhat similar to the Tasuki Gap, except that the gap is filled
continuation Patterns
(ate kubi)Bearish continuation pattern.Confirmation is suggested.
CommentaryThe On Neck Line is an undeveloped version of the Piercing Line discussed in Chapter 3. A similar pattern is formed, except that the secondday's white body only gets up to the previous day's low (Figure 4-34). Donot confuse this pattern with the Meeting Lines, covered in Chapter 3.
Rules of Recognition1. A long black line is formed in a downtrend.2. The second day is white and opens below the low of the previousday. This day does not need to be a long day or it might resemblethe bullish Meeting Line.3. The second day closes at the low of the first day.
Chapter 4
Scenarios and Psychology Behind the PatternThe On Neck Line usually appears during a decline. Bearishness is increased with the long black first day. The market gaps down on the secondday, but cannot continue the downtrend. As the market rallies, it is stoppedat the previous day's low price. This must be uncomfortable for the bottomfishers who go into the market that day. The downtrend should continueshortly.
Pattern FlexibilityIf the trading volume on the second day is high, the chance of the downward trend's continuing is good.
Pattern BreakdownFigure 4-35
The On Neck Line pattern reduces to a fairly bearish black candlestickwith a long lower shadow (Figure 4-35). This single candle line supportsthe bearishness of this continuation pattern.
Related PatternThe On Neck Line pattern is a weak beginning to a Piercing Line. See alsothe In Neck Line and the Thrusting Line.
Continuation Patterns
Chapter 4
Continuation Patterns3. The close of the second day is just barely into the body of the firstday. For all practical purposes, the closes are equal.
Scenarios and Psychology Behind the PatternThe scenario is almost identical to the On Neck Line, except that thedowntrend may not continue quite as abruptly because of the somewhathigher close.
Pattern FlexibilityIf the volume on the white day (second day) is heavy, the chance of thetrend's continuing is good.
CommentaryThis is also a modified or undeveloped version of the Piercing Line. Thesecond day's white body closes near the close of the previous black day; atthe lower part of the body (Figure 4-37). The actual definition requires thatit close just inside the previous day's body, that is, slightly above the close.It is a higher close than the On Neck Line, but not much. If the first day'sclose is also at its low (Closing Marubozu), the In Neck and On NeckLines are most probably the same.
The In Neck Line pattern reduces to a black candlestick with a long lowershadow (Figure 4-38). The fact that this single line is not at all bullishlends support for the bearish continuation of this pattern.
Rules of Recognition1. A black line develops in a downtrend.
Related Patterns
2. The second day is a white day with an opening below the firstday's low.
The In Neck Line, like the On Neck Line, is a weak beginning to aPiercing Line. It, however, is a little stronger, but not nearly enough to
Chapter 4cause a reversal of trend. You should also note that this pattern, if bothdays are near Marubozu, would be like the Meeting Lines pattern.
Thrusting(sashikomi)Bearish continuation pattern.Confirmation is required.Figure 4-40
CommentaryThis is the third derivative of the Piercing Line. The Thrusting Line isstronger than either the On Neck Line or the In Neck Line, but fails toclose above the midpoint of the previous day's body (Figure 4-40). Thesecond day is normally a much larger gap down than the In Neck or OnNeck patterns. This makes it a long white day and confirmation definitelyis needed before adding to short positions.
Rules of Recognition1. A black day is formed in a downtrend.
2. The second day is white and opens considerably lower than the lowof the first day.
Continuation Patterns
Chapter 4
3. The second day closes well into the body of the first day, but notabove the midpoint.
Scenarios and Psychology Behind the PatternMuch like the On Neck and In Neck Lines, the Thrusting Line representsa failure to rally in a down market. Because of this failure, the bulls will bediscouraged and a lack of buying will let the downtrend continue.
Pattern FlexibilityBecause the Thrusting pattern is approaching the bullish Piercing Linepattern and is slightly better than the On Neck Line, there is little room forflexibility.
Pattern BreakdownFigure 4-41
The Thrusting pattern reduces to a Hammer line which is somewhat inconflict with the bearishness of this pattern (Figure 4-41). Because theThrusting pattern is so close to being a Piercing Line pattern, it is easy tosee the possibility of no breakdown support.
Related PatternsThe Thrusting pattern is the strongest of the three lines that fail to make aPiercing Line. It is stronger than the On Neck and In Neck Lines, butweaker than the Piercing Line.
ExampleFigure 4-42
Chapter 4
Additional NoteYou may wonder why there are three continuation patterns that are derivedfrom a failure to complete a Piercing Line. The On Neck Line, In NeckLine, and Thrusting patterns all represent failed attempts to reverse thedownward trend.Why, then, are there not similar patterns that represent failed DarkCloud Cover patterns? This can be answered by most students of themarket who are familiar with normal topping and bottoming tendencies.Bottoms (market lows) tend to be sharp and with more emotion. Topsusually take longer to play out, and cannot be as easily identified.
Japanese history, and Japanese financial trading history, in particular, isrich with accounts of success, usually dominated by only a few individuals. One such success was a man named Munehisa (Sohkyu) Honma.Some references use Sohkyu and some use Munehisa.Honma stepped into Japanese futures trading history in the mid-eighteenth century. When Honma was given control of the wealthy familybusiness in 1750, he began trading at the local rice exchange in the portcity of Sakata in Dewa Province, now Yamagata Prefecture, on the westcoast of northern Honshu (about 220 miles north of Tokyo). Sakata was acollection and distribution port for rice and today is still one of the mostimportant ports on the Sea of Japan.Stories have it that Honma established a personal communications network that consisted of men on rooftops spaced every four kilometers fromOsaka to Sakata. The distance between Osaka and Sakata is about 380miles, which would have required well over 100 men. This allowedHonma the edge he needed to accumulate great wealth in rice trading.Honma kept many records in order to learn about the psychology ofinvestors. His studies helped him understand that the initial entry into atrade must not be rushed. According to Honma, if you feel compelled torush into a trade because you believe that you just can't lose, wait three
Sakata's Method and candle Formations
Chapter 5days to see if you still feel the same way. If you do, you can enter thetrade, probably quite successfully.The Honma family owned a great rice field near Sakata and they wereconsidered extremely wealthy in both fact and song. One folk song saidthat no man can be as wealthy as a Honma: one can merely hope to be asrich as a daimyo. A daimyo is the early Japanese term for a feudal lord.Honma died in 1803. During this period of time a book was published."If all other people are bullish, be foolish and sell rice" is some of theadvice contained in San-en Kinsen Horoku. This book was published in1755 and is known today as the basis of Japan's market philosophy.Today, in Sakata, a house which once belonged to the Honma family, isthe Honma Museum of Art.All of the patterns and formations based upon Sakata's Method aretaken from 160 rules that Honma wrote when he was 51 years old.Sakata's Method, in turn, is what is now considered as the beginnings ofcandle pattern recognition. Candlestick charting was not actually developed by Honma, only the pattern philosophy that goes with it. His approach has been credited as the origin of current candlestick analysis.Since Honma came from Sakata, you may see reference to: Sakata'sLaw, the Sakata Method, Sakata's Five Methods, Honma Constitution, andsimilar names. While the labels may differ, the analysis technique remainsthe same. This book will refer to this approach as Sakata's Method.
Sakata's MethodSakata's Method, as originated and used by Honma for basic chart analysis, deals with the basic yin (inn) and yang (yon) candle lines along withtwo additional lines. The concept is centered around the number 3. Thenumber 3 appears often in traditional analysis as well as in Japanese charting techniques. Sakata's Method is a technique of chart analysis using thenumber 3 at different points and times in the market. Sakata's Method canbe summarized as:
San-zan (three mountains)San-sen (three rivers)San-ku (three gaps)San-pei (three soldiers)San-poh (three methods)
From this list it is should be obvious that san refers to the ubiquitousnumber 3.
San-zan (three mountains)Three Mountains forms a line that makes a major top in the market. Thisis similar to the traditional Western triple top formation in which the priceFigure 5-1A
sakata's Method and candle FormationsFigure 5-2A^
rises and falls three times, forming a top. This formation is also similar tothe Three Buddha Top (san-son) formation which is the equivalent of thetraditional head and shoulders formation. It comes from the positioning ofthree Buddhist images lined up, with a large Buddha in the center and asmaller one on each side. San-zan also includes the typical Western tripletop where three upmoves are made with comparable corrections that follow. The three tops may be the same height or may be trending in onedirection, most probably down.
San-sen (three rivers)Three Rivers is the opposite of Three Mountains. It is often used like thetraditional triple bottom or inverted head and shoulders bottom, but this is
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not necessarily correct. The Three Rivers method is based on the theory ofusing three lines to forecast the turning point of the market. This can beseen in a number of bullish candle patterns using three lines, such as theMorning Star and Three White Soldiers. In Japanese literature, the Morning Star is often called the Three Rivers Morning Star in reference to thisSakata Method.There is some confusion about whether Sakata's Method uses ThreeRivers for a bottom formation technique or whether it refers to the use ofthree lines for identifying tops and bottoms. There is considerable reference in Japanese literature to Three Rivers Evening Stars (a bearish pattern) and the Three Rivers Upside Gap Two Crows (also a bearish pattern).Also recall from Chapter 3 that there was a bullish reversal pattern calledthe Unique Three Rivers Bottom.
Chapter 5Figure 5-2B
San-ku (three gaps)This method uses gaps in price action as a means to time entry and exitpoints in the market. The saying goes that after a market bottom, sell onthe third gap. The first gap (ku) demonstrates the appearance of new buying with great force. The second gap represents additional buying andpossibly some covering by the sophisticated bears. The third gap is theresult of short covering by the reluctant bears and any delayed market
Sakata's Method and Candle Formations
orders for buying. Here, on the third gap, Sakata's Method recommendsselling because of the conflict of orders and the possibility of reachingoverbought conditions too soon. This same technique works in reverse fordownward gaps in the market after a top. The Japanese term for filling agap is anaume. Gaps (ku) are also called windows (madd) by the Japanese.
Sakata's Method and Candle Formationswhite days have long upper shadows. The second variation of the ThreeWhite Soldiers pattern is the Deliberation (stalled) pattern, which also hasa long upper shadow on the second day. However, the third day is aSpinning Top, and most likely a star. This suggests that a turnaround in themarket is near.Other patterns that make up the san-pei method are the Three BlackCrows and the Identical Three Crows patterns. Each of these candle patterns is bearish and indicates a weak market (Chapter 3).
San-pei (three soldiers)San-pei means "three soldiers who are marching in the same direction."This is typified by the bullish Three White Soldiers candle pattern, whichindicates a steady rise in the market. This steady type of price rise showspromise as a major move to the upside. Sakata's Method also shows howthis pattern deteriorates and shows weakness in the market rise. Thesebearish variations to the bullish Three White Soldiers pattern are discussednext. The first variation of the Three White Soldiers pattern is the AdvanceBlock pattern, which is quite similar, except that the second and third
Sakata's Method and candle Formations
Sakata's Method is intended to present a clear and confident way oflooking at charts. Often Sakata's Method is presented along with the following simple philosophy:1. In an up or a down market, prices will continue to move in theestablished direction. This fact was instrumental in the development of candle pattern identification with a computer (Chapter 6).2. It takes more force to cause a market to rise than to cause it to fall.This is related directly to the traditional saying that a market canfall due to its own weight.
3. A market that has risen will eventually fall, and a market that hasfallen will eventually rise. As an article in the September 1991 /issue of Forbes observed, in bear markets, it's smart to remindFigure 5-7
San-poh (three methods)San-poh means "a rest or cease-fire in market action." A popular Japanesesaying is "Buy, sell, and rest." Most traditional books on market psychology and trading suggest taking a break from the markets. This is necessaryfor many reasons, not the least of which is to get a perspective on themarket while not having any money involved. San-poh involves the continuation patterns called the Rising Three Methods and the Falling ThreeMethods (Chapter 4). Some sources also refer to two other patterns, theUpside Gap Three Methods and Downside Gap Three Methods, all discussed in Chapter 4.The Rising and Falling Three Methods continuation patterns are resting patterns. The trend of the market is not broken, only pausing whilepreparing for another advance or decline.
Sakata's Method and candle Formations
Chapter 5
Figure 5-8
Candle FormationsThere are many Japanese candle formations that resemble price formationsused in traditional technical analysis. Steve Nison coined many of thenames commonly used in the West today. These formations can consist ofmany days of data. These formations are used as general market indicatorsand lack the precise timing that many investors and traders require. Whena formation does evolve, look for additional evidence of price reversal,such as a reversal candle pattern. Some interference may occur when aformation takes shape over a long period of time. Remember that mostcandle patterns, and certainly almost all reversal candle patterns, requirethat they have a relationship with the current or previous trend. Thesetrends are greatly influenced by the following candle formations.
Eight New Price Lines (shinne hatte)Figure 5-9
yourself that the world isn't coming to an end, and in bull markets,it's smart to remind yourself that trees don't grow to the sky. Asimilar and more common analogy is that all good things mustcome to an end.4. Market prices sometimes just stop moving completely. This refersto lateral trading, a time for all but the most nimble traders to standaside.Sakata's Method, while focusing on the number 3, also involves theuse of broader formations in which numerous candle patterns may exist.
Chapter 5This is a formation of continually rising prices in the market. After eightnew price highs are set, one should take profits, or at least protect positionswith stops. Action based on ten new price highs, twelve new price highs,and thirteen new price highs is also mentioned in some literature, but notrecommended here. The previous market action should be taken into consideration before using this technique.
sakata's Method and candle FormationsFigure 5-10
Tweezers (kenukl)Tweezers is a relatively simple formation using the components of two ormore daily candle lines to determine tops and bottoms. If the high of twodays is equal, the formation is called a Tweezer Top (kenukitenjo). Likewise, if the low of two days is equal, it is called a Tweezer Bottom(kenukizoko). The high or low of these days may also coincide with theopen or close. This means that one day could have a long upper shadowand the next day could be an Opening Marubozu with the open (also thehigh) equal to the high of the previous day. The Tweezer Top or TweezerBottom is not limited to just two days. Days of erratic movement couldoccur between the two days that make up the tweezer formation.Tweezer Tops and Tweezer Bottoms are formations that will give shortterm support and resistance. The terms support and resistance refer toprices that have previously turned the market. Support is a price base thatstops market declines, and resistance is a level of prices that usually haltsmarket rises. A good indication that tweezer tops and bottoms have succeeded occurs when they are also part of a reversal pattern. An example ofthis would be a Harami Cross in which the two highs (or lows) are equal.
Similar in concept to the Tweezers is the Matching Low and Stick
Sandwich patterns discussed in Chapter 3. These two bullish reversal patterns are derivatives of the tweezer concept, except that the close price isused exclusively, whereas the Tweezer may use any data component, suchas high or low.
Chapter 5
High waves (takane nochlal)The High Waves formation can be seen in the upper shadows on a seriesof candle lines. After an uptrend, a series of days such as a Shooting Star,Spinning Tops, or Gravestone Doji can produce topping tendencies. Thisfailure to close higher shows a loss of direction and can indicate a reversalin market direction. An Advance Block pattern could also be the beginningof a High Waves formation.
sakata's Method and candle Formations
Tower Top and Tower Bottom (ohtenjyou}Tower Tops and Tower Bottoms are made of many long days whichslowly change color and indicate a possible reversal. Tower Bottoms occurwhen the market is in a downtrend, along with many long black days, butnot necessarily setting significantly lower prices as in the Three BlackCrows pattern. These long black days eventually become white days, andeven though a turnaround isn't obvious, new closing highs are eventuallymade. There is nothing to say that an occasional short day cannot be partof this reversal pattern. These short days usually happen during the transition from black to white days. Of course, the Tower Top is the exactopposite. The term Tower refers to the long days which help define thispattern. Some Japanese literature refers to this type of formation as aTurret Top when it occurs at peaks.Figure 5-12
sakata's Method and Candle Formations
Fry Pan Bottom (nabezoko)The Fry Pan Bottom is similar to the Tower Bottom, except that the daysare all small or short body days. The bottom formation is rounded and thecolors are not as important. After a number of days of slowly rounding outthe bottom, a gap is made with a white day. This confirms the reversal andan uptrend should begin. The name is derived from the scooping bottom ofa frying pan with a long handle.
Chapter 5
Dumpling TopThe Dumpling Top is the counterpart of the Fry Pan Bottom formation. Itis a rounded top similar to the rounded top in traditional technical jargon.The downtrend is confirmed by a gap to a black body. If the black dayafter the gap is a Belt Hold Line, the ability of this formation to predictfuture price movement is even better.Figure 5-15
sakata's Method and Candle Formations
High Price Gapping Play and Low Price Capping Play(bohtoh and bohraku)High and Low Price Gapping Plays are the Japanese equivalents of breakouts. As prices begin to consolidate near a support or resistance level