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5 witness some type of tum around, followed by price action that has higher highs and higher lows. In addition, the stock should continue to form bullish closes - that is, higher than the open. Ideal Bearish Reversal In an ideal bearish reversal, it is also important to observe price action in the potential reversal zone. When a stock hits the harmonic area, it is important to see a bearish price bar, followed by a continuation of that new downtrend. POTENTIAL R VERSAL ZONE Ideal Bearish Reversal in Potential Reversal Zone The primary signs of the bearish continuation will be a stock that makes lower highs and lower lows, after the reversal is complete. Also, the stock should continue to close below the open. These are the primary signs that will validate a bearish reversal. Although these concepts may seem over-simplified, they serve as standards by which valid reversals can be determined. Establishing some type of standards of price action will create a better understanding of a valid reversal. This understanding will help you develop a "feel" for how a stock "should" act in the potential reversal zone. Although stocks do reverse in
harmonic areas that vary from the ideal illustrations, these basic concepts will help identify valid reversals that can yield substantial moves. Japanese Candlesticks Another method to exhibit a price bar is a Japanese candlestick. These formations illustrate the nature of a price bar in a very clear manner. Japanese candlesticks have been used for centuries. Originally, they were developed to chart the price of rice markets. There are several excellent books on candlesticks that I recommend you read. One ofthe most comprehensive books that I have ever read on Japanese Candlesticks is Japanese Candlestick Charting Techniques, by Steve Nison. (New York: New York Institute ofFinance, 1991.) It is a fascinating area of technical analysis. However, for these purposes, I will illustrate only the most basic of candlestick price bars. Bullish Candlestick High Open Close Bullish Japanese Candlestick
price bar that has an area that is clear or white represents a bullish candlestick. As you can see, the enlarged area shows the difference between the open and close. The candlestick illustrates the price action more clearly than a single, line price bar. Also, in combination with a harmonic set-up, the candlestick can provide greater indication of a potential reversal. Bearish Candlestick A filled or black bar depicts the bearish candlestick. This price bar also shows the range between the open and close more clearly than a single, line price bar. Open  Close Bearish Japanese Candlestick Candlesticks are excellent measures of price action because they clearly illustrate the range between the open and close. Although the total range of a stock is important, the difference between the open and the close can provide even greater indication of future price action.
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