Lighting the Way: Using Candlestick Patterns. The Art & Science of Active Trend Trading

Size: px

Start display at page:

Download "Lighting the Way: Using Candlestick Patterns. The Art & Science of Active Trend Trading"

Muriel Goodwin
6 years ago
Views:

1 Lighting the Way: Using Candlestick Patterns The Art & Science of Active Trend Trading

2 Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don t trade with money you can t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this training. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All Materials presented are for training purposes only. Traders should paper trade any new method prior to risk of personal capital.

3 Candlestick History Charting method originating In Japan between the 18 th century & late 1800 s Potentially used by Japanese Rice Traders Introduced to Western Traders by Steve Nison in the 1990 s Knowledge base and trading importance expanded by Steve Bigalow

4 Candles and Technicals Candles Show Us When! Techncials show us how much! $$$$ Powerful Tools Only partially understood by most traders Immediate feedback on investors sentiment Clarify Misconception and Simplify Candle Usage Greatly improve Reward/Risk on every trade in all time frames Be a detective Look for the Convergence of Clues Presentation Material by: The Candlelight Trader

5 Patterns and Trade Set Ups Part 1

6 Golden Rule Candlesticks and patterns require three criteria for proper interpretation: 1. A Completed Line 2. Shape of the line of pattern 3. The Preceding Trend

7 Basic & Best Candlestick Signals Best Candlestick Reversal Signals Doji/Spinning Tops Engulfing Patterns Hammer/Hanging Man Piercing Line Dark Cloud Harami Shooting Star Morning Star Evening Star Inverted Hammer Kicker

8 Supporting Clues Non Candlestick Supporting Clues Moving averages (8 EMA, 20 SMA, 50 SMA) Trends Support/Resistance Stochastics (12/3) Voided Patterns Daily & Weekly Charts

9 Basic Trading Checklist Trade Top Quality Growth Stock from IBD 50, Leaderboard or other IBD sources Define Support & Resistance (Horizontal) Define Trend Define Trading Timeline Look for Convergence of Clues Establish Reward/Risk on every trade (it s easier than you think) Establish Targets and Proper Exits Be very careful TRADING BEFORE NEWS or NUMBERS

10 Sample Patterns Single Candles & In Context

translates to being able to visually determine investor sentiment - What does this do for you and your

11 What do Candlesticks tell us immediately? - Single Candlesticks tell us immediately, who won the battle that day (Buyers or Sellers) - This translates to being able to visually determine investor sentiment - What does this do for you and your planning your trades? - In combination with trend, other candles, moving averages, i.e.; other clues they are predictive of potential trend reversals or pauses in existing trend

12 What do Candlesticks tell us immediately? - Every Single Candlestick tell us immediately, who won the battle that hour, day, week or month Close High Open Open Low Close Buyers Sellers

13 What do Candlesticks tell us immediately? - Single Candlesticks tell us immediately, who won the battle that day Who Won the Battle? Bulls Bears Indecisive Trend tells us Who s Winning the War

14 Presentation Material by: The Candlelight Trader Comparison

Doji/Spinning Tops - Doji s show indecision between buyers & sellers - Clue: When present at past support or moving averages potential trend reversal

15 Doji/Spinning Tops - Doji s show indecision between buyers & sellers - Clue: When present at past support or moving averages potential trend reversal or break out - Price Action will tend to move in the direction of the open after a Doji/Spinning Top Indecision: More than one shows greater Indecision

16 Doji/Spinning Top Bullish 26%+ Gain from Signal to High in one month Series of Doji s at Support & Clue: Oversold Stochastics

17 Doji/Spinning Top Bearish Series of Doji s at Resistance Notice how after the series of doji s resistance was tested and then failure Clue: Overbought Stochastics & Divergent -15% drop from signal to stop

18 Bullish Engulfing Swing High Only occurs after a downtrend. Completely engulfs the previous days body. Expected move back to swing high, trend lines or moving averages Support

19 Bullish Engulfing 12.8%+ Gain from Signal to High in 6 weeks Bullish Engulfing Clue: Divergent Stochastics

20 Bearish Engulfing Resistance Only occurs after a Uptrend. Completely engulfs the previous days body. Expected move back to Swing Low, trend lines or moving averages Swing Low

21 Bearish Engulfing Bearish Engulfing 12.8%+ Gain from Signal to High in 6 weeks Clue: Divergent Stochastics

22 Hammer Swing High Only occurs after a downtrend. Shadow must be 2X the Body Expected move back to swing high, trend lines or moving averages Hammer Support

23 Hammer 21%+ Gain from Signal to High in 6 weeks Hammer Clue: What s the other clue? Clue: Oversold Stochastics

24 Hanging Man Resistance Only occurs after a Uptrend. Shadow must be 2X the Body Expected move back to swing high, trend lines or moving averages Swing Low

25 Hanging Man Hanging Man: Two of them & More. -17% Drop from 2 nd Signal to Low in 2 weeks Clue: Overbought Stochastics

26 Piercing Line Swing High Only occurs after a downtrend. Must open below and close more than ½ way up preceding candle. Expected move back to swing high, trend lines or moving averages Support

27 Piercing Line 70%+ Gain from Signal to High in 2 Months Piercing Line Clue: Oversold Stochastics

28 Dark Cloud Resistance Only occurs after a uptrend. Must open above and close more than ½ way down preceding candle. Expected move back to swing high, trend lines or moving averages Swing Low

29 Dark Cloud Dark Cloud -9% Drop from Signal to Low in 2 days Clue: Overbought Stochastics

30 Bullish Harami Swing High Only occurs after a downtrend. Body inside previous days candle One of the most powerful signals Color of candle doesn t matter Expected move back to swing high, trend lines or moving averages

31 Bullish Harami 13%+ Gain from Signal to High in 4 Weeks Bullish Harami Clue: Oversold Stochastics

32 Bearish Harami Only occurs after a Uptrend. Body inside previous days candle One of the most powerful signals Color of candle doesn t matter Expected move back to swing high, trend lines or moving averages Swing Low

33 Bearish Harami Bearish Harami -20% Drop from Signal to Low in 5 Weeks Clue: Divergent Stochastics

34 Shooting Star Resistance Only occurs after a Uptrend. Body inside previous days candle Wick must be 2X Body Color of candle doesn t matter Expected move back to swing high, trend lines or moving averages Swing Low

35 Shooting Star Shooting Star -25% Drop from Signal to Low in 5 Days Clue: Divergent Stochastics

36 Morning Star Swing High Only occurs after a downtrend. Body inside previous days candle 2 nd Down day closes at least ½ way down candle from 2 days prior Expected move back to swing high, trend lines or moving averages Hammer Support

37 Morning Star 11%+ Gain from Signal to High in 2 Weeks Morning Star Clue: Support

38 Evening Star Resistance Only occurs after a Uptrend. Body inside previous days candle 2 nd Down day closes at least ½ way down candle from 2 days prior Expected move back to swing high, trend lines or moving averages Swing Low

39 Evening Star Evening Star Clue: Divergent Stochastics

40 Inverted Hammer Swing High Only occurs after a downtrend. Shadow must be 2X the Body Can be very powerful signal Expected move back to swing high, trend lines or moving averages Hammer Support

41 Inverted Hammer 30%+ Gain from Signal to High in 6 Weeks Inverted Hammer Clue: Stochastics Oversold

42 Swing High Kicker Only occurs after a downtrend. Can follow sell off gap down. Very Powerful Signal Next day opens up with a gap Expected move back to swing high, trend lines or moving averages Gap up Reverse signal at for a bearish Kicker

43 Kicker Bullish 13%+ Gain from Signal to High in 4 Weeks Bullish Kicker Clue: Stochastics Oversold

44 Kicker Bearish Bearish Kicker -7%+ Gain from Signal to Low in 2 Weeks Clue: Stochastics Divergence

45 Test Yourself

46 What would you do? Buy, Sell or Hold?

47 What would you do? Buy, Sell or Hold?

48 What would you do? Buy, Sell or Hold? Candle Line?

49 And Now? What would you do? Buy, Sell or Hold?

50 Want to go again?

52 Now what? Buy or Wait?

53 Confirmation?

54 Left Right Combo

55 Take a Break Part 2 begins in 10 Minutes

56 Configuration

CONNECING THE DOTS Candlesticks & Convergence of Clues. The Art & Science of Active Trend Trading

CONNECING THE DOTS Candlesticks & Convergence of Clues The Art & Science of Active Trend Trading Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options