Candlesticks Discoveries Probability of Success Aug 6, 2016 The Art & Science of Active Trend Trading
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. All Materials Copyrighted ATTS 2007-2016
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 Probability Studies By Thomas Bulkowski
What s the Difference? Bar Chart vs Candlesticks Bullish Bearish Close High Open Open Low Close
Primary & Best Candlestick Signals There are many, many Candlestick Patterns but these represent the Primary & Best, but do they Indecisive Doji's/Spinning Tops - Yes but are not trading triggers, 50-50 Bullish Bearish Hammer Shooting Star Engulfing Patterns -- Minor Lows ** Engulfing Patterns Piercing Line Dark Cloud ** Morning Star Evening Star Harami 50-50 Chance Harami 50-50 Chance Inverted Hammer- Actually Bearish Hanging Man Actually Bullish Wicks, Size and Color Order
Golden Rule of Candlesticks Candlesticks and patterns require four criteria for proper interpretation: 1. A Completed Line (Must wait for the time period to finish!) 2. Location, Location, Location 3. Color 4. Shape, Size & Wicks
Revised Candlestick Basics Candles and Technical Analysis go together Powerful Tools Only partially understood by most traders When do candlestick patterns work best? Within established Trends Size and Color Matters Wicks Matter Gaps are amazing Bearish Candles outperform Bullish Candles Focus on Patterns with 65% or better probabilities of success Patterns tend to be valid for 5-10 days 2 & 3 Day Patterns have higher probability of success Presentation Material by: Active Trend Traders
Highest Probability Patterns - Above the stomach Like a Morning Star Reversal 67% - Belt hold bearish and bullish 67% - 71% - Deliberation Bullish Continuation 77% - Doji star, bearish To Be Bullish close to 70% - Engulfing, bearish To Be Bearish 79% - Last engulfing bottom and top Bearish at the Bottom - Three outside up and down Bearish at tops 69%, Bullish 75% at bottom - Two black gapping candles Bearish Continuation 68% - Rising and falling windows Rising Bullish 75%; Falling Bearish 67% - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 1295-1304). Wiley. Kindle Edition.
- Above the Stomach - Theoretical: Bullish reversal. - Actual bull market: Bullish reversal 66% of the time (ranking 17). - Actual bear market: Bullish reversal 67% of the time (ranking 18). - Frequency: 32nd out of 103. Overall performance over time: 31st out of 103. Highest Probability Patterns - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 2739-2744). Wiley. Kindle Edition.
- Belt Hold Bullish and Bearish - Theoretical: Bearish reversal. - Actual bull market: Bearish reversal 68% of the time (ranking 16). - Actual bear market: Bearish reversal 69% of the time (ranking 17). - Frequency: 19th out of 103. Highest Probability Patterns - Overall performance over time: 63rd out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 3242-3248). Wiley. Kindle Edition.
- Belt Hold Bullish and Bearish - Theoretical: Bullish reversal. - Actual bull market: Bullish reversal 71% of the time (ranking 11). - Actual bear market: Bullish reversal 71% of the time (ranking 14). - Frequency: 22nd out of 103. Highest Probability Patterns - Overall performance over time: 62nd out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 3401-3406). Wiley. Kindle Edition.
Highest Probability Patterns - Deliberation Bullish Continuation - Theoretical: Bearish reversal. Bullish continuation - Actual bull market: Bullish continuation 77% of the time (ranking 2). - Actual bear market: Bullish continuation 75% of the time (ranking 4). - Frequency rank: 48th out of 103. - Overall performance over time: 93rd out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 4475-4481). Wiley. Kindle Edition. Bearish Reversal
- Doji Star Bearish - Theoretical: Bearish reversal. - Actual bull market: Bullish continuation 69% of the time (ranking 8). - Actual bear market: Bullish continuation 67% of the time (ranking 11). - Frequency: 43rd out of 103. Highest Probability Patterns - Overall performance over time: 51st out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 5785-5791). Wiley. Kindle Edition.
Bearish Engulfing Theoretical: Bearish reversal. Resistance Actual bull market: Bearish reversal 79% of the time (ranking 5). Actual bear market: Bearish reversal 82% of the time (ranking 5). Frequency: 11th out of 103. Overall performance over time: 91st out of 103. Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 6502-6507). Wiley. Kindle Edition. Swing Low Copywrite ATTS 2007-2016
Bearish Engulfing What are the Clues? Bearish Engulfing 12.8%+ Gain from Signal to High in 6 weeks Clue: Divergent Stochastics Copywrite ATTS 2007-2016
- Last Engulfing Bottom - Theoretical: Bullish reversal. - Actual bull market: Bearish continuation 65% of the time (ranking 14). - Actual bear market: Bearish continuation 67% of the time (ranking 12). - Frequency: 13th out of 103. Highest Probability Patterns - Overall performance over time: 48th out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 9431-9436). Wiley. Kindle Edition.
- Last Engulfing Top - Theoretical: Bearish reversal. - Actual bull market: Bullish continuation 68% of the time (ranking 9). - Actual bear market: Bullish continuation 67% of the time (ranking 14). - Frequency: 14th out of 103. Highest Probability Patterns - Overall performance over time: 79th out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 9592-9597). Wiley. Kindle Edition.
Highest Probability Patterns - Three Outside Up - Theoretical: Bullish reversal. - Actual bull market: Bullish reversal 75% of the time (ranking 9). - Actual bear market: Bullish reversal 74% of the time (ranking 8). - Frequency: 24th out of 103. - Overall performance over time: 34th out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 14950-14955). Wiley. Kindle Edition.
- Three Outside Down - Theoretical: Bearish reversal. - Actual bull market: Bearish reversal 69% of the time (ranking 15). - Actual bear market: Bearish reversal 70% of the time (ranking 16). - Frequency: 21st out of 103. Highest Probability Patterns - Overall performance over time: 39th out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 14804-14810). Wiley. Kindle Edition.
- Two Black Gapping Candles - Theoretical: Bearish continuation. - Actual bull market: Bearish continuation 68% of the time (ranking 10). - Actual bear market: Bearish continuation 69% of the time (ranking 9). - Frequency: 29th out of 103. Highest Probability Patterns - Overall performance over time: 10th out of 103. - Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 16077-16082). Wiley. Kindle Edition.
Rising Windows Swing High Theoretical: Bullish continuation. Actual bull market: Bullish continuation 75% of the time (ranking 4). Actual bear market: Bullish continuation 72% of the time (ranking 7). Frequency: 20th out of 103. Gap up Overall performance over time: 42nd out of 103. Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 17128-17133). Wiley. Kindle Edition. Copywrite ATTS 2007-2016
Copywrite ATTS 2007-2016 Rising Windows
Rising Windows 13%+ Gain from Signal to High in 4 Weeks What are the Clues? How Many Are Needed? Rising Window Clue: Stochastics Oversold Copywrite ATTS 2007-2016
Falling Window Theoretical: Bearish continuation. Actual bull market: Bearish continuation 67% of the time (ranking 11). Actual bear market: Bearish continuation 73% of the time (ranking 6). Frequency: 23rd out of 103. Gap Down Overall performance over time: 7th out of 103. Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 17029-17034). Wiley. Kindle Edition. Swing Low Copywrite ATTS 2007-2016
Copywrite ATTS 2007-2016 Falling Window
Falling Window What are the Clues? How Many Are Needed? Falling Window -19%+ Gain from Signal to 100 day SMA in 26 days Clue: Stochastics Divergence Copywrite ATTS 2007-2016
Other Considerations - Bearish Reversals work best in a prevailing Downtrend on Pullups - Bullish Reversals work best in a prevailing Uptrend on Pullbacks - Highest Probability Trades take place reactions during a Trend - Other Highest Probability Trades take place at the bottom/top of consolidation
Other Considerations - Wicks - Size & Color - Gaps
Other Considerations - Wicks: Long Shadows and Tails tell exactly where buyers or sellers are coming in to the trade Location Location Location Location Location
Other Considerations - Size & Color: Larger candles are move predictive than Small Candles - Color change from Red to big Green candle - Color Change from Green to big Red Candle Green Followed by Big Red Green Followed by Big Red Green Followed by Big Red Big Red Followed by Green Big Red Followed by Green Big Red Followed by Green
Other Patterns I Like
Morning Star Two Day Pattern Swing High Only occurs after a downtrend. Body inside previous days candle 2 nd up day closes at least ½ way up candle from 2 days prior Expected move back to swing high, trend lines or moving averages Hammer Support Copywrite ATTS 2007-2016
Morning Star What are the Clues? How many do we need? Does the Morning Star really matter? 11%+ Gain from Signal to High in 2 Weeks 13%+ Gain from Second Signal in 2 Weeks Morning Star Copywrite ATTS 2007-2016
Bullish Engulfing Two Day Pattern 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 Copywrite ATTS 2007-2016
Bullish Engulfing What are the Clues? 12.8%+ Gain from Signal to High in 6 weeks Bullish Engulfing Clue: Divergent Stochastics Copywrite ATTS 2007-2016
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 Copywrite ATTS 2007-2016
Piercing Line What are the Clues? 70%+ Move from Signal to High in 2 Months Piercing Line Clue: Oversold Stochastics Copywrite ATTS 2007-2016
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 low, trend lines or moving averages Swing Low Copywrite ATTS 2007-2016
Dark Cloud What are the Clues? Dark Cloud -9% Drop from Signal to Low in 2 days Clue: Weak Stochastics Copywrite ATTS 2007-2016