Candlesticks have become a popular analysis tool for spotting early signs of change, and here, technician Tom Aspray highlights one of its most revealing patterns, which can increase the odds in your favor.
Some of today's most popular technical indicators or trading methods can be traced back to a specific inventor but they are often not given credit by today's traders and analysts. As an "old school technical analyst," I have always felt it was important to give the inventor the proper credit.
Some of you may be familiar with what is referred to on most quote systems as the TRIN but should really be called the ARMS Index after its creator, Dick Arms. I fought this battle many years ago on the precursor to CNBC, and they did change it for a while, but it did not last.
That is the same reason that I have tried to give Joe Granville credit about on balance volume or Welles Wilder when I have talked about the RSI or ADX. I was first exposed to candle charts in 1989 when I was given a copy of The Japanese Chart of Charts by Seiki Shimizu during a speaking trip to Japan.
Though I found this book quite interesting, I did not really start to apply the methods until much later. At the time, candle charts were virtually unknown in the US, but over the next few years, Steve Nison and Greg Morris both wrote excellent books on candlestick charting. Then I was introduced to a candlestick formation that I have found to be one of the most valuable in identifying market tops or bottoms.
I have always been intrigued by doji formations, which is characterized by the open and close being at approximately the same value. It typically is interpreted as a sign of indecision but then John Person shared with me his high and low close doji triggers, which are in his book Candlestick and Pivot Point Trading Triggers. The HCD is also discussed in this article by John.
These do not form at many market highs or lows, but when they do, I have found them to be extremely helpful in determining both entries and exits. The low close doji or LCD will be the focus of this week's article and I will look at the high close doji or HCD in a subsequent article.
As with many technical methods, the longer time frame charts give the most reliable signals. Volume plays an important role in my work, and when volume analysis is added to the LCD signals, it often validates them, making the investor or trader even more confident. Of course, Joe Granville's on balance volume is my favorite volume indicator and it is particularly insightful when it is analyzed in multiple time frames.
NEXT PAGE: A Typical Doji Formation