Steve Nison’s Candle Charting Essentials and Beyond Volume ... · • Correctly using candlesticks When to pull trigger When to ignore • Lack of confidence pulling the trigger

Steve Nison’s Candle Charting Essentials and BeyondVolume 1 of the Nison Educational Series

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www.candlecharts.comFounder and President: Candlecharts.com

The Framework &Real Bodies and

Shadows

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open close

open

RealBody

high

low

Shadow

Real Bodies / Shadows

close

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Open

Close

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Reading the market Psychology

Bullish Engulfingpatterns as support

Bear Stearns Collapse

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Helping youovercomingyour tradingchallenges

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• Entering trades too late

• Knowing when to exit

• Preserving trading capital

• Quickly recognizing the candle signals

• Paralysis by analysis

• Quickly recognizing candle signals

• Correctly using candlesticks

When to pull trigger

When to ignore

• Lack of confidence pulling the trigger

Trading Challenges:Trading Challenges:

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Helping youovercomingyour tradingchallenges

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• Easy to Understand• Early Reversals• “Safety First”• East + West• All markets• All Time Frames• Accelerates Analysis

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CandlestickCharting

Techniques

WesternCharting

Tools

Trade Management

www.candlecharts.com 10

ROCK SOLID CONFIDENCE

Seize tradingopportunities beforethey becomeapparent to others

Information isPower! Learn how toavoid losing trades

Pinpoint turningsignals with razorsharp accuracy

The Result:

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What we learned:What we learned:

The Popularity of Candles

The Anatomy of the Candle Line

Candles and market psychology

History of candles

Benefits of Candles

Candles are a tool – not a tradingsystem

Importance of Education

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CandlestickCharting

Techniques

WesternCharting

Tools

Trade Management

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• Early reversals

• “Safety First” Trading

• Quickly read themarket’s message

Candlestick Charts

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www.candlecharts.com

The Framework:Analyzing Real Bodies

and Shadows

The Framework:Analyzing Real Bodies

and Shadows

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The longer the realbody the strongerthe momentum.

The relative sizeand position of theshadow displaysthe extent of pricerejection.

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Who’s in control?

“The Real Body is the Essence of the Price Movement”

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Who’s in control?

Basic Criteria:Small real body - black or white

Market Implication:Immediately preceding trendlosing momentum.

Support or Resistance:Not used

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The cost of not using candles

Higher closes, highs and lows

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What is one of the best ways to make money??

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Basic Criteria:• Market in up or down trend

• Open and close prices are the same(or nearly the same)

Market Implication:Market at a point of indecision

Support or Resistance:Highest high of doji and priorcandle for resistance. Not used assupport

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Saved by the light of the candles!

Those poortraders whogot fooled intobuying here.

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Be cautious of new highs made with doji

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Doji as Warning

Weekly Weakly

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Doji Hints Rally Stalling

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Doji Confirms resistance

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Candles can be used in all time frames

“Market istired”

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Use the highest high ofthose two sessions (topof upper shadow) asresistance

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Doji as Resistance

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Warning!

Reading the Market’s Message Quickly!

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Doji as resistance

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Doji as Resistance

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Who’s in control?

Small Real Bodies (spinning tops)

Who’s in control?

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3

1

2

3

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Shadows

Lower closes, lower highsand lower lows, but whatare shadows hinting?

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Upper and Lower Shadows

Area of Supply

Area of Demand

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Basic Criteria:• Market in up or down trend

• Very long upper and lower shadow/small real body towards the middleof session’s range

Market Implication:Market “confused”

Support or Resistance:Not used

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Doji = caution

“Market isTired”

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New low with high wave means caution

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Candles help us read the markets message

What do the series of bullish shadows tellus about supply/demand near 63.50?

Is it any surprise what happened a fewweeks later at that level?

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Reading the Market’s Message

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Candles give 2x information

Spinning Tops

Doji – warning and resistance

Importance of Shadows

Single candles and market psychology

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Essentials of SingleCandle Patterns

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Reversal SignalsReversal Signals

• Where the currenttrend slows orreverses after thereversal pattern.

• Most candle signalsare potentialreversals.

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Single Candle Lines:The Bull Signals

Single Candle Lines:The Bull Signals

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Basic Criteria• Market in a downtrend

• Small real body (either color) at, ornear, top of range.

• Lower shadow at least 2x height realbody

Market Implication“A chance to buy at the bottom “

Support or ResistanceLow of hammer as support

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Psychology – Strong demand

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Using Candles across the Spectrum

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Hammers

Intra day chart

Using Candles across the Spectrum

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Hammer as buy at $166.50

Doji as exitat $169.30

Result:almost $3per share inless than 10minutes!

Education = Confidence = $uccess

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Hammer and trend

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hammer’s lower shadow as Support

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Hammer as Support

Hammer

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Hammer as Support

Chart courtesy of Genesis FT

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Why Protective Stops

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Which three prices of thesession are on the high?

What happened duringthe session and bysession’s end?

Dragonfly Doji

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Dragonfly

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Basic Criteria:Same shape as Hammer but marketin downtrend

Market Implication:In theory, potential bottom reversal

Support or Resistance:Not used as support

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Inverted Hammer with confirmation

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Single Candle Lines:The Bear Signals

Single Candle Lines:The Bear Signals

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Basic Criteria:• Market in up trend

• Small real body (black or white) at,or near, bottom of session

• Upper shadow at least twice heightof the real body

Market Implication:Potential top reversal

Support or Resistance:High of signal as resistance

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Shooting Star “signals trouble overhead”

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Hammer as buy at $166.92

Shooting staras exitat $168.12

Education = Confidence = $uccess

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What iswrong withthis so called“shootingstar?”

Hint: look at upper shadow

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“A crack has entered the market”

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Shooting Stars as Resistance

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Shooting Stars

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Which three prices ofthe session are on thelow?

What happened duringthe session and bysession’s end?

Gravestone Doji

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Gravestone

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Gravestone

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Gravestone Doji

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Shooting star

Hammer

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

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Basic CriteriaSame shape as Hammer but marketin uptrend

Market ImplicationIn theory, potential top reversal

Support or ResistanceNot used as resistance

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There must be bearish confirmation forthe hanging man. This means waiting foran open– or even better – a close underthe bottom of the hanging man’s realbody.

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Hanging Man

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Hanging Man

confirmation

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Using Candles in a “Box” Range

Who has more control here? Who has more control here?

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Box range – which way?

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Box range – which way?

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Hammer

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Using the insights of single candle lines

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Using Single Candle Lines

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Who’s in charge with the red arrows?

Who’s in charge with the green arrows?

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Reading Market Psychology

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Most candles are reversals

High wave candles

One sided shadow candles: bull and bear

Less emphasis on hanging man and invertedhammer

Box ranges and single candle lines

Single candle lines to read the market’s message

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Essentials of MultipleCandle Lines

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Double Candle Lines:The Bull Signals

Double Candle Lines:The Bull Signals

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Basic Criteria• Market in down trend

• White real body wraps around priorsession black real body

Market ImplicationBottom reversal

SupportThe lowest low of the two sessionsof the pattern

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Classic Bull Engulf

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Shadows for Insights

Lower closes, butwhat are shadowshinting?

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Bullish Engulfing Pattern

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How many black candles didthis wrap around?


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Anythinghinting bearslosing force?

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close

openopen

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Series of Bullish Engulfing Patterns

Shooting stars

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Bullish Engulfing Pattern as Support

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Bull Engulf as Support

Bullish Engulfing

Patterns

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• Opens below prior low (or close)

• White candle closes more than 50%into prior black real body


SupportThe lowest low of the twocandlestick lines

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Piercing Pattern

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Piercing Pattern

Not Piercing Patterns

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Early clues of shifting supply/demand

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On–neckclose=

prior low

PiercingPattern

In–neckclose=

prior close(small white

candle)

Thrustingclose above

prior low(small white

candle)

1 2 3

Patterns 1,2 and 3 are viewed as small, reactionary rallies where the bulls counter driveis weak. “Selling chase begins” under any of these patterns for momentum traders. 108


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• First candle is an unusually longblack real body

• Second relatively small real body(either color) within prior real body

Market ImplicationPrior trend is “losing its breath”

SupportNot used

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Bull Harami

Not harami

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Bull Harami

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Bull Harami

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Double Candle Lines:The Bear Signals

Double Candle Lines:The Bear Signals

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Basic Criteria• Market in up trend

• Black real body wraps around priorsession opposite color real body

Market ImplicationTop Reversal

ResistanceThe highest high of the two sessionsof the pattern

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Bearish Engulfing Pattern

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Bearish Engulfing pattern as resistance

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Candles: Support and Resistance

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Candles: Support and Resistance

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Topoutsidereversal

Bottomoutsidereversal

Western Outside Reversals

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Engulfing Patterns and Outside reversals

Topoutsidereversal

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Engulfing Patterns and Outside Reversals

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Engulfing pattern and trends

stops!

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• Opens above prior high (or close)

• Black candle closes deeply intoprior long white candle

Market ImplicationTop reversal

Support or ResistanceThe highest high of the two linesthat make up the pattern

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Dark Cloud Cover

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Dark Cloud Cover as Resistance- FX

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Dark Cloud Cover- Futures

Chart courtesy of Genesis FT

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Dark Cloud Cover - Stock

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Dark Cloud Cover as Resistance - Intraday

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• First candle is an unusually longwhite real body

• Second relatively small real body(either color) within prior real body

Market ImplicationBears losing momentum

Support or ResistanceNot used

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Bear harami

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Bear Harami

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Bull and Bear Harami

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Triple Candle Lines:The Bull Signals

Triple Candle Lines:The Bull Signals

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Criteria• Market in downtrend

• First candle is long black

• Second candle small real body thatdoesn’t (or slightly) overlaps first realbody

• Third candle is white real body thatgets deeply into first real body

Market ImplicationBulls now in control

SupportLow of three candles

white or black

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Morning Star as Support

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Morning Stars

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Moring Star as Support

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Morning Star

Variation

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Triple Candle Lines:The Bear Signals

Triple Candle Lines:The Bear Signals

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white or blackCriteria• Market in uptrend

• First candle is long white

• Second candle small real body thatdoesn’t (or slightly) overlaps first realbody

• Third candle black real body that getsdeeply into first real body

Market ImplicationBears are now in control

ResistanceHighest high of three candle lines

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Evening Star

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Evening Star

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Evening Star

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Evening star

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Evening Star and Flexibility

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Evening Star as Resistance

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Evening Star Variation

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On this 1 minute chartlook at the candlesignals sent by RIMMat 129.80/.90

Reading the Market’s Message Quickly and Accurately

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Reading the Market’s Message Quickly and Accurately

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1

2

3

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Reading the Market’s Psychology

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Criteria• Market in a downtrend

• Three relatively long white candles

• Last two open within, or over, priorwhite real body

• Each candle closes at, or near, its high


Support or ResistanceNot used as support

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Three Soldiers

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Criteria• Market in uptrend

• Three long black candles

• Open of last two within, or below, priorblack real bodies

• Each candle closes at, or near, its low

Market ImplicationTop reversal

Support or ResistanceNot used as resistance

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Three Black Crows

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Bullish and Bearish EngulfingPatterns

Brief description difference withcandles in FX

Piercing Pattern

Simplifying Candle Analysis

Dark Cloud Cover

Bull and Bear Harami

Reading the market’s messagewith dual candle patterns

Morning and Evening Stars

Being flexible in chart readings

Soldiers and Black Crows

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The trend before the signal continues after the signal

Three Methods

Windows

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Rising and Falling Three Methods

Falling ThreeRising Three

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Rising Three Methods

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Falling Three Methods

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Gap Higher =Rising Window

Gap Lower =Falling Window

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A rising window is support

SupportZone

Most importantsupport level



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Rising Window

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Rising Windows

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Broken Windows

Once the window is brokenit is no longer potential support

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Candles in Context

ShootingStar, but…

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Candles in Context

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How education SAVES you money

Bearish engulfingpattern, but you mustnot sell here!

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Rising Window

Rising Window Hammer

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A falling window is resistance

ResistanceZone

Most importantresistance level


Falling Window

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Breaking Falling window’s Resistance

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Falling Window

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Falling window

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Small Windows

2 cents

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When the market gaps above resistance – or below support

Breakaway Gap

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Breakaway Gap

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Breakaway gap

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Safety first Trading

Strong candles

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Fry Pan Bottom Dumpling Top

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Fry pan bottom

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Fry Pan Bottom

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Dumpling top

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Upside gapping tasuki

downward gapping tasuki

Down gap parallelwhite lines

Up gap parallelwhite lines

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Continuation candles

Rising and falling threemethods

Window essentials

Large vs. small windows

Windows and roundingtops/bottoms

Simplifying candle analysiswith windows

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How NOT to use candlesticks

Oh my goodness! Themarket rallied after theshooting star!

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Documents

Steve Nison’s Candle Charting Essentials and Beyond Volume ... · • Correctly using candlesticks When to pull trigger When to ignore • Lack of confidence pulling the trigger