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Steve Nison’s Candlesticks Re‐Ignited: Advanced Candlesticks to Boost Confidence and Success

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Founder and President: Candlecharts.com

Candlestick Charting

Techniques

Western Western Charting Charting ToolsTools

Steve Nison’s

Trading TriadSuccessSystem

Steve Nison’s

Trading TriadSuccessSystem

Trade ManagementTrade Management

SystemSystem

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“If you want to see farther,you have to go higher”

“If you want to see farther,you have to go higher”

2



1

• Quickly read the k ’

Candlestick Charts

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market’s message

• “Safety First” Trading

• Early reversals

3

Reading the Market’s Message – Quickly and Accurately

Looks good


Bear Sterns collapse

4

Looks good?


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Looks good?



Reading the Psychology of the market

Think the $ had trouble in this area?Bear shadows, evening star, bearish engulfing patterns, shooting star…..


8



Good buy?

Negative Selection


What is one of the best ways to make money?

Those poor traders who got fooled into buying here.

10

Owning the Knowledge

Let see what the candles tell us about supply/demandWhen prices get down near $62.00-61.50?




Owning the Knowledge

Buying at hammer near $62.00Target near $63.70 (resistance)


Get into a new trend before othertrend before other

traders see it

13


Bear Stearns Collapse

14



“Combinations of bullish and bearish candle lines indicate the direction of the market and investors psychological

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market and investors psychological conflicts at important turning points.”

15

It is easy to see who is in control here

It is easy to see who is in control here

How about now with these “spinning tops”?

How about now with these “spinning tops”?

16

Candles reveal twice the information asa bar chart

17



Candles help us read the market’s message

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

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


Quickly see “ The Mode of the Market”


What candles do – and don’t do

What happen each time this gets near $43?


Candles‐ or any technical system can’t forecast surprises

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Founder and President: Candlecharts.com 121

IINTRODUCINGNTRODUCING SSTEVETEVE NNISONISON’’SS 360360 CCANDLEANDLE AANALYSISNALYSIS

New – Strict criteria of a candle signal

New – Candles as support/resistance

New – Nison Insights

WWWWWW..CANDLECHARTSCANDLECHARTS..COMCOMWWWWWW..CANDLECHARTSCANDLECHARTS..COMCOM

New – Detailed psychology behind each signal

New – Momentum trading with candles

New – Price confirmation of a candle signal

New – Pattern in FX and non FX

22

BASIC CRITERIABASIC CRITERIA• Open and close the same (or within a few cents or

pips)

• Market trending up or down

• Also called a cross

• Doji in a rally called Northern doji

• Doji in a decline called Southern doji

“A time to wait without a position in the market”

PATTERN PSYCHOLOGYPATTERN PSYCHOLOGY• For a sustainable rally, market has to be “pushed

up” - a doji shows the bullish momentum has now been curbed. The bulls now become concerned with this lack of sustained strength.

• Markets can sink of their own weight (i.e. don’t need sellers to pull markets lower- lack of buyers will do that) a doji hints buyers are now starting to absorb supply.

• The market is at a delicate turning period and could go either way.

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If early in uptrends/downtrends, or middle of a box range, doji is not important

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Doji and Prior Move

Is the market overextendedat these doji?


www.candlecharts.comwww.candlecharts.comwww.candlecharts.comwww.candlecharts.com

This doji is showing a shift in psychology since it comes during a rally

Is this doji telling us there is something different about the market?

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Doji in a Box Range


If early in uptrends/downtrends, or middle of a box range doji not important

Spinning tops and doji could be just a pause to a continuing trend


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The pause that refreshes?




Doji generally work better at calling tops than bottoms.




Doji generally work better at calling tops than bottoms.

Analyze shadows. Interpretation will differ on the type of upper and lower shadows


of upper and lower shadows.

Center Doji = Equal length shadows

Most classic doji where bulls and bears are in balance

Upper Shadow Doji:

Unsustainable buying strength

Lower Shadow Doji:

Some buying strength left in the market

Source: Kabushiki Keisen no Mikata TsukaikataToshika No Tame No Senryakuzu- KichitaroKisamori

Confirmation is important since market at tipping point.

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“Depending on the type of movement on the next day, one can get completely different readings”


get completely different readings

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Confirmation

Two Kinds of ConfirmationTwo Kinds of Confirmation

East + West

Price Confirmation

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East + West Confirmation

Where a candle

signal confirms ag

Western technical

signal

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Using a move after the initial candle signal to validate signalUsing a move after the initial candle signal to validate signal

Price Confirmation

Can be a close (or open) above (for bull candle signal) or below (for bear candle signal) the close of candle signal.

Less important to have East/West confirmation

Less important for momentum trades

The more ideal the candle pattern, the less important the candle confirmation

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Candles and Price Confirmation

Plus of price confirmation:Improve odds of hammer working, But…




Price Confirmation Cautions

Consider buy/sell stop limits

Remember risk/reward!

Depends on your trading style

Higher probability at cost of profit potential

40

Price confirmation cautions

Consider buy/sell stop limits

Remember risk/reward!

Depends on your trading style

Higher probability at cost of profit potential


Hammer

Confirmed

41

Which of these two scenarios is more important


to have bearish price confirmation of the doji?

Note: this will not happen in FX

42



Doji and Price Confirmation

New high close and bull shadow. Bear confirmation thus more important

confirmed


Because a doji or a spinning top in FX will be near the prior session


close, you may want towait for bear confirmation

44

Forex doji and Price Confirmation

confirmed


Why would you not be toonervous on this doji?

44A



Doji – but also a new high close

12

3

What about this doji?

confirmed


Which of these two scenarios is more important


to have bearish price confirmation of the doji?

46

Doji and Shadows

B ll h d

Equal shadows


Bull shadow

47



Criteria: Use the highest high of those two sessions (top of upper shadow) as resistance


Implication: Close over that area: market is “refreshed”. That is when we consider the bull momentum trade

48

Doji and Momentum

Doji as resistance


Doji and momentum trading


“Market refreshed”

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Doji and momentum trading


Doji confirming resistance

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Review of candle benefits

What candles don’t do

Ad an ed doji ta ti s and on epts Advanced doji tactics and concepts

Price confirmation

53




Long Lower (Bullish) Shadows

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

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1 2 3 4 5 6 7 8 9 10

More Bullish Less Bullish/Bear

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Neutral SessionsVery Strong Sessions Strong Sessions Bearish Sessions

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1 2 3 4 5 6 7 8 9 10



# Name Characteristics Nison Notes

1 Tall white double crew cut No shadows


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1 2 3 4 5 6 7 8 9 10




2 Tall white closing crew cut Small lower shadow

Lower shadow shows market can break

under opening price


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1 2 3 4 5 6 7 8 9 10




3 Power line (hammer) Shadow 2x or more real body. Can have very small upper shadow.


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1 2 3 4 5 6 7 8 9 10




4 Tall White Upper shadow 25% or less real body

Upper shadow shows some rejection at

higher prices


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1 2 3 4 5 6 7 8 9 10




5 Small white with bull shadow

Lower shadow less than 2x real body. Can have very small upper shadow.


63



1 2 3 4 5 6 7 8 9 10




6 Medium upper shadow Tall white

Same as line 4 but upper shadow 25% to 100% real body

“Maintains the Strength” but showing

increasing price rejection


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1 2 3 4 5 6 7 8 9 10




7 Long upper shadow tall white

Same as 4 but upper shadow more than 100% of real body

Rare candle – ‘”Gives slight fearful feeling”


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1 2 3 4 5 6 7 8 9 10




8 White spinning top Can have upper and lower shadows less than 100% of real body

“A drifting market”


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1 2 3 4 5 6 7 8 9 10




9 Small white with bear shadow

Upper shadow from 1 to less than 2x real body. Can have small lower shadow.


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1 2 3 4 5 6 7 8 9 10




10 Shooting starUpper shadow at least2x real body. Can have small lower shadow.


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More Bearish Less Bearish/Bullish

1 2 3 4 5 6 7

8

9 10


Neutral SessionsWeak Sessions Bullish SessionsVery Weak Sessions

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1 2 3 4

5

6 7

8

910




1 Long black double crew cut No shadows

70


1 2 3 4 5 6 7

8

910



2 Long black closing crew cut Small Upper shadow

Upper shadow shows market can break

under opening price


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1 2 3 4 5 6 7

8

910



3 Shooting Star Shadow 2x or more real body. Can have very small lower shadow.


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1 2 3 4 5 6 7

8

910




4 Long black Lower shadow 25% or less real body Lower shadow shows demand at lower prices


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1 2 3 4 5 6 7

8

910



5 Small black with bear shadow

Upper shadow less than 2x real body. Can have very small lower shadow.


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1 2 3 4 5 6 7

8

910



6 Medium lower shadow long black

Same as line 4 but lower shadow 25% to 100% real body

Showing increasing demand and price

rejection at lower levels


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1 2 3 4 5 6 7

8

910



7 Long lower shadow black

Same as 4 but lower shadow more than 100% of real body

Rare candle – ‘”Gives slight fearful feeling” to

bears


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1 2 3 4 5 6 7

8

910



8 Black spinning top Can have upper and lower shadows less than 100% of real body

“A drifting market”


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1 2 3 4 5

8

910



9 Small black with bull shadow

Lower shadow from 1 to less than 2x real body. Can have small upper shadow.


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1 2 3 4 5 6 7

8

910



10 Hammer Lower shadow at least 2x real body. Can have small upper shadow.


79

Reviewed importance of real bodies

and shadows

White real body/shadow progression from White real body/shadow progression from

more to less bullish

Black real body/shadow progression from

more to less bearish

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CandlesticksRe-Ignited!

Ad d


Advanced Single Candle Lines:“One sided” shadow

candles




BASIC CRITERIABASIC CRITERIA• Market in a downtrend

• Real Body White or Black

• Small real body at, or near, top of range.

• Lower shadow at least 2x height real body

“A chance to buy at the bottom”

STRICT CRITERIA STRICT CRITERIA


• White real body

• No upper shadow

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY After this last burst of selling, new buying has started. This rejection of lower prices is indicating a change in balance between bulls and bears. The net result: lessening of bears’ confidence of sustainability of lower price levels (and a reason for bulls to start getting more optimistic).

SUPPORT/SUPPORT/MOMENTUM TRADINGMOMENTUM TRADING

• Low of hammer as support

• Consider shorting under low of pattern.

82

White real body hammer is called a “Power Candle”

Can have small upper shadow (around 10% of lower shadow)

The more oversold and the longer the shadow, the higher degree of


confidence

Often a retest of lower shadow

Bullish counterpart of Shooting Star (not a Hanging Man).

A hammer with a open/high/close at high is a Dragonfly doji

As a single candle line it is same in FX as other markets

83

A candlestick line or pattern requires two criteria:

• The shape of the line or pattern • The preceding trend

84



Hammer and trend

Not a hammer


Power line

85

Hammer your way to profits


Dragonfly doji

86

Retest of hammer’s shadow




Hammer As Support


Will often retest lower

shadow

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Hammer as Support

Market will often retest hammer’s lower shadow


“To know where “To know where you stand is asyou stand is as

Same Signal- But look at the Difference in Trading Tactics


you stand is as you stand is as important as important as candle pattern candle pattern recognition.”recognition.”

90



Hammer – Stops/Momentum


Exit (or short)

91

Hammers and Stops/Momentum


Hammer near support

Protective stop or momentum trade

92

BASIC CRITERIABASIC CRITERIA• Market in a uptrend

• Small real body at, or near, top of range.

• Must come at new high for move or significant rally

• Lower shadow at least 2x height real body

“S t k i th k t”


“Suggests a peak in the market”

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY Although it may seem that the market still has rising power left, it has shown that once the market has fallen, it has become very fragile.


• Not used as resistance

• Momentum: Trend is still up with this signal

93



Same as the hammer except, market in an uptrend

Can have small upper shadow (around 10% of lower shadow)

Must have bear confirmation with a lower close, or for those more


aggressive, a lower opening

This is not the bearish counterpart of Hammer. The Shooting Star is the bearish counterpart.

Because of the bullish shadow, do not place much emphasis on this signal.

94

Pain!

1

2

4

3

5

Importance of Price confirmation


BASIC CRITERIABASIC CRITERIA• Market in an uptrend

• Black or White real Body

• Small real body at, or near, bottom of range.

• Upper shadow at least 2x height real body

“A crack has entered the market”

STRICT CRITERIASTRICT CRITERIASTRICT CRITERIA STRICT CRITERIA • Black real body

• No lower shadow

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY The strong retreat from higher prices shows either or/and:

1) bulls stepping back at higher levels

2) bears getting more aggressive

The result is that the bulls have second thoughts of their power and bears now have encouragement.


• High of shooting star as resistance

• Consider buying above high of pattern

96



Black real body most important.

Can have small lower shadow (around 10% of upper shadow).

The more overextended the rally and the longer the shadow, the higher degree of confidence.


confidence.

Unlike a hammer, market doesn’t often retest upper shadow.

Bearish counterpart of Hammer (not Inverted Hammer.)

A Shooting Star with a open/high/close at low is a Gravestone doji.

As a single candle line this is the same in FX

97

Shooting Star with Price Confirmation

confirmed


Shooting star but no price confirmation




Price Confirmation

If a candle signal confirms a western signal, there is less need for price confirmation


Stops and Momentum Trading

Close over here would be a plus for the bulls


Gravestone Doji




Close under m.a. support

Gravestone doji

Gravestone Doji


25 day moving average

103

BASIC CRITERIABASIC CRITERIA• Market in downtrend

• Small real body at, or near, bottom of range.

• Must come at new low for move or significant decline




PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY While the market closes at, or near its low, it has shown an ability to rise. This may get the bears slightly nervous.


• Not used as support

• Momentum: Trend is still down with this signal

104

Same as the shooting star, except market in a downtrend

Can have small lower shadow (around 10% of lower shadow)

Must have bull confirmation with a higher close, or for those more


g ,aggressive, a higher opening

This is not the bullish counterpart of Shooting Star. The Hammer is the bullish counterpart.

Because of the bearish shadow, do not place much emphasis on this signal.

105



Importance of Price Confirmation


Always needs candle confirmation with this signal and hanging man candle.

106

One sided candles with Nison 360° Candle Analysis:

Review of basic criteria

Strict Criteria

Using as support or resistance

Detailed psychology behind each pattern

Momentum trading

Nison insights

Why hanging man and inverted hammer lines less important

Single candle lines the same in FX

Importance of trend

Can’t buy/sell on every candle signal

107


Advanced


Candles:The Blended Candle Line




“Japanese charts have meaning in a single candle, and when two candles

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are combined, the meaning becomes more significant.”

109

Source: KABUSHIKISOUBA NO TECHNICAL BUNSEKI – G.Ikutaro

A blended candle is a way of “compressing” combinations of candle lines into as if they made one candle

110

close 2close 2 =

How do we make a Blended Candle?

open 1open 1

close 2close 2

1) Use open of the first session for open of blended candle

2) Use close of the last session of pattern for close of blended candle.

3) Use highest high and lowest close of all sessions for upper and lower shadows of blended candle. 111



think of Blended candle as a “Summary candle” of the pattern analyzed. How does this help?

1‐ To determine if a pattern is net bullish or bearish

2‐ To compare variations of candle patterns to determine the strength of the signal

Classic dark cloud cover

How is this non classic dark cloud cover different? What does it mean to the outlook?www.candlecharts.comwww.candlecharts.com 112


Advanced


Advanced Double Candle

Lines:Tweezers


CRITERIACRITERIA• Two candles with matching highs (tweezers top) or lows (tweezers bottom)

• Uptrend for tweezers top and downtrend for tweezers bottom. But trend not critical.

• The first candle must be a long white (tweezers top) or long black (tweezers

Source: HAJIMETE KABUKA CHATO WO YOMU HITO NO HON by K. Hoshi

(tweezers top) or long black (tweezers bottom)

• 2nd candle must reflect diminishing of prior force

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY The first candle shows bulls (tweezers top) or bears (tweezers bottom) are dominating. With the second candle showing an inability to continue the move implied by the first candle, we are starting to see the power of the prior trend dissipating. 114



The more the 2nd candle closes into the first candle, the better the signal.

This is a minor pattern unless there is a candle reversal signal that also emerges at the 2nd candle (i.e. piercing pattern, shooting star).


Not used as support or resistance or momentum trading unless 2nd candle is a reversal candle.

If both candles for tweezers top close at, or near the highs, or tweezers bottom close at or near the lows, this pattern would have less significance.

Source: HAJIMETE KABUKA CHATO WO YOMU HITO NO HON by K. Hoshi

115

Think this market had troubles near $8.20?

Tweezers top

Tweezers top


Why is this not a Tweezers bottom? 116

Tweezers Bottom




Using the “Blended Candle” to increase candle insights:

Is combination of candle lines bullish or bearish?

Is the candle pattern more – or less – strict? Is the candle pattern more – or less – strict?

Tweezers tops and bottoms – correct

interpretation

118


Advanced



Lines:The Bull Signals






BullishCounterAttackPattern

PiercingPattern

BullishEngulfing

Pattern

BullSash

Pattern

BullSeparating

Line

121

BASIC CRITERIABASIC CRITERIA• Two session pattern

• Downtrend but even with no apparent trend, would be a positive signal

• Black real body followed by a long white real body that gaps lower on the open and then closes at or near black candle close.

• 2nd candle tall white


STRICT CRITERIA STRICT CRITERIA • Both candles are large (very rare)

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY With the gap down, bears are relieved. The “bulls are backed into a corner and came out fighting in a heroic fight. Kamikaze fights are always frightening, so the bears seeing this take to the sidelines and the bulls may get reinforcements.”


• Not used as support or resistance.

• Consider selling on move under low of pattern.

122

No pattern like this for FX since the market gaps lower.

While the ideal pattern is both large real bodies, we would still view this as important even if only the white

dl l


candle was large

Closes do not have to be exactly the same

Opposite of bearish counter attack

123



Bull Counter Attack

What do you think the bears are thinking after this session?

PS‐watch your language!


Bull Counter Attack

124


• Market in downtrend

• Open of white candle under prior close

• White candle closes more than ½ way into black real body.



• White candle opens under prior low

• Long black and tall white candle

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY Bears in control is echoed by long dark candle. Sharp gap lower means bears have a strong foothold. But, with sharp bounce back by end of the session, the market has “displayed uneasiness at a low price.” The bears now sense danger.


• Lowest low of both candles as support

• Consider selling on move under support level 125

For FX, intraday and indexes can have the same (or within 2 pips for FX) open as prior close

Long black and then long white shows extreme shift in psychology

The more the white candle opens under


The more the white candle opens under prior low /close, the better the signal (for non FX).

Opposite of dark cloud cover

Related patterns which need not be remembered are on-neck (atekubi), in-neck(irikubi) and thrusting (sashikomi).FX Pattern

126



Piercing pattern as support


Piercing Pattern

And this?


Not Piercing Patterns

Although first candle wasn’t long black, what pattern is this?

128

Piercing Pattern

Not a piercing pattern


For intraday okay to have open at‐ or very close‐ to prior close

129



Early clues of shifting supply/demand



• Market in a downtrend

• White real body wraps around dark real body



• Small first candle small dark candle or doji

• Second candle is tall white that wraps around high-low range of first candle.

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY • Small first candle reflects deterioration of

bear trend.

• Tall white candle leaves no doubt the bulls now in driver’s seat.


• Lowest low of either candle as support

• Consider shorting under low of pattern.

131

For FX, intraday and indexes can have the same open (or within 2 pips for FX) of prior close

The pattern has less significance if the real bodies are about the same size.

First candle can be doji

Candles in Engulfing Pattern (large wraps around small candle) are opposite those in


around small candle) are opposite those in Harami Pattern (small candle in a large candle)

If Bullish Engulfing pattern appears during rally, Japanese call it a “last engulfing pattern”, and may be buying climax. Confirmation close under close of white candle. This is not an important pattern, just think about not buying.

FX Pattern

132



This is interesting: I recently purchased a technical analysis package from a “WELL KNOWN” technical analysis guru. During his charting presentation he made several references to candlestick patterns, and each references that he made was absolutely wrong! …During a strong uptrend, he called a large white real body after a


small black real body a bullish engulfing pattern. If I remember right – a bullish engulfing pattern doesn’t count during an uptrend. If I hadn’t bought and studied your package, I never would have known that and would have assumed that he was right.

Thanks again for your great work!Carl

133

Bullish Engulfing Patterns


Price confirmation

No price confirmation after this bullish engulfing pattern

Price confirmation after this bullish engulfing pattern, but risk is still to low of pattern

Why didn’tI have this window as resistance?


low of pattern

135



Price confirmation

If you waited for the close of session of the bull engulf

look at what price you would be buying.


Momentum trade


Bear momentum trade

Why would you not buy on this pattern?

137


• Market in downtrend, but trend not critical

• First candle unusually long dark candle

• Second candle is much smaller than 1st candle (about 25% or less).

• 2nd candle can be the same- or opposite color-of first candle


of first candle

• 2nd real body is within 1st candle’s real body

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY The long black candle echoes the heaviness of supply. But, the next session’s gap up, and lack of downside, follow through results in the bears seeing that their drive is becoming impeded.


• Not used as support (unless 2nd

candle is reversal signal (i.e. hammer)

• Not used for momentum trading

138




If the 2nd candle is a doji, the pattern is called a harami cross

The more the 2nd candle gets deeply into the black candle, the better the


into the black candle, the better the signal.

Because FX, etc, white candle can’t get deeply into black real body, it is best to wait for bull confirmation by a higher open or close than the white real body.

In general, the less the 2nd candle gets into the black candle, the more confirmation is needed.

Opposite of bearish harami

FX Pattern

139

Bull harami

Think the market is different on this sessioncompared to prior session?


Bull Harami


PotentialSelling climax

141



Bull Harami and momentum trading


Momentum Trade

142

BASIC CRITERIABASIC CRITERIA• Trend not important

• Black candle followed by white candle that opens within black real body and closes over prior open.

STRICT CRITERIA STRICT CRITERIA • Both long real bodies


Both long real bodies

• 2nd candle closes over prior high

• White real body closes at, or near, its highs

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY The surprise gap, higher opening on the second day after a strong selling session, may initially be of minor concern. But, with the white candle’s strong close, the bears sense danger and also gives the bulls cause for optimism.



• Consider selling on move under low of pattern 143

Since the market has to gap higher, this pattern not applicable to FX.

The higher the market gaps on the open, and the higher the close on the white candle, the more meaningful the pattern


Remember risk/reward since this pattern is completed after substantial move has already occurred.

Opposite of Bear Sash pattern

If open of white candle is same (or higher) as prior open, it is a Bull Separating Line.

144



Bull Sash Pattern


Bull Sash

145

Risk/Reward

Bull Sash

Bull Sash


Both of these are poor trade candidates

146


• Black candle followed by white candle that opens at (or above) prior open. Then closes over black candle open.

STRICT CRITERIA STRICT CRITERIA • Both long real bodies (rare)


g ( )

• White real body closes at, or near, its highs

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY While the bears may be surprised to see the market gapping sharply higher from a prior weak session, imagine their fear (and the bulls happiness) as the market continues its advance without hesitation the next session. The tide of the market has changed from one to which the bears were in control to one where the bulls are now calling the shots.



• Consider selling on move under low of pattern 147



Easy way to remember this pattern is the opens are the about the same (or the 2nd candle open gaps away from 1st

candles open.)

Since the market has to gap higher, this pattern not applicable to FX


this pattern not applicable to FX.

Major challenge with this pattern is since it is completed after substantial move, it usually means poor risk/reward.

Opposite of Bear Separating Pattern

If open of white candle is within prior black real body, it is a Bull Sash Pattern.

148

Bull Separating line


Looks good on the outside!

This is a poor trade candidate‐ why?







Bull separating but look where it is!


Advanced double candle bull signals using candle progression using in‐depth candle analysis for:

Bull counter ‐ attack

Piercing Pattern

B ll h Bull sash

Bullish Engulfing Pattern

Bull Separating lines

Bull Harami and confirmation

How some patterns have poor risk/reward and other Nison insights

153




Advanced



Lines:The Bear Signals


CANDLE PROGRESSIONDESCENDING BLACK REAL BODY

BearishCounterAttackPattern

Dark CloudCover

BearishEngulfing

Pattern

BearSash

Pattern

Bear Separating

Line

155


• Uptrend but, even with no apparent trend would be a cautionary signal

• White real body followed by a black real body that gaps up on the open and then closes at or near white candles' close

STRICT CRITERIA STRICT CRITERIA • Both candles are large (very rare)

• Large black real body

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY With the tall white, and especially with the gap higher next session, the bulls are happy. But then a strong bear counter force comes in to drag the market back to the prior close. The tone of the market now shifts from bullish optimism to uncertainty.


• Not used as support or resistance.

• Consider buying on breakout over high of pattern.

156



No pattern like this for FX since the market gaps higher

While the ideal pattern is both large real bodies, we would still view this as important even if only the black


p ycandle was large

Closes do not have to be exactly the same

Opposite of bullish counter attack

157

Bear Counter Attack


Bear Counter- Attack

While this is not a bear counter attack since the closes are not the same‐ do you think there is a change in psychology after this session?


Bull Counter Attack?

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• Market in uptrend

• Open of black candle higher than prior close

• Black candle closes into white candle

STRICT CRITERIA STRICT CRITERIA Bl k dl l th 50% i t hit• Black candle closes more than 50% into white real body

• Black candle opens above prior high

• Tall white and black candles

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY White candle and then gap higher keeps bulls happy. But, with black candle finishing well below white candle’s close, the “upward energy has cooled to the extreme” causing the bulls to become concerned and bears bolder.


• Highest high of both candles as resistance

• Consider buying on breakout over high of pattern 160


If the black candle doesn’t get more than ½ way into white, it is called an “incomplete dark cloud cover” and it is


pbest to wait for bear confirmation.

The more the open on black candle gaps away from the prior high/close, the better the pattern (for non FX).

Opposite of piercing patternFX Pattern

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Dark Cloud Cover defines Resistance




Dark Cloud Cover at resistance

Why is this t b lli h


not a bullish engulfing pattern?

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Dark Cloud Cover

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Dark Cloud Cover and momentum




Dark Cloud Cover

Is this telling you that there is a shift in psychology?


Not dark cloud cover

Chart courtesy of Genesis FT

166

Dark cloud rains pain for the bulls

Think there is trouble near $410?

“Oh crap!”


near $410?Happy time for the bulls‐ new high close!

167


• Market in an uptrend

• Black real body wraps around light real body



• Small first candle small white or doji

• Second candle is long dark that wraps around high-low range of first candle.

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY • Small first candle reflects rallying could be

running out of steam

• Long black candle visually shows the bears are now the controlling force.


• Highest high of either candle as resistance.

• Consider buying on breakout over high of pattern.

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The pattern has less significance if the real bodies are about the same size.

First candle can be doji

Candles in Engulfing Pattern (large wraps around small candle) are opposite those in


) ppHarami Pattern (small candle in a large candle)

If Bearish Engulfing pattern appears during selloff, Japanese call it a “last engulfing pattern and may be selling climax. Confirmation is a close above black candle close. This is not an important pattern- just think about not selling.

FX Pattern

169

Misinformation can cost you Big $$$


170

Candles as Support


S1

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Momentum Trading


Candles and Momentum – trading the breakouts


Price confirmation

The less ideal the pattern the more candle confirmation

is needed.Why is this bearish engulfing

pattern less than ideal?

Confirmation


with lower close but risk

still to high of pattern

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Price confirmation


Since pattern confirmed resistance less reason for price confirmation‐ but it depends on you trading style.

175


• Market in uptrend, but trend not critical

• First candle unusually long white candle

• Second candle is much smaller than 1st

candle (about 25% or less).

• 2nd candle can be the same- or opposite color- of first candle


• 2nd real body is within 1st candle’s real body

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY The indications based on the tall white candle’s vitality is for the rally to continue. But, next session’s gap down and then failure to resume the advance to beyond the prior session, shows those who had forecast strength are wrong! The rally could now be running out of fuel.


• Not used as resistance (unless 2nd

candle is reversal signal (i.e. shooting star)

• Not used for momentum trading

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If the 2nd candle is a doji, the pattern is called a harami cross

The more the 2nd candle gets deeply into the white candle, the better the


into the white candle, the better the signal.

Because FX, etc, black can’t get deeply into white candle, it is best to wait for bear confirmation by a lower open or close than black candle’s real body.

In general, the less the 2nd candle gets more into the white candle, the more confirmation is needed.

Opposite of bullish harami

FX Pattern

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Bear Harami

Not Bear Harami

Because these are near the highs of the prior candle would want bear candle confirmation


Confirmation important in FX



• White candle followed by black candle that opens within white real body and closes under prior open.

STRICT CRITERIA STRICT CRITERIA • Both long real bodiesBoth long real bodies

• 2nd candle closes under prior low

• Black real body closes at, or near, its lows

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY The white candle means the bulls are running the show. The next session, the market gaps lower and is not only unable to make up this lost ground, but closes under the white candle. This shows the bullish energy has been sapped out of the market resulting in very scared bulls.



• Consider buying on breakout over high of pattern 180



Since the market has to gap lower this pattern not applicable to FX.

The more the market gaps down on the open, and the lower the close on the black candle, the more meaningful the pattern


Keep in mind risk/reward since this pattern is completed after substantial move has already occurred.

Opposite of Bull Sash pattern

If open of black candle is same (or lower) as prior open, it is a Bearish Separating Line.

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Bear Sash

Bear Sash


Bear Sash

Bear Sash




Being a Market Chameleon

Bear Sash


Bull Sash

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• White candle followed by black candle that opens at (or below) prior open. Then closes under white candle’s open.

STRICT CRITERIA STRICT CRITERIA B th l l b di ( )


• Both long real bodies (rare)

• Black real body closes at, or near, its lows

PATTERN PSYCHOLOGY PATTERN PSYCHOLOGY With the gap down on 2nd day, the bulls sense danger. To make matters worse for them, the market can’t even make up for the ground lost on the opening. The tide of the market momentum has now turned down.



• Consider buying on move above high of pattern 185

Easy way to remember this pattern is the opens are the about the same (or the 2nd candle open gaps away from 1st

candle’s open.)

Since the market has to gap lower this pattern not applicable to FX.

Major challenge with this pattern is


Major challenge with this pattern is since it is completed after substantial move, could mean poor risk/reward.

Opposite of Bull Separating Pattern

If open of black candle is within prior white real body, it is a Bear Sash Pattern.

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Bear Separating line


Bear Separating Line


Bear Separating line




Advanced double candle bear signals using candle progression using in‐depth candle analysis for:

Bear counter ‐ attack

Dark cloud cover

Bear sash

Bearish Engulfing Pattern

Bear Separating lines

How some patterns poor trade candidates

Bear Harami and confirmation

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www.candlecharts.comwww.candlecharts.comFounder and President: Candlecharts.com 191

Steve’s Favorite

Candle pattern

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A rising window is supportA rising window is support

Support Zone

Most important support level


A falling window is resistanceA falling window is resistance

Most important resistance level

Resistance Zone


Small vs. Large windows

Large


Small window

Large window

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Importance of Windows

Shooting Star


Importance of Windows


Large and Small Windows

S1


S2

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Large and Small Windows

R2


R1

199

200

Change of Polarity

ResistanceResistanceResistanceResistance

SupportSupport SupportSupport

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Windows and Change of Polarity

The most important aspect is the many times this resistance was tested‐ (which may have to do with

the window)


Island Tops and Bottoms and Candles

Island TopIsland Top

Island BottomIsland Bottomwww.candlecharts.comwww.candlecharts.com 204



How Windows Give you a Jump on the Competition

Formed an island bottom at this session


S1?

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How Windows Give you a Jump on the Competition

R1?


Formed an island top at this session

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Windows and Confirmation


Closed under window by 2 and 9 cents and next day opened and closed over window again

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Three windows-note of caution


Secrets of Using Intraday Candle Charts to Refine Entries with Windows

For small windows – or h th b tt fwhen near the bottom of

larger windows – look for intraday candle reversals

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Using intraday candles to confirm a Daily window

Turn signal at $31.15 on this 30 minute chart compared to

$31.60 on daily chart.


While the bottom of this window (red dashed line) did hold as support:1)Based on black candle, it looked dangerous to buy.

2)By the end of the bull engulf day, it would have been a poor trade‐ why?

Bottom of rising window on daily chart

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Advanced window tactics: Review of window basics

Large compared to small windows

h f l i d i d Change of Polarity and windows

Island tops/bottoms and windows

Confirmation with intraday candles

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