The Candlestick Trading Bible Flashcards

Fundamental vocabulary and concepts from The Candlestick Trading Bible, focusing on candlestick patterns, market structures, and trading strategies.

Munehisa Homma

A 1700s Japanese rice trader considered the most successful trader in history; he is the father of candlestick chart patterns and was known as the 'God of markets' in his day.

Japanese Candlesticks

The 'language' of financial markets, showing the open, high, low, and close of price for a chosen time frame.

Real Body

The filled part of the candlestick that represents the range between the opening and closing prices.

Shadows

Also called tails or wicks, these are thin lines poking above and below the real body; the top of the upper shadow is the high, and the bottom of the lower shadow is the low.

Bullish Candlestick

A candlestick where the close is above the open, indicating the market is rising; typically displayed as a white candle.

Bearish Candlestick

A candlestick where the close is below the open, indicating the market is falling; typically displayed as a black candle.

Engulfing Bar Pattern

A reversal pattern where a second candlestick body completely covers or 'engulfs' the first; it consists of two opposite colored bodies.

Doji

A candlestick pattern indicating equality and indecision where the open and close prices are the same or nearly the same.

Dragonfly Doji

A bullish candlestick pattern with a long lower tail and identical open, high, and close prices, indicating high buying pressure at a support level.

Gravestone Doji

The bearish version of the dragonfly doji, characterized by a long upper tail, indicating the market is testing a powerful supply or resistance area.

Morning Star

A bullish reversal pattern consisting of three candles: a large bearish candle, a small indecisive middle candle, and a large bullish candle that closes above the midpoint of the first.

Evening Star

A bearish reversal pattern consisting of three candles: a large bullish candle, a small indecisive middle candle, and a large bearish candle.

Hammer (Pin Bar)

A reversal pattern at the bottom of a downtrend characterized by a small body and a long lower shadow signifying buyer rejection of lower prices.

Shooting Star

A bearish version of the hammer, characterized by a small body and a long upper shadow that is at least twice the length of the real body.

Harami (Inside Bar)

A pattern (Japanese for 'pregnant') consisting of a large 'mother' candle followed by a smaller 'baby' candle that is entirely contained within the former's range.

Trending Markets

Markets moving in a repeating pattern of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend); estimated to occur $30\%$ of the time.

Impulsive Move

A strong price movement in the direction of the dominant trend.

Retracement Move

Also called a pullback or corrective move, this is a shorter movement in the opposite direction of the main trend.

Support

A level where buying pressure is strong enough to stop or reverse a downtrend; in an uptrend, previous swing points often act as these.

Resistance

A level where selling pressure is strong enough to stop or reverse an uptrend; in a downtrend, old swing points often act as these.

Ranging Market

Also called a sideways market, it moves horizontally between support and resistance as buyers and sellers are in equilibrium.

Choppy Market

A market with no clear direction and high noise that should be avoided because it often leads to emotional trading and losses.

Top Down Analysis

An approach starting with bigger time frames (Weekly/Daily) to get the big picture and market structure before switching to smaller time frames (4H/1H) to make trading decisions.

Confluence

A situation where two or more technical indicators or signals join together (e.g., a pin bar forming at a key support level) to confirm a high-probability trade.

Moving Averages

Technical tools used as dynamic support and resistance; the guide specifically recommends using the $8$ and $21$ simple moving averages.

Fibonacci Retracements

A tool used to identify major corrective levels; the most important levels identified in the text are the $50\%$ and $61\%$ retracements.

Supply and Demand Zones

Areas more powerful than support and resistance where banks and institutions place large orders, characterized by strong price moves away from the area.

Risk to Reward Ratio

The relationship between potential loss and potential profit; a minimum ratio of $1:2$ is recommended for long-term profitability.

Position Sizing

The component of money management that decides the number of lots to risk per trade, often measured in dollars rather than pips.

Stop Loss Hunting

A strategy used by big players and institutions to drive prices toward massive clusters of retail stop orders to create the liquidity needed for the market to move.