Candlestick Charting Essentials and Beyond › pdfs › day 1 Dec 2004 to print.pdf · Practice Charts Nison Trading Principles Overview 4. 5 Our trading challenges are: • Entering

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Candlestick Charting

Essentials and Beyond

Spotting the Early Reversal Signals

Steve Nison, CMTPresident: Candlecharts.com

Web site: www. candlecharts.comE-mail: [email protected]: 732.254.8660

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““Japan's Candlesticks Light Traders' PathJapan's Candlesticks Light Traders' Path””-- Wall Street Journal Wall Street Journal

““Whether you day trade or hold positions Whether you day trade or hold positions candlesticks are a mustcandlesticks are a must”” -- Investors LibraryInvestors Library

““Candlesticks: A New Light in Technical Candlesticks: A New Light in Technical AnalysisAnalysis”” -- BarronBarron’’ss

Candlesticks in the NewsCandlesticks in the News

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“To learn about the market, ask the market. Only then can you become a detestable market demon.”

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Construction of candle linesConstruction of candle linesIndividual candle linesIndividual candle linesCandle patternsCandle patternsThe Best of the East and West The Best of the East and West Money ManagementMoney ManagementPractice ChartsPractice ChartsNison Trading PrinciplesNison Trading Principles

OverviewOverview

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Our trading challenges are:• Entering trades too late• When to Exit• Not enough time to do analysis• Quickly recognizing candlestick signals• Correctly using candlesticks

– When to pull trigger– When to ignore

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Candlecharts.comHelping Clients Spot Market Turns Before the Competition

The Trading Triad®

Candle Charts Western

Money Management

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[email protected] tel:732.254.8660

openopen closeclose

openopen

Real Body

high

low

Shadow

Real Bodies / Shadows Doji

Constructing the Candlestick Line

closeclose

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session open high low close1 23 26 21 25

2 26 28 23 27

3 23 27 22 224 25 28 22 25

5 27 27 25 25

Drawing Candle Lines

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session open high low close1 23 26 21 25

2 26 28 23 27

3 23 27 22 224 25 28 22 25

5 27 27 25 25

Drawing Candle Lines

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1 2 3 4 5

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[email protected] 732.254.8660 USA

Bulls vs. BearsBulls vs. Bears

Who’s in control?

The Real Body is the Essence of the Price Movement

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Small Real BodiesSmall Real Bodies(spinning tops)

Prior trend is losing force

Implication

Small real body – color not important

Criteria

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29May

6 13 20 28 3June

37.837.938.038.138.238.338.438.538.638.738.838.939.039.139.239.339.439.539.639.739.839.940.040.140.240.340.440.540.640.740.840.9

NORTH FORK BANCOn this bar chart, in the circled zone the market looks healthy as it makes mostly higher highs and is maintaining the highs. As such, no appears reason for concern.

What is the bar chart saying?What is the bar chart saying?

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29May

6 13 20 28 3June

37.837.938.038.138.238.338.438.538.638.738.838.939.039.139.239.339.439.539.639.739.839.940.040.140.240.340.440.540.640.740.840.9

NORTH FORK BANCThis is the same chart, but with candles. Note how the small real bodies hint that the bulls have lost control. As such, by using the insights of the candles, we see there is a reason for concern.

What is the candlestick chart saying?What is the candlestick chart saying?

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WhoWho’’s in control s in control during this ascent?during this ascent?

What is this What is this candle line candle line hinting?hinting?

Spinning TopSpinning Top

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Bears’losing force

Spinning TopsSpinning Tops

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Criteria: Open and close are the same

Implication: Market is “tired”

Doji

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DojiDoji

The red arrows show the bulls have complete control. The doji alters the trend.

Doji

Spinning top

Spinning top

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Because the candlestick chart uses the same data as a bar chart (open, high, low and close), all bar charting techniques can be used on a candlestick chart.

Nison Trading Principle

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Candles shine at preserving capitalCandles shine at preserving capital

A tall white candle pierces resistance in early March. The doji next session hinted the bulls had lost full of the market (note: it does not mean that the bears has taken control).

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Doji Confirms Resistance Doji Confirms Resistance

No reversal signals yet

How about now?

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Candlesticks do not give price targets.


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Candles and Price TargetsCandles and Price Targets

This doji takes on extra significance because it confirms a resistance level

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When not to use dojiWhen not to use doji

11 18 25 1April

8 1521.5

22.0

22.5

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23.5

24.0

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26.0

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27.0

27.5OMNICARE INC

This stock has so many doji that they have little market implication

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Spinning tops and dojiSpinning tops and doji

[email protected] 732.254.8660 USA 24

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Spinning top and dojiSpinning top and doji

If a spinning top is small enough we can view it as a doji

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Small Real Body as a dojiSmall Real Body as a doji

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Northern doji call market tops better than southern doji call bottoms.


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Northern and Southern DojiNorthern and Southern Doji

A doji in an uptrend is a “Northern Doji”

A doji in a downtrend is a Southern Doji”

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Northern and Southern DojiNorthern and Southern Doji

Northern

Southern

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Candles in ContextCandles in Context

Southern doji, but why would you pay attention to it?

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Doji in box rangeDoji in box range

There is no trend to reverse with this doji– thus we ignore it.

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Trading Tactics Trading Tactics -- DojiDojiAnalyze these doji in the context of what happened before. Are any of

these a more likely reversal and why?

A B CQuestion

Question


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15 22 29 5August

12 19 26 3September

9 16 23

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Question

Question

Doji Overview Doji Overview –– Analyze Each Doji in Context of TrendAnalyze Each Doji in Context of Trend

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Shadows

Remember: location and size of the shadow should be considered when analyzing the market psychology.

Implication: Bearish long upper shadow offsets “rallying strength.” Bullish long lower shadows hints bears losing force.

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Bullish shadows confirming supportBullish shadows confirming support

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Long lower shadows confirm support Long lower shadows confirm support

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On this 5 minute chart this group of long upper shadows confirming that the bulls’ drive is stalling at the prior pivot high

Resistance

Bearish shadowsBearish shadows

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Bearish ShadowsBearish Shadows

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Convergence of Bullish ShadowsConvergence of Bullish Shadows

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8 22eptember

29 13October

27 10 24November

1 15December

29 122001

19 2 16February

23 9March

16 30 13April

20 4May

18 1June

15 29 13July

20 3 17August

24 7 21September

5O

910111213141516171819202122232425262728293031323334353637383940414243444546474849PACIFICARE HLTH (15.0500, 16.5400, 14.8600, 16.1200, +1.11000)

Bearish Shadows as resistanceBearish Shadows as resistance

A market “rising in agony”

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Hammer

black or whiteCriteria:• Small real body at, or near top, of range• Lower shadow at least 2x real body• Market in down trend

Implication: ‘Groping for a bottom”

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HammerHammer

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Hammer as supportHammer as support

It is common for the market to retest a hammer. This will help expand on a base.

Will often retest lower

shadow

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Hammer and failure to hold new lowsHammer and failure to hold new lows

Failure to hold new lowsFailure to hold new lows

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SnapSnap

Crack and SnapCrack and Snap

CrackCrack

Target

StopBuy

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Hammer and Crack/SnapHammer and Crack/Snap

Hammer and failure to hold new lows46

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Crack and Snap on more than one sessionCrack and Snap on more than one session

11 12 15 16 17 18 19 22 23 24 25 26 29 30 31 1 2August

5 6 7 8 9 12 13 14

10.911.011.111.211.311.411.511.611.711.811.912.012.112.212.312.412.512.612.712.812.913.013.113.213.313.413.513.613.713.813.914.014.114.214.314.414.514.614.714.814.915.015.115.215.3

CISCO SYSTEMS

Support area shown at arrowsCracked support

On this session the bulls have regained control

Target area

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Crack/Snap with more than one sessionCrack/Snap with more than one session

Crack

snap

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The more signals - either candles or Western or a combination of both – converge at the same level, the more likely a reversal


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Hammer confirms support Hammer confirms support

Hammer and bullish shadows

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Hammer confirming supportHammer confirming support

Hammer confirmed support area

Here the hammer confirms supportHere the hammer confirms support

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Hammer as supportHammer as support

Spinning tops reflect bulls’ strength waning

A close under the lows of the hammer would void hammer's bullish forecast

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HammersHammers

14 22 28March

6 13 20 2742.543.043.544.044.545.045.546.046.547.047.548.048.549.049.550.050.551.051.552.052.553.053.554.054.555.055.556.056.557.057.558.058.559.059.560.0

WAL-MART STORES

Of candle lines A through E which are hammers and why?

A

B

C

DE

Question

Question


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Even a “perfect” candle signal does not equal a good trade!

YOU MUST ALWAYS JUDGE THE POTENTIAL TRADE’S

RISK-REWARD


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Hammer as SupportHammer as Support

Closed under hammer

supportsupport

hammer

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Risk/RewardRisk/Reward

If you buy on the hammer’s close ask “What is my stop and what is my target”?

Close

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Risk/rewardRisk/reward

Hammer confirmed on closeHammer confirmed on close

Reward

RiskRisk

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Which three prices of the session are on the high?

What happened during the session, by session’s end?

Dragonfly Doji

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Dragonfly dojiDragonfly doji

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Shooting Star

black or white

Criteria:• Small real body at, or near bottom, of range• Upper shadow at least 2x real body• Market in an up trend

Implication: ‘Signaling Trouble Overhead”

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Shooting Star / HammerShooting Star / Hammer

Hammer Hammer

Shooting StarShooting Star

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Shooting StarsShooting Stars

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Dual Shooting StarsDual Shooting Stars

Shooting stars at Shooting stars at arrows at arrows at resistance area resistance area shows the market shows the market is rejecting those is rejecting those higher levelshigher levels

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Shooting Star as resistanceShooting Star as resistance

Shooting Star

Doji confirms shooting star’s resistance

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How NOT to use candlesticks How NOT to use candlesticks

Oh my goodness! The market rallied after the shooting star!

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Which three prices of the session are on the low?

What happened during the session, by session’s end?

Gravestone Doji

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Gravestone DojiGravestone Doji

Gravestone reinforces resistanceGravestone reinforces resistance

No reversal signalsNo reversal signals

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Gravestone dojiGravestone doji

15 22 29May

6 13 20 28 3June

10

27.5

28.0

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29.0

29.5

30.0

30.5

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31.5

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32.5

33.099 CENTS STORES

The small The small gravestone doji gravestone doji was the first sign was the first sign of troubleof trouble

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Shooting star and failure to maintain new highsShooting star and failure to maintain new highs

Shooting star and failure to hold new highs

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SnapSnap

Crack and SnapCrack and Snap

CrackCrack

Target

StopBuy

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SellSell

Falling off the RoofFalling off the Roof

Target

Stop

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Falling Off the Roof on one sessionFalling Off the Roof on one session

Makes new Makes new high, then falls high, then falls to hold itto hold it

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Falling Off the Roof more than one sessionFalling Off the Roof more than one session

breakout

Falling off the roof

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Hammer and Hanging Man Lines

Hammer

Hanging Man

bottom reversal

top reversal

white or black

white or black

The difference between these is the preceding trend

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Hanging Man

Hammer

Hammer and Hanging Man Hammer and Hanging Man

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““If it appears from below, If it appears from below, buy. If it appears from buy. If it appears from above then sell.above then sell.””

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Hanging ManHanging Man-- confirmedconfirmedThe close the session after the hanging man confirmed its potential bearish implications

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The stock went from higher highs to the same highs. This in combination with the hanging man (which was confirmed) sent out warning signals.

Hanging ManHanging Man

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Long White Real Body As Support

1st support

2nd support

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Long Black Real Body as Resistance

2nd resistance

1st resistance

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Center of Long White Candle as Support Center of Long White Candle as Support

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Using Tall White Real BodiesUsing Tall White Real Bodies

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Center long black real bodyCenter long black real bodyS&P

middle long black real body

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Middle of Long Black Real BodyMiddle of Long Black Real Body

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Using Single Candlestick LinesUsing Single Candlestick Lines

Shrinking real bodies hint bears’ losing momentum. Tall white then shows bulls’ take control. What else also hints bear’s losing force here?

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Using the Size of Real Bodies to Gauge ForceUsing the Size of Real Bodies to Gauge Force

The shrinking size of the real bodies hint the bulls are losing force

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Convergence of Candles Define SupportConvergence of Candles Define Support

12 3 4

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Engulfing PatternsEngulfing Patterns

BearishBearishEngulfing Engulfing PatternPattern

BullishBullishEngulfingEngulfingPatternPattern

Criteria:• Black real body wraps around preceding white real body• Market in up trend

Implication: ‘Bulls have been constrained”

Criteria:• White real body wraps around preceding black real body• Market in down trend

•Implication: Market bottoming out

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Convergence of signals reinforce support Convergence of signals reinforce support

Two hammers reinforce support areaTwo hammers reinforce support area Bullish engulfing pattern further underscores support

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Crack and Snap and Bullish Engulfing Pattern Crack and Snap and Bullish Engulfing Pattern

Support zone

Bullish engulfing pattern as extra confirmation

Snaps back over broken support

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Bullish engulfing pattern as support Bullish engulfing pattern as support

16 23 30October

7 14 21

7.47.57.67.77.87.98.08.18.28.38.48.58.68.78.88.99.09.19.29.39.49.59.69.79.89.9

10.010.110.210.3ORACLE

One of most powerful aspects of the bullish engulfing pattern is their use as support.

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Bullish engulfing pattern confirms supportBullish engulfing pattern confirms support

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Shooting Star and bearish engulfing pattern Shooting Star and bearish engulfing pattern

Shooting StarBearish engulfing Bearish engulfing pattern confirms pattern confirms resistance set by resistance set by shooting star shooting star

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Bearish Engulfing Pattern as ResistanceBearish Engulfing Pattern as Resistance

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Bearish engulfing pattern Bearish engulfing pattern Before this bearish engulfing pattern the doji and shooting stars proved bull’s advance was being curbed

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Bearish engulfing pattern confirming resistanceBearish engulfing pattern confirming resistance

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Bearish Engulfing Pattern as ResistanceBearish Engulfing Pattern as Resistance

Bearish Engulfing Bearish Engulfing Pattern 1Pattern 1

Bearish Engulfing Bearish Engulfing Pattern 2Pattern 2

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Bearish Engulfing Pattern compared to Outside ReversalBearish Engulfing Pattern compared to Outside Reversal

Hammer Hammer

Bearish Bearish Engulfing Engulfing PatternPattern

Outside Outside reversalreversal

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Trading Tactics Trading Tactics -- Bullish Engulfing PatternBullish Engulfing Pattern1) Highlight the bullish engulfing

pattern

2) What was the low of the pattern and at what price was it completed?

3) Assuming a resistance area in mid-late Dec. at the long upper shadows would you buy on this bullish engulfing pattern?

4) What is the principle that this example highlights?

Question

Question


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Dark Cloud CoverDark Cloud CoverCriteria:• Opens above prior high (or close) • Closes as long black real body• Close well into prior long white candle • Market moving north

Implication: “Advance is exhausting itself”

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Dark Cloud CoverDark Cloud Cover

Bulls have been constrained

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Dark Cloud Cover as ResistanceDark Cloud Cover as Resistance

Dark cloud cover reinforces zone of resistance

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Dark Cloud CoverDark Cloud Cover

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Dark Cloud Cover with confirmationDark Cloud Cover with confirmation

Since this black candle didn’t get more than halfway into the white real body, we can wait for confirmation the next session

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Dark Cloud Cover and Risk/RewardDark Cloud Cover and Risk/Reward

PatternCompleted

Here

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Convergence of cluesConvergence of clues

This dark cloud cover as resistance

Bearish engulfing pattern

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Piercing Pattern

Criteria:• Market moving south• Opens below prior low (or close) • Closes as long white real body• Close more than halfway into prior black candle

Implication: “hint that the decline is exhausting itself”

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Piercing PatternPiercing Pattern

Piercing pattern Piercing pattern

Not a piercing pattern

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Piercing Patterns and confluencePiercing Patterns and confluence

1 2 3

1 and 3 are Piercing Patterns

2 is a bullish engulfing pattern

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Piercing PatternPiercing Pattern

Piercing Pattern

confirmed support

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Piercing Pattern and Negative SelectionPiercing Pattern and Negative Selection

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HaramiHarami

white or black

white or black

Criteria:• First candle is unusually long• Second real body within prior real body• Second real body can be black or white

Implication: ‘Change in flow of market”

Bearish

Bullish112

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Harami

Not a harami pattern

Bearish HaramiBearish Harami

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22 29August

5 12 19 26 3September

9

66.066.567.067.568.068.569.069.570.070.571.071.572.072.573.073.574.074.575.075.576.076.577.077.578.078.579.079.580.080.581.081.582.082.583.0IBM

Support defined by a bullish engulfing pattern

Harami


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Bearish harami confirms resistanceBearish harami confirms resistance

BullsBulls’’ in control in control but at resistancebut at resistance

Harami confirms Harami confirms bullsbulls’’ drive is stalling drive is stalling at resistance at resistance

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Bullish Harami Bullish Harami

Harami Pattern

Bearish engulfing pattern

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Practice ChartPractice Chart

1 2 3

4

5

On this intraday chart detail the reversals at 1,2,3 and 4. What was a resistance area at 5 (hint— for 5 look at long black candle)


Question

Question

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Morning StarMorning Star

white or black

Criteria:Criteria:•• Market in down trend Market in down trend ••First candle long blackFirst candle long black•• Second real body (spinning top, Second real body (spinning top, black or white) doesnblack or white) doesn’’t overlap first t overlap first sessionsession’’s real bodys real body•• Third candle (white) closes deeply Third candle (white) closes deeply in first black real body in first black real body

Implication: Bulls are taking controlImplication: Bulls are taking control

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While the ideal morning star has none of the real bodies touching, we could still view it as a morning star even if the last two real bodies overlap slightly– as is the case here.

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Morning StarsMorning Stars

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Morning Star Morning Star

Morning Star

Support areaPiercing Pattern

Doji show market is “tired”

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Morning Star as SupportMorning Star as Support

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The doji should not be used to sell since the market had just given a bottom reversal signal and was not overextended

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Evening StarEvening Starwhite or black

1

2

3

Criteria:• Market in an up trend •First candle is long white • Second real body (black or white spinning top) doesn’t overlap first session’s real body• Third candle (black) closes deeply in first white real body

Implication: Bears are taking control

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Evening Star as Resistance Evening Star as Resistance

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Evening Star and Risk/ RewardEvening Star and Risk/ Reward

24 1July

8 15 22 29 5August

12 19 26 3 9September

16 2

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HEIDRICK STRUGG

Evening Star completed here. This is likely a poor risk/reward for a short sale.

This doji confirms the resistance area set by the evening star and as such may offer a better r/r.

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Evening StarEvening Star

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Evening StarEvening Star

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Evening Star

Morning Star

Would you buy here?

How about here?

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Entering and Exiting

1) What pattern is A,B,C?

2) When would you sell short and why

3) What is your stop, target?

AA CC

BB

Question

Question


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WindowsWindows

RisingWindow

Falling Window

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Go in the direction of Go in the direction of the windowthe window

Corrections stop at Corrections stop at the windowthe window

WindowsWindows

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A rising window is A rising window is supportsupport

Corrections stop at the windowCorrections stop at the window

Support Support ZoneZone

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Rising WindowsRising Windows

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Rising windowRising window

WindowWindow’’s zone of supports zone of support

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Large rising windowLarge rising window

Bottom of rising window as the major support

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A falling window is A falling window is resistanceresistance

Corrections stop at the windowCorrections stop at the window

Resistance Resistance ZoneZone

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Falling window with extra confirmationFalling window with extra confirmation

The The spinning spinning

tops helped tops helped confirm the confirm the importance importance

of the of the falling falling

windowwindow’’s s resistanceresistance

Falling Falling windowwindow

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Large Falling WindowLarge Falling Window

The top of The top of the falling the falling window is window is the major the major resistanceresistance

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Closed under the windowClosed under the window’’s support s support

Breaks the rising Breaks the rising windowwindow‘‘s s

support areasupport area

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Confluence of CandlesConfluence of Candles

1) Why did the market stall at area A?2) Why did it rally from area B?3) What two reasons did the market fail at C?

B

A

C

Question

Question

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Negative SelectionNegative Selection

27 30 1 2October

3 4 7 8 9 10 11 14 15 16 17 18 21 22 23 24 25 28 29 30

35.5

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PHILIP MORRIS

Rising window

In spite of this bearish session and the failure at resistance (at dotted line) would you sell?

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Trading Tactics – practice

1. What pattern is highlighted?

2. When would you sell short based on this pattern? Hint-there are two times to sell short

Question

Question


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Candlecharts.comWestern ToolsWestern Tools

Optimizes and confirmsOptimizes and confirms

Price targetsPrice targets

Widely FollowedWidely Followed

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147


Technicals and unexpected newsTechnicals and unexpected newsBullish surprise and the rally stopped at resistance

Bearish news and the market stabilized at support

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East and WestEast and West

These dual hammers were extra significant since they also confirmed a support level

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1) Who1) Who’’s in control s in control during this ascent?during this ascent?

2) What is this 2) What is this candle line candle line hinting?hinting?

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For Bull Flag pattern take height of move before the consolidation and add that to the bottom of the box range

Doji as signal to exit

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Western TA/Candles for targetsWestern TA/Candles for targets

5November

12 19 26 3December

10 17 24 312002

7 14

18.0

18.5

19.0

19.5

20.0

20.5

21.0

21.5

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22.5

23.0

23.5

24.0

24.5

25.0UNIBANCO GDR (20.9000, 21.4600, 20.7000, 21.4000, +0.55000)

B) Sell short at bearish engulfing pattern’s resistance level with a target to Harami

Harami

A) Buy at Harami with target to resistance at bearish engulfing pattern

Bearish Engulfing Pattern

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Change of PolarityChange of Polarity

SupportSupportSupportSupport

Resistance

ResistanceResistance

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This old resistance

area

Turns into new

support

Resistance converts into new supportResistance converts into new support

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Candle signals must be evaluated and acted upon within the market’s context


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Doji and Shooting Star

hammerhammer

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hammer

dojidojiShooting starShooting star

Prior Prior resistance resistance becomes becomes new new supportsupport


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Change of Polarity Change of Polarity

support support

Resistance

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Volume Confirms SignalVolume Confirms Signal

High Volume Hammer

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VolumeVolume

Blue arrows hint at selling climax sessions, but needed higher close to confirm. Got this with a hammer.

Note high volume window

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Subjectivity and Volume Subjectivity and Volume

Rising window

When window’s support was pierced so slightly (5 cents) we could wait for next opening to confirm – especially with such a high volume window (which is often solid support).

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High Volume Falling WindowHigh Volume Falling Window

8 15 22 29May

6 13 20 28 3June

10 17

40005000600070008000

x1000

Volume

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45.5AMER EXPRESS CO

The volume spike on the falling window increases the significance of this resistance

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Importance of VolumeImportance of Volume

Higher volume on white candle compared to black on this bullish engulfing pattern magnifies the likelihood of a reversal

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High Volume DojiHigh Volume Doji

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High Volume DojiHigh Volume Doji

This high volume “long-legged” doji shows that as hard as the bulls try to push the market, the bears have enough force to absorb this demand.

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165


Candles and VolumeCandles and Volume

165

166


Volume ConfirmationVolume Confirmation

The arrow points to a “Snap and Crack”. What does volume do to increase or decrease the likelihood of this technique working?

166

167

Trading Tactics Trading Tactics -- East and WestEast and WestAt the arrow we see a doji.

1) What is the volume on this doji telling us about the supply/demand situation?2) What 2 candlestick signals in August (at A) give clues that there was support at the doji?3) Although the doji was holding a support area, what happened on the day of the doji that

would keep the short term trend down? Based on this, what would we need to see to give bullish confirmation of that support area? Q

uestionQ


A

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168

Simple Moving Average

Formula: Add price (usually close) for N periods/ N periods

Example: 20 day moving average of close: add total of last 20 day’s closing prices and divide by 20.

168

169

Example of 5 day m.a.

Sept. 26-30125/5=$25

$32Sept. 30

Sept.25-29116/5=$23.20

$29Sept. 29

Sept. 24-28107/5=$21.40

$22Sept. 28$21Sept. 27$21Sept. 26$23Sept. 25$20Sept. 24

Last 5 days/5= 5 day m.a.Closing PriceDate

169

170


Moving Averages Moving Averages –– the shorter the more it the shorter the more it ““hugshugs”” pricesprices

5 day

30 day

50 day

170

171


Moving Average as Support/ResistanceMoving Average as Support/Resistance

171

172



Spinning top help confirm support at this moving average

172

173


Candles in Context Candles in Context –– Moving AveragesMoving Averages

173

174


Bollinger BandsBollinger Bands

5 12November

19 26 3 10December

17 24 31 72002

14 22 28 4 11February

19 25 4March

11 18 25 1April

8 15 22 29 6May

13 20 2738.0

38.5

39.0

39.5

40.0

40.5

41.0

41.5

42.0

42.5

43.0

43.5

44.0

44.5

45.0

45.5

46.0

46.5

47.0

47.5

48.0

48.5COSTCO WHOLESAL

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175


Hammer Hammer –– slide 1 of 2slide 1 of 2

Hammer is a plus

175

176


East and West East and West –– slide 2 of 2slide 2 of 2

Hammer at bottom end of Bollinger Band is even better!

176

177


The East The East

= spinning tops= spinning tops

177

178


The East and the WestThe East and the West

⌫

⌫

178

179



This evening star pattern emerged at the top end of the Bollinger Band resistance

179

180


Subjectivity and Candle ChartsSubjectivity and Candle Charts

4rch

11 18 25 1April

8 15 22 29May

6 13 20 28

88

89

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112OIL SERVICEThe ideal shooting star has little, or

no, lower shadow. In this example is the lower shadow too long? Viewing this signal within context of top end of BB we can view it as significant as an “ideal” shooting star

180

181


OscillatorsOscillators

181

182

Oscillators Oscillators

Separate from priceSeparate from price

Best in lateral marketsBest in lateral markets

Includes Includes stochasticsstochastics, MACD, , MACD,

RSI, price oscillator, etc.RSI, price oscillator, etc.

182

183

ApplicationsApplications

Momentum: Momentum: force of trendforce of trend

Overbought/Oversold:Overbought/Oversold:

DivergenceDivergence

too far too fast?too far too fast?

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184

Positive DivergencePositive Divergence Negative DivergenceNegative Divergence

PricePrice

OscillatorOscillator

22

11 22

11

OscillatorOscillator

PricePrice

1122

11 22

DivergenceDivergence

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185

Price OscillatorFormula:

short term moving average – long term moving average

Example: 10 day moving average = $23 30 day moving average = $31

Price oscillator = $23-$31= -8 If 10 and 30 day moving averages are the same Price Oscillator = 0

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186


Bearish DivergenceBearish Divergence

29 30 1May

2 3 6 7 8 9 10 13 14 15 16 17 20 21 22 23 24 28 29 30 31 3June

4 5 6 7

-1

0

1

2Price Oscillator

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0MOBILE TELESYS ADR

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187


Bearish divergence with candle confirmationBearish divergence with candle confirmation

29 30 1May

2 3 6 7 8 9 10 13 14 15 16 17 20 21 22 23 24 28 29 30 31 3June

4 5 6 7

-1

0

1

2Price Oscillator

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0MOBILE TELESYS ADRDoji and shooting star warning of trouble overhead

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188

Relative Strength Index

Formula: = 100 – (100/1+RS)

Where RS = average of N day’s up closesaverage of N day’s down closes

Example: If total up points (close to close) over 14 days was $28 and total down points for 14 days was $14:Average up = 28/14=$2 and Average down 14/14=$1.

So, RS= 2/1=2 and RSI = 100 – (100/1+2)=100-33.33 = 66.67%

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189


Oscillators Oscillators –– Bearish DivergenceBearish Divergence

189

190


Bullish Divergence confirmed with candlesBullish Divergence confirmed with candles

Hammer and bullish divergence

190

191


Be careful about oscillators in strong trendsBe careful about oscillators in strong trends

191

192

StochasticsFormula for %K:

today’s close-lowest close in N periodshighest high in N periods-lowest low in N periods

100 *

Example: for 14 day %K, today’s close is 41, if highest high was 46 and lowest low was 38, for %K we have:%K = 41-38/46-38 *100= 37.5%

This means today’s close was 37.5% relative to the entire range of last 14 sessions.

192

193


Hammer and crossover with Hammer and crossover with stochasticsstochastics

Note how the hammer gave the reversal signal a day before the bullish crossover

Hammer

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194


Bearish Crossover Bearish Crossover w/stochasticsw/stochastics confirmed by candlesconfirmed by candles

Bullish engulfing pattern and %K crossing under %D line from overbought reading in oscillator

194

195


OscillatorOscillator-- Stochastic with CandlesStochastic with Candles

195

196


East and West East and West

196

197


2

1

Oscillators Oscillators –– Bearish DivergenceBearish Divergence

197

198


Oversold?Oversold?-- slide 1 of 2slide 1 of 2

On this daily chart it looks

oversold

198

199


Oversold now? Oversold now? --slide 2 of 2slide 2 of 2

This intraday chart gives another perspective

199

200

Head and ShouldersHead and Shoulders

NecklineNeckline

Left ShoulderLeft ShoulderRightRightShoulderShoulder

HeadHead

Head and Shoulders Top

Sell signal

200

201

Three Buddha Pattern

201

202

202

203

neckline

Interview

Head and Shoulder top

Lows from dual bullish engulfing patternsLows from dual bullish engulfing patterns

TASC Magazine Interview TASC Magazine Interview -- Jan. 24, 2003 S&P at 860Jan. 24, 2003 S&P at 860

“… the heads and shoulders top on the S&P gives a target to the July-October bullish engulfing patterns near 775. A close over 870 would void this.”

Target zoneTarget zone

Hammer

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204


Bloomberg TV Interview - July 28, 2003 S&P at 996

hammerhammer

Doji Doji Shooting star Shooting star

Prior Prior resistance resistance becomes new becomes new supportsupport

Interview

“Major support near 960. My upside target is 1160”

target

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205


Prior Prior resistance resistance becomes new becomes new supportsupport

Target zone forecasted in July 03

Bearish Engulfing Pattern

Evening Star Interview

“ I am looking for major resistance at 1160 to 1175”

Bloomberg TV Interview – Jan. 26, 2004 S&P at 1140

Weekly Chart

205

206


““Falling off Falling off the roofthe roof””

Bearish Bearish Engulfing Engulfing PatternPattern

Interview

“ I am looking for major resistance at 1160 to 1175”

Bloomberg TV Interview – Jan. 26, 2004 S&P at 1140

Daily Chart

206

207


Price = Knowledge Price = Knowledge

Why Candlestick Charts?

207

208


Doji after Tall White Doji after Tall White

This doji takes on extra importance because it confirms market is stalling within a resistance zone

208

209


Risk Risk ManagementManagement


209

210


Outmaneuver Outmaneuver your your competitioncompetition


210

211


Early Reversal Signals Early Reversal Signals

Crack

snap

Morning Star

211

212


Fosters ObjectivityFosters Objectivity


212

213


Although this market is Although this market is descending, the long descending, the long lower shadows offsets lower shadows offsets some of the negative some of the negative outlookoutlook

Long Lower (Bullish) ShadowsLong Lower (Bullish) Shadows

213

214


Insights into Insights into market psychology market psychology


214

215


Criteria: Open and close are the same

Implication: Market is “tired”

Doji

215

216


TimingTiming


216

217


25 day moving average

Close under m.a. support area but note how we got an earlier reversal with the gravestone

FMNA Bond PricesFMNA Bond PricesGravestone doji

217

218


Stay AliveStay Alive


218

219


New high close but ???New high close but ???

Doji is a warning!

219

220


PPrice = Knowledge rice = Knowledge RRisk Managementisk ManagementOOutmaneuver your competitionutmaneuver your competitionFFosters Objectivityosters ObjectivityIInsights into market psychology nsights into market psychology TTimingimingSStay alive tay alive


220

221

Seize trading opportunities before Seize trading opportunities before they become apparent to othersthey become apparent to others

Information is Power! Learn how to Information is Power! Learn how to avoid losing trades avoid losing trades

Pinpoint turning signals with razor Pinpoint turning signals with razor sharp accuracy sharp accuracy

Achieve PEAKTrading performance!

221

222

Interactive Session

Answers

222

223

Rally may just be starting

Market notoverextended

Resistance confirmed by doji

A B C

Analyze these doji in the context of what happened before. Are any of these a more likely reversal and why?

Answ

erA

nswer


Trading Tactics Trading Tactics -- DojiDoji

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224

Doji Overview Doji Overview –– Analyze Each Doji in Context of TrendAnalyze Each Doji in Context of Trend

15 22 29 5August

12 19 26 3September

9 16 23

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5HEIDRICK STRUGG

1

2

3

4 5

6

1- Southern doji: downtrend should continue.2- In a “box” range: no trend to reverse.3- Southern doji: however it is confirming a support level and thus takes on more significance.4- Northern doji: rally running out of steam.5 - Southern doji- downtrend still in force6- Doji in a box range

Answ

erA

nswer


225

HammersHammers

14 22 28March

6 13 20 2742.543.043.544.044.545.045.546.046.547.047.548.048.549.049.550.050.551.051.552.052.553.053.554.054.555.055.556.056.557.057.558.058.559.059.560.0

WAL-MART STORES

Which of these are hammers and why?

Only B was a hammer.

Lower shadow not long enough and C,D and E didn’t come after a downtrend

A

B

C

DE

Answ

erA

nswer


226

Trading Tactics Trading Tactics -- Bullish Engulfing PatternBullish Engulfing Pattern

1) Highlight the bullish engulfing pattern. - See 1

2) What was the low of the pattern and at what price was it completed? - 13 ½ and 17 ¾

3) Assuming a resistance area in mid-late Dec. at the long upper shadows would you buy on this bullish engulfing pattern? - No- it would be a bad risk/reward

4) What is the principle that this example highlights? - Not every candle signal should be a buy or sell.

1

Resistance Zone


Answ

erA

nswer

226

227

Practice ChartPractice Chart

1 2 34

5

On this intraday chart detail the reversals at 1,2,3 and 4. What was a resistance area at 5 (hint—look at long

black candle)

1) bearish engulfing pattern2) shooting star3)harami4)bearish engulfing pattern5) center long black


Answ

erA

nswer

227

228

1) When would you sell short, at A,B or C

Answer- At C. Not B because it is a new high close for move

2) Why

Answer- “Falling off the roof” and evening star. Because of falling off the roof can consider selling on open

3) What is your stop, target?

Answer- Stop is above high of B and target is low of move before late Oct. rally.

AACC

BB

Target

Entering and Exiting

Answ

erA

nswer


229


Confluence of CandlesConfluence of Candles

1) Falling window and two harami at A2) Bullish Engulfing Pattern at B3) Shooting Star at falling window at C

B

A

C

Answ

erA

nswer

229

230

Trading Tactics – practice

1. What pattern is highlighted? Bearish engulfing pattern2. When would you sell short based on this pattern? Because of the rising window we would not sell on the completion of this pattern. As such we could sell on (a) the resistance at the highs of the bearish engulfing pattern, or (b) on a break under the windows support.

Rising window’s support

Potential selling levels

Answ

erA

nswer


231

1) The high volume reflects heavy supply, but the doji proves that demand is strong enough to absorb this supply.

2) A hammer followed the next day by a bullish engulfing pattern. 3) While the high volume doji was a plus, that session also formed a falling window

and as such we needed a close over that window to turn more bullish.

Hammer and

Bullish Engulfing

Pattern

Window

Trading Tactics Trading Tactics -- East and WestEast and West

Answ

erA

nswer


A

231

232

New tactics and New tactics and strategies revealed only strategies revealed only here!here!

Advanced Candle Charting Techniques

Geared to those familiar Geared to those familiar with candlestick basicswith candlestick basics

For more details about this For more details about this DVD Workshop visit DVD Workshop visit www.candlecharts.comwww.candlecharts.com

Steve will personally Steve will personally answer questions answer questions

without time limit on without time limit on any topic on this DVDany topic on this DVD

233

Slide 233

Secrets to Becoming a Samurai Trader Secrets to Becoming a Samurai Trader ––Advanced Candlestick Charting Advanced Candlestick Charting

New refinements and enhancements using doji, engulfing New refinements and enhancements using doji, engulfing patterns and many other signals for high success trading patterns and many other signals for high success trading with candle charts with candle charts See when to ignore a candle signalSee when to ignore a candle signalSpecial section on intraday trading including how to use Special section on intraday trading including how to use candles differently on intraday charts, using different time candles differently on intraday charts, using different time frames to increase trading success frames to increase trading success The Checkmate PrincipleThe Checkmate PrincipleUncover the one rule every candlestick trader ignores at Uncover the one rule every candlestick trader ignores at their own peril their own peril Learn the six principles every candlestick trader must Learn the six principles every candlestick trader must know know Uncloak new uses for the most potent candle pattern Uncloak new uses for the most potent candle pattern -- the the windowwindowInteractive practice sessionsInteractive practice sessionsEffective money management concepts to maximize the Effective money management concepts to maximize the effectiveness of candle charts effectiveness of candle charts

234

For details on SteveFor details on Steve’’s DVD s DVD Workshop Workshop Advanced Candlestick Advanced Candlestick Charting TechniquesCharting Techniques go to go to www.candlecharts.comwww.candlecharts.com

Sign up for SteveSign up for Steve’’s FREEs FREEbibi--weekly newsletter at weekly newsletter at www.candlecharts.comwww.candlecharts.com

235

IndexPage # Topic

1 – Introduction and Construction11 – Spinning Tops16 – Doji34 – Shadows 41 – Hammer, Crack and Snap and Dragonfly Doji60 – Shooting Star, Gravestone Doji and Falling off the Roof74 – Hanging Man79 – Center Long White/Long Black 88 – Engulfing Pattern100 –Dark Cloud Cover107– Piercing Pattern112 – Harami119 – Morning and Evening Stars132– Windows145– Candles and Western tools: confirmation, Change of Polarity, Volume, Moving Averages, and oscillators202 – Steve’s market forecasts207 – The PROFIT principle and Overview of day 2 session 221- Answers to Quiz and Interactive Charts

Documents

Candlestick Charting Essentials and Beyond › pdfs › day 1 Dec 2004 to print.pdf · Practice Charts Nison Trading Principles Overview 4. 5 Our trading challenges are: • Entering