candlestick patterns
TRANSCRIPT
CANDLESTICK CANDLESTICK PATTERNSPATTERNS
GROUP - I
NIKUNJ NAYAKSALIL NARAVEKARW.UMESH NANDAVIPUL SHAHBRIJESH MOURYA
CANDLESTICK BASICS
• JAPANESE RICE TRADERS CREATED THEM OVER 400 YEARS AGO
• STEVE NISON IS CREDITED WITH INTRODUCING THEM INTO THE U S MARKETS
• GREGORY MORRIS AND STEPHEN BIGALOW ARE THE OTHER 2 MAJOR CANDLESTICK GURU’S
• THERE ARE OVER 100 CANDLESTICK PATTERNS
• CANDLESTICKS SHOW INVESTOR SENTIMENT MORE VISUAL THAN OHLC BARS
BEARISH CANDLE• SOMETIMES REFERRED TO AS A BLACK CANDLE
BULLISH CANDLE• SOMETIMES REFERRED TO AS A WHITE CANDLE
INDECISIVE CANDLES
• DOJI AT THE TOP SHOULD NEVER BE IGNORED • THE SMALLER THE BODY THE MORE INDECISION
DOJI BODY IS VERY SMALL 10% OF DAILY RANGE
• DRAGON-FLY TOMBSTONE LONG-LEGGED
INDECISIVE CANDLES (CONT)
• SPINNING-TOP – NO ONE WON THE BATTLE OF THE BULLS AND BEARS– BODY IS LESS THAN 1/3RD OF THE CANDLE RANGE H – L– THE TAILS ARE LONGER THAN THE BODY
BULLISH CANDLESTICK PATTERNS
ENGULFINGMORNING STAR
HAMMERTHREE WHITE SOLDIERSKICKING
Copyright 2007, TradingOurWay, Prepared by Kermit Prather
BULLISH ENGULFING DEFINITION
Bullish Reversal 63% of the time HOW TO IDENTIFY IT
CANDLE 1 IS A BEARISH CANDLE
CANDLE 2 COMPLETELY ENGULFS THE BODY OF THE CANDLE 1
STOCK IN A DOWNTREND OR CONSOLIDATING
PATTERN SUGGESTS DOWNTREND HAS LOST MOMENTUM AND THE BULLS MAY BE GAINING STRENGTH
ENGULFING PATTERN IS ALSO THE FIRST TWO CANDLES OF THE THREE OUTSIDE PATTERNS.
CONFIRMATION IS SUGGESTED
BULLISH ENGULFING- BAD ONE
Copyright 2007, TradingOurWay, Prepared by Kermit Prather
BULLISH ENGULFING- BAD TWO
Copyright 2007, TradingOurWay, Prepared by Kermit Prather
BULLISH ENGULFING – GOOD ONE
BULLISH ENGULFING – GOOD TWO
MORNING STAR
Bullish Reversal 78% of the time How to Identify it
• First candle is a long black candle
•Second candle gaps down and trades within a small range and closes at or near its open.
•The third candle is a white candle
•Stock has in a downtrend or consolidating
• Pattern suggests the trading sentiment has changed and trend reversal is a high probability
• No confirmation is required or suggested
•Note: • The second candle can be a Doji or spinning
top
MORNING STAR - GOOD
MORNING STAR - BAD
HAMMER
Bullish Reversal 60% of the time How to Identify it
• Single candle pattern
• Candle can be bullish or bearish
• Signal considered stronger if candle is bullish
• Candle body is less than 1/3 of the range H – L
•Stock is in a downtrend
• Long tail implies sharp sell-off after open but the bulls rallied and won the battle
• suggest more buying to come
• Requires confirmation
THREE WHITE SOLDIERS
Bullish Reversal 82% of the time How to Identify it
Three white candles occur, each with a close above the previous candle
each candle opens within the body of the previous candle Each candle closes near or at its high stock is in a downtrend Pattern suggests the market has been selling of for too long, and buyers are beginning to come back into it
No confirmation is required or suggested
THREE WHITE SOLDIERS - GOOD
THREE WHITE SOLDIERS - BAD
BULLISH KICKER Bullish Reversal 53% of the time How to Identify it
The first candle’s open and the second candle’s open are the same. The price movement is in opposite directions from the opening price. The trend has no relevance in a Kicker situation. The signal is usually formed by surprise news before or after market hours. The price never retraces into the previous candle's trading range. No confirmation is required or suggested The first day is a Black Marubozu day The second day is a White Marubozu day that gaps upward
BULLISH KICKER - GOOD
BULLISH KICKER - BAD
BEARISH CANDLESTICK PATTERNS
ENGULFING
EVENING STAR
HANGING MAN
THREE BLACK CROWS
KICKING
COPYRIGHT 2007, TRADINGOURWAY, PREPARED BY KERMIT PRATHER
BEARISH ENGULFING Bearish Reversal 79% of the time • How to Identify it
• First candle is a white candle
• Second candle is Bearish and its body completely “Engulfs” the first candle’s candle body
• Stock has been in an uptrend
• Pattern suggests the bears have taken control and the trend is about to reverse.
• Confirmation is suggested
COPYRIGHT 2007, TRADINGOURWAY, PREPARED BY KERMIT PRATHER
BEARISH ENGULFING - BAD
Copyright 2007, TradingOurWay, Prepared by Kermit Prather
BEARISH ENGULFING - GOOD
EVENING STAR
Bearish Reversal 72% of the time
How to Identify it
• First candle is a long white candle
•Second candle trades within a small range and closes at or near its open.
•The third candle is a black candle
•Stock is in an uptrend
• Pattern suggests the trading sentiment has changed and trend reversal is high probability
• No confirmation is required or suggested
•Note: • The second candle can be a Doji or spinning
top
EVENING STAR
EVENING STAR
HANGING MAN Bearish Reversal 59% of the time How to Identify it
• Single candle pattern
• Candle can be bullish or bearish
• Signal considered stronger if candle bearish
• Candle body is less than 1/3 of the range H – L
•Stock is in an uptrend
• Long tail implies sharp sell-off after open and suggest more selling to come
• Requires confirmation
THREE BLACK CROWS Bearish Reversal 78% of the time How to Identify it
• Three black candles occur, each with a close below the previous candle • •Each candle opens within the body of the previous candle
• Each candle closes near or at its lows
• Stock is in an uptrend
• Pattern suggests the market has been at a high price for too long, and investors are beginning to compensate for it.
• No confirmation is required or suggested
THREE BLACK CROWS - BAD
Copyright 2007, TradingOurWay, Prepared by Kermit Prather
THREE BLACK CROWS - GOOD
Copyright 2007, TradingOurWay, Prepared by Kermit Prather
BEARISH KICKER
Bearish Reversal 54% of the time How to Identify it
• The first candle’s open and the second candle’s open are the same.• •The price movement is in opposite directions from the opening price.
• The trend has no relevance in a Kicker situation.
• The signal is usually formed by surprise news before or after market hours.
• The price never retraces into the previous candle's trading range.
• No confirmation is required or suggested
BEARISH KICKER - BAD
Copyright 2007, TradingOurWay, Prepared by Kermit Prather
BEARISH KICKER -GOOD
COPYRIGHT 2007, TRADINGOURWAY, PREPARED BY KERMIT PRATHER
CANDLESTICKS STATISTICS – WHERE TO FIND
CANDLESTICKS STATISTICS – CONT.
CANDLESTICKS STATISTICS – CONT.
CANDLESTICKS STATISTICS – CONT.
HOW TO ENHANCE PROBABILITIES
• VISUALLY OBSERVE THE CHART FOR PROPER TREND• UP-TREND MOVING AVERAGES ALIGN TOP-DOWN
20, 40, 50• DOWNTREND FROM TOP-DOWN 50, 40 ,20• TRENDLINE • LINEAR REGRESSION SLOPE• PATTERN OCCURS AT OR NEAR A MAJOR MA
COPYRIGHT 2007, TRADINGOURWAY, PREPARED BY KERMIT PRATHER
USE EFFICIENCY RATING• VAN THARP USES AN EFFICIENCY RATING
CREATED FROM PRICE CHANGE DURING 4 TIME PERIODS
• PICK ANY 4 PERIODS SUCH 20, 45, 90, & 180• TC2007 FORMULA USING DAILY RANGE
(((C – C180) / (AVGH180 – AVGL180)) + ((C – C90) / (AVGH90 – AVGL90)) + ((C – C45) / (AVGH45 – AVGL45)) + ((C – C20) / (AVGH20 – AVGL20))) / 4
• RATING > + 7 ARE IN AN UPTREND WHILE < -7 IN A DOWNTREND • THARP USES AN ATR BUT DAILY RANGE WORKS AS WELL• STOCKFETCHER RESULTS
COPYRIGHT 2007, TRADINGOURWAY, PREPARED BY KERMIT PRATHER
HOW TO ENHANCE PROFITABILITY
• USE OVERBOUGHT / OVERSOLD INDICATORS– STOCHASTICS 12.3.3 OR 14.5.5 CROSSOVER– WILDER’S RSI 5 OR 14
• RELATIVE STRENGTH • COMPARISON TO ITS INDEX• USE STOCKS THAT HAVE MADE AN EXTENDED
MOVE
COPYRIGHT 2007, TRADINGOURWAY, PREPARED BY KERMIT PRATHER
CANDLESTICK WEB SITES
• WWW.TRADINGOURWAY.COM
• WWW.CANDLESTICKFORUM.COM - STEVE BIGALOW
• WWW.CANDLESTICKCHART.COM/GLOSSARY.HTML - LITWIT.COM
• WWW.THEPATTERNSITE.COM - TOM BULKOWSKI
• WWW.STOCKCHARTS.COM - JOHN MURPHY’S
• WWW.TRADEON.COM FOR TC2007USERS
• WWW.STOCKFETCHER.COM SCANS FOR CANDLESTICK PATTERNS AND MORE