Newly Discovered Candlestick Reversal Pattern Pops Up Again

I believe that it was early in January 2009 when we first took notice of a Candlestick pattern at the top of an uptrend in the Dow Industrials Index.  It caught our attention because of its location and because of its similarity to the bearish “Evening Star” reversal pattern, which is well-documented in the literature.  We wondered, at the time, whether the pattern which we were examining might possess some of the bearish characteristics of the Evening Star.

I need to tell you the ways in which the two patterns are similar, and in which ways they differ.

The Evening Star (the “classic”) is recognized only at the top of an uptrend.  It consists of three Candlestick price bars, the first of which will be a tall white candle, signifying a strong “up” day.  The second, or middle, bar will have a small “real body,” denoting a relatively tight range of prices between the Open and the Close; and the “real body” (the “Star”) of that middle Candle will be at, or near, the top of the tall white Candle.  The third price bar will be a tall black Candle, denoting a strong “down” day.  The three price bars (“Candles” or “Candlesticks”), all together, comprise the “Evening Star,” which is considered to be bearish.

The “new” pattern which we first identified on that day back in January differed from the Evening Star in that it contained not one, but two, Stars between the tall white Candle and the tall black Candle.  We wondered and waited.

Sure enough, Dow Industrials prices declined rapidly over the next eight trading days; and over time, prices declined all the way to the major low on March 6. We were now sure enough of our ground that we identified this variation on the Evening Star as a new pattern in its own right, and gave it the name “Osaka Clipper.”

Now we see another example of the pattern, this time in the British Pound, and somewhat skewed; so the example is far from perfect.  For reinforcement, we have in mind our belief that the Pound is overbought and due for a decline.

We will keep our eye on this present pattern and see how it behaves.  If it works well by way of displaying the qualities of a legitimate bearish reversal pattern, we’ll keep it and will confirm it as an “Osaka Clipper” in good standing.  If it doesn’t work, we’ll write it off as having been so skewed as not to have been an “Osaka Clipper” at all.

.,.,.,.,.

William Kurtz

August 6, 2009