Day 2 for handouts - Candlestick · PDF fileNison Candlestick Summit – Day 2 1 The...

Nison Candlestick Summit – Day 2

www.candlecharts.com 1

The Candlestick SummitReaching the top levels of Nison

candlesticks- Day 2

Small real body inside an unusuallylong white real body.

www.candlecharts.comwww.candlecharts.com

BASIC CRITERIA• Two session pattern

• 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 oppositecolor- of first candle

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

PATTERN PSYCHOLOGYThe indications based on the tall whitecandle’s vitality is for the rally to continue,But next session’s gap down and then failureto resume the advance to beyond the priorsession shows those who had forecaststrength are wrong! The rally could now berunning out of fuel.

SUPPORT/MOMENTUM TRADING

• Not used as resistance (unless 2nd

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

• Not used for momentum trading




For FX, intraday and indexes can havethe same (or within 2 pips for FX) openas prior close

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

The more the 2nd candle gets deeplyinto the white candle the better thesignal.

Because FX, etc, black can’t get deeplyinto white candle, it is best to wait forbear confirmation by a lower open orclose than black candle’s real body.

In general the less the 2nd candle getsmore into the white candle the moreconfirmation is needed.

Opposite of bullish harami

FX Pattern

www.candlecharts.com

Bear Harami

Not BearHarami

Because theseare near thehighs of theprior candlewould wantbear candle

confirmation


Confirmation important in FX




Black candle that opens higher and thencloses more than halfway into priorwhite real body.

BASIC CRITERIA• Two session pattern

• Market in uptrend

• Open of black candle higher than prior close

• Black candle closes into white candle

STRICT CRITERIA• Black candle closes more than 50% into white

real body

• Black candle opens above prior high

• Tall white and black candles

PATTERN PSYCHOLOGYWhite candle and then gap higher keeps bullshappy. But with black candle finishing wellbelow white candle’s close the “upwardenergy has cooled to the extreme” causingthe bulls to become concerned and bearsbolder.


• Highest high of both candles asresistance

• Consider buying on breakout overhigh of pattern


For FX, intraday and indexes can havethe same (or within 2 pips for FX) openas prior close

If the black candle doesn’t get morethan ½ way into white it is called an“incomplete dark cloud cover” and it isbest to wait for bear confirmation.

The more the open on black candlegaps away from the prior high/closethe better the pattern (for non FX).

Opposite of piercing patternFX Pattern



Is it a valid Nison Candlestick Signal?

?

?


Dark Cloud Cover defines Resistance


Dark Cloud Cover at resistance

Why is thisnot a bullishengulfingpattern?




Dark cloud rains pain for the bulls

Think thereis trouble

near $410?Happy time forthe bulls- new

high close!

“Oh crap!”

Dark Cloud Cover


Dark Cloud Cover and momentum




Dark Cloud Cover

Not dark cloud cover

Chart courtesy of Genesis FT

Is this tellingyou that there

is a shift inpsychology?


BASIC CRITERIA• Trend not important

• White candle followed by black candle thatopens within white real body and closesunder prior open.


• White candle followed by black candle thatopens within white real body and closesunder prior open.

STRICT CRITERIA• Both long real bodies

• 2nd candle closes under prior low

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

PATTERN PSYCHOLOGYThe white candle means the bulls are runningthe show. And then the next session themarket gaps lower and is not only unable tomake it this lost ground, but closes under thewhite candle. This shows the bullish energyhas been sapped out of the market resultingin very scared bulls.



• Consider buying on breakout overhigh of pattern




Since the market has to gap lower thispattern not applicable to FX.

The more the market gaps down on theopen and the lower the close on theblack candle the more meaningful thepattern

Keep in mind risk/reward since thispattern is completed after substantialmove has already occurred.

Opposite of Bull Sash pattern

If open of black candle is same (orlower) as prior open, it is a BearishSeparating Line.


Bear Sash

Bear Sash


Bear Sash

Bear Sash




Being a Market Chameleon

Bull Sash

Bear Sash


White candle followed by black candlethat opens at (or below) prior open. Thencloses under black candle open.



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

STRICT CRITERIA• Both long real bodies (rare)

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

PATTERN PSYCHOLOGYWith the gap down on 2nd day the bulls sensedanger. And then to make matters worse for them,the market can’t even make up for the ground loston the opening. The tide of the market momentumhas now turned down.



• Consider buying on move abovehigh of pattern




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

candle’s open.)

Since the market has to gap lower thispattern not applicable to FX.

Major challenge with this pattern issince it is completed after substantialmove, could mean poor risk/reward.

Opposite of Bull Separating Pattern

If open of black candle is within priorwhite real body, it is a Bear SashPattern.


Bear Separating line


Bear Separating Line




Bear Separating line

TWEEZERS TOPTWEEZERS TOP


Two candles that have the same lows.First candle large white.

Source: KABUSHIKISOUBA NOTECHNICAL BUNSEKI – G.Ikutaro

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



open 1

close 2 =

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

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

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

How do we make a Blended Candle?

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

1- To determine if a patternis net bullish or bearish

2- To compare variations of candlepatterns to determine the strength ofthe signal

Classic dark cloudcover

How is this non classic darkcloud cover different and whatdoes it mean to outlook?www.candlecharts.com

A falling window is resistance

ResistanceZone

Most importantresistance level





Importance of Windows

white orblack

First candle long white, second candle small real body, and thirdcandle is black that gets deeply into first real body.


FX


Candles in Context

Evening Star

Morning Star

Would youbuy here?

How abouthere?




Abandoned Baby Top

Falling Three Methods

A series of small candles inside therange of a long black candle. The lastcandle is another long black.






Why about this fallingthree gives you extrabearish confidence?


Three consecutive black candles,each with a lower close.


Three Black Crows



1. What are the reversal signals?2. Where is potential support?3. Any signals confirming support

area forecasted in #2?


Nison Case Study

1. What are the reversal signals?2. Where is potential support?3. Any signals confirming support

area forecasted in #2?

A- Chart Challenge

What 4 bear candlesignals can you find inthe box?

Nison Case Study



CandlestickCharting

Strategies

Candlesticks +Western

Indicators

Candlesticks + Trade Management


East + West Confirmation

Where a candle

signal confirms a

Western technical

signal


Candles plus Bollinger Bands……




Crack and Snap with Volume

The arrow points to a “Snap and Crack”. Whatdoes volume do to increase the likelihood of thistechnique working?


At the arrow we see a doji.1) What is the volume on this doji telling us about the supply/demand situation?2) What 2 candlestick signals in August give us a clue that there was support at the doji?3) Although the doji was holding a support area, what happened on the day of the doji that would keep the short

term trend down? Based on this, what would we need to see to give bullish confirmation of that support area?

Nison Case Study


Using NCS and candles to confirm resistance

Why wasn’tthis windowmy 1st

support ?




With Nison Candle Confirmation – long put at resistance

5 days later mkt @21, 20 put @ .26

mkt @22.50Buy 20 put @.70


Candles and the ADX:The Perfect Fit

Candles and the ADX:The Perfect Fit




Stands for Average Directional Indicator

Shows how strongly a market is trending

Does not show direction of trend


Strong ADX withprices in up trend. Strong ADX with

prices in down trend.


1

2




Some technical indicators, such as moving averages,momentum trading, work better in stronglytrending markets.

Some technical indicators, such as oscillators, workbetter in non trending markets.

Traders check ADX to see if the technical indicatorthey use is in right trend environment


Use only on daily charts –except for FX

Use only for entries

Lagging indicator

Slow to recognize a new trend


Steve-

Apple has recently gone from 120 to 150 and the ADX on a daily basis

has not moved up. This is surprising. Comments? - Pete



Common mistake- lookingat ADX level.

Slope is the key

Slope=change in ADX fromyesterday to today.(today’s ADX level-yesterday’sADX level)

Greater the slope, strongerthe trend


-.31

ADX at 20.64.What do we need todetermine the slopeon this day?

ADX at 20.96

Slope = 20.64-20.96 = -.32

ADX 22.04

ADX 24.11

Slope = 24.11-22.04 =+2.07


14 PeriodADX slopeincreasing.5 or more

ADX:22.38

ADX:20.30

ADX:26.03

Slope = +2.08

What is the slope?Strong uptrend?

ADX:27.56




Minimum:14 PeriodADX slope+.25 orless

ADX:18.57

ADX:18.26

-.31

Strict: 14PeriodADX slopedecreasing


[email protected]

Candles and ADX - The Perfect Fit

Reversal candleshelp pick top andbottoms.

Increase % by notgoing againststrong trends.







Do we have to measure theADX slope on this hammer?


Minimum:14 PeriodADX slope.25 or less


-.10-.40




Bull shadows on descent. Butbased on ADX which of these ismore likely a turn?

ADX slopes2.24, 2.53, 2.67

Why didn’t Iput ADXnumbers forthese?


ADX : 27.98

What candle patterns are atthe dashed arrows?

What is the ADX telling us?

ADX : 30.38

ADX : 31.80


ADX:18.57

ADX:18.26

-.31


+.95





Slope +.97


FOR BEAR CANDLEREVERSAL SIGNALS

• Step 1 – get candlesignal

• Step 2 – ADX showsuptrend easing orno trend:

ADX slopeincreases byless than .25,and better ifslope isnegative

ADX:42.85and 41.02so slope is-1.83


FOR BULL CANDLEREVERSAL SIGNALS

• Step 1 – get candlesignal

• Step 2 – ADX showsdowntrend easing or notrend:

ADX slope increasesby less than .25, andbetter if slope isnegative

1

2

34

5

6

ADX:1-31.972-32.673-32.484-32.455-32.536-30.23




ADXYesterday: 27.18

Today: 28.79

What patterns were at 1and 2?

What pattern wascompleted on last candle?

On the last candle, basedon ADX what is youraction/why?

1

2


ADXYesterday: 29.75

Today: 30.95

What pattern wascompleted today?

Based on ADX what is youraction/why? What elsewould you consider?


ADXYesterday: 31.27

Today:30.94

What pattern wascompleted today?

Based on ADX whatis your action/why?What else would youconsider?




+.80

+.20

1- Based on ADXwhich candleline would yousell? 1,2 or 3?

-.40

2- Based on ADXwould you buy thispiercing pattern?

3- What would you do herebased on ADX and prevailingtechnical signals (candle andnon candle)?

+.59


What pattern did this complete?(hint look at the opening of both sessions)

What else happened on this session thatwould make you nervous from the long side?




Candlesticks do not give price targets

Pivot Highs and Lows

Resistance Levels

Support Levels

This high is higher than thesession before and after it

This low is lower than thesession before and after it


Breakouts- long call on retracement

Stalling at resistance.Looking for pullbackto breakaway gap

Mkt @ 428Target 448Buy 430 callStop close under window




Candles and Price Targets

This doji takes on extra significancebecause it confirms a resistance level


Box Range


Trading Box Ranges

New high- let’s buy





East and West- Measured Moves


Box Range



Head and ShouldersHead and Shoulders

Neckline

Left ShoulderRightShoulder

Head

Head and Shoulders Top

Sellsignal


How Candles Put More $$$ in your Pocket

Reversal with WesternTechnique at 141

What signal did wehave here at support?

Extra profit

What was candle reversalhere at 150

neckline Interview

Head andShoulder top

TASC Interview - Jan. 24, 2003 S&P at 860

“… the heads and shoulders top on theS&P gives a target to near 775. A closeover 870 would void this.” Hammer

1) Once the neckline’ssupport is broken, itshould becomeresistance.

2) To get a target with thehead and shoulders topwe measure from the topof the head to theneckline.




Trading on the open


Trading on the open

CandlestickCharting

Strategies

Candlesticks +Western

Indicators

Candlesticks + Trade Management



1. Don’t forget “candles in context”

The 10 rules of Disciplined Trading and Investing

“To know whereyou stand is asimportant as

candle patternrecognition.”

Candles in Context




Misinformation can cost you $$$

?


Candles in Context

Would you buyon this

hammer?


Candles in Context

Not an ideal darkcloud cover, but??




2. If…then system

Trading with Discipline

The If…Then Principle:

• If the market does not act asforecasted then exit the position (ProtectiveStops)

• Initiate a position when the marketjustifies your potential trade (i.e. If themarket breaks above resistance, then buy.

• If the market does something differentthan before then adjust trading strategy


Head and Shoulders Top?

If… then




Was Head and Shoulders Top Confirmed ?

If… then


I was thinking of buying GM for a longerterm investment and was willing to give upa few $ to buy on momentum. Where doyou think my buy area was?

When would you pull the buy limit trade?


Momentum trade

Pulled buy stop




2. If…then system

3. Stops – always use them


Protectingyour Assets




Protective Stops keep you in the game!

Lookspromising at

the whitecandles

1


Hammer

How Education Saves you $$$$


You shortedhere

Nison Case Study

Whatwould youdo hereand why



Protectingyour Assets

Protective Stops keep you in the game!

Lookspromising at

the whitecandles

1

Hammer

How Education Saves you $$$$




You shortedhere

Nison Case Study

Whatwould youdo hereand why

Exit Strategies

Protective Stops

Time Stops

Trailing Stops

© Steve Nison’s Candlecharts.com

If the market does not act asexpected within about fivesessions then considerexiting




Don’t Stay Around

Hammer and Bull Engulf

What are you doing hangingaround! You’re wastingprecious resources.

Chart courtesy of Genesis FT


Trailing Stops

As the market movesin your direction –stop is adjusted tohelp ride the trend.


“Golden” and “Dead” CrossesCompares two moving averages

GOLDEN CROSS: shorter crosses above longer DEAD CROSS: shorter crosses under longer




Answer: 3 and 12 day


Trailing stops - letting the profits run

Fallingwindow

“I usually exit, itcorrects somewhat butthen continues to go inthe original directionafter that.”

ShootingStar

You sold at shooting star orfalling window. A rally from abull harami gets you nervousand you exit. But you’re still

playing with the market’smoney- so another option:

trailing stop….


Falling window

ShootingStar

Where you got nervous

Trailing stops - letting the profits run




Letting Profits Run

Buy and setprotective stop

Shooting star

Could take someor all profits here

Or use dead crossas your trailingstop and wouldthus exit here


Trailing Stops to let profits run

Buy and setprotective stop

Potential Target

Now at target-Doji warns of

caution. But youwant to let profits

run.


Trailing Stops to let profits run

doji




2. If…then system


4. Consider options


How can I boost profits even when my core markets are falling?

Nison Candlesticks for Portfolio Protection

By using Nison candlesticks for pinpoint timing entering andexiting covered calls and protective puts

www.nisonoptionsacademy


Buy putformoveto31.50

Mkt @ 33.75 buy 32.5 put @ .80In case of move to 31.50Reached target but no reversal signals (worth 1.60)So ride it down to 30.50 at bull engulf put @ 2.25.

Nison Candle strategies for portfolio protection



www.nisonoptionsacademy.com

Time decay (or time "erosion") is the decrease, of anoption premium's time value due to the passage of time.The rate of this decay increases as expiration approaches.At expiration a call or put is worth only its intrinsic value, ifit has any.

Time decay

“With long options timing is everything since timeis working against you.”

1. NCS finds a bearish engulfing pattern2. Set up an alert if market gets to this

resistance level

Using Nison Candle Scanner software for Options:Method 1- Set up an alert

Buy 7 day 210 put @ 2.58, exit harami @ 7.28 – 182% return

From the bear side


Using Nison Candle Scanner software for Options:Method 2- Finding markets at key support or resistance areas

NCS saved you from 8days time value decay




2. If…then system


4. Consider options

5. Is any news expected?


Stay Awayfrom theTrade


2. If…then system


4. Consider options


6. Prevailing trend





Prevailing Trend

20 day m.a over50 day m.a and bothsloping up

1) Connect to data feed

2) Set up and save Western template chart with your favoriteindicators

3) Set up and save NCS market analyzer with row filterNCS all offNCS bullNCS bear

4) Determine trend of overall market

5) Have both market analyzer and western template chart open sideby side

6) Based on trend of overall market using NCS on market analyzer toscan for bull or bear signals.

7) Based on scan put that market into Western chart template

8) Analyze to determine if good trade or not




2. If…then system


4. Consider options


6. Prevailing trend

7. Let the market tell you what to do



The low of thebullish engulfingpattern assupport. Oncehammer is formed(at the arrow) wethen adjust oursupport

Adapting


2. If…then system


4. Consider options


6. Prevailing trend


8. Indicators – the more the better




The Multiplier Effect

Where a Nison candle signal confirms another indicator

Two hammers picked up with NCS software at small arrows andboxes (Note: only “hammer” was turned on in NCS)

1) Why is the line at the big arrow at b not a hammer?

2) Even though the candle detailed above is not a hammer, whatbullish signs are there ala’ shadows and real bodies at a,b and ctelling us?

3) What warns us of trouble at about d,e and f?

4) Would you buy at either of the two valid hammers? Why or whynot?

a

b

c

de f


Nison Case Study


2. If…then system


4. Consider options


6. Prevailing trend



9. Never trade in the belief the market is wrong





2. If…then system


4. Consider options


6. Prevailing trend



9. Never trade in the belief the market is wrong

10. Examine risk-reward



1. What is your price risk?

2. What is your target?

Do you havea good

risk-reward?

Always Check Risk – Reward


Risk/Reward



Which is a better sale? Part 1

Scenario 1 Scenario 2


Which is a better sale?- Part 2


Which is a better sale? Part 31




Which is a Bettertrading signal?


Dark Cloud Cover

BearishEngulfingPattern

Risk/Reward


Tell me about this signal re: candle signal, westernsignal (hint- look at recent lows).Would you go long on this signal? Why or why not?

Nison Case Study



What would you do and why?

Bull engulf at support- poor risk/reward

but can do this tradewith a special option

strategy


Nison candlesticks for option strategies

Don’t forget “candles in context”

If…then system

Stops – always use them

Consider options

Is any news expected?

Prevailing trend

Let the market tell you what to do

Indicators – the more the better

Never trade in the belief the market is wrong

Examine risk-reward

Trading with Discipline



Trading Journal

Goal: Keeping emotionsout of your trading

Date, market, $ amount committed Why did you do the trade Entry Price Risk Initial Target Exit Price Analyze Trade

Print out (or cut and paste) chart and make notesWhat did you do right/wrong

Date, market, $ amount committed Why did you do the trade Entry Price Risk Initial Target Exit Price Analyze Trade

Print out (or cut and paste) chart and make notesWhat did you do right/wrong


Trading Journal - Setting up the Trade

Entry Price

Risk

Initial Target

Why did you do the trade?


Trading Journal - Analyzing the Trade

Entry Price

Risk

Initial Target


Exit Price

Analyze the trade




Entry Price

Risk

Initial Target


Trading Journal - Setting up the Trade

Support from a few months ago



Entry Price

Risk

Initial Target

Why did you do the trade

Exit Price?

Analyze the trade



Entry Price

Risk

Initial Target

Why did you do the trade

Exit Price

Analyze the trade



Steve recommends:

What would you do and why? Part 1

What would you do? Part 2



Putting it all TogetherTrading ChecklistTrading Checklist

Use NCS to find and confirm a valid Nison candlestick signal

Does candle confirm Western signal (i.e. ADX,support/resistance, volume, or any of your favorites)

Check longer term trend

Is any news coming out?

Determine risk/reward (remember many of the candlesignals can be used as a protective stop)

Monitor trade (i.e. time or trailing stops, change in technicalpicture, etc)

Day 2 for handouts - Candlestick · PDF fileNison Candlestick Summit – Day 2 1 The...

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