Transcript Profitable Candlestick patterns - FINAFREE INVESTMENTS

Profitable Candlestick patterns
www.tradingourway.com
Kermit Prather
[email protected]
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
CRUISE to the Panama Canal on CARNIVAL LIBERTY
Set sail April 12, 2008 for 8 glorious days!
8-Day Western Caribbean
Ports of Call Include:
Port Everglades, Costa Maya,
Puerto Limon, Colon
Inside Stateroom - $687 p/p
Oceanview Stateroom - $807 p/p
Balcony Stateroom - $1057 p/p
BOOK by October 29, 2007
You will learn to:
•Build your trading plan
•Find trade candidates
•When to Enter the trade
•Manage open trades
•When to Exit the trade
•Analyze the results
• Plus, the Trading Strategies to do all of the above
•Adjust your Trading strategy to market conditions
 Seminar fee is $795
We had an “Early Bird” special of $495 that Expired Oct 29th
IF you sign up today or within 7 days we’ll honor the $495
 Use Promo code FTL110407, good until 11/12/07
http://tradingourway.com/CruiseRegistration.htm or call Kermit Prather @ 813-681-5427
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Topics and Patterns for Discussion
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Basics of Candlesticks
Major Bearish patterns
Major Bullish patterns
How to improve probabilities and profitability
Recent examples for each candlestick pattern
Where to find more information on
candlesticks
• Seminar at Sea special pricing for attendees
only
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bearish Candle
• Sometimes referred to as a Black Candle
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by Kermit Prather
Bullish Candle
• Sometimes referred to as a White Candle
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bullish Candlestick Patterns
Engulfing
Morning Star
Hammer
Three White Soldiers
Kicking
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bullish Engulfing – good two
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Morning Star - good
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Morning Star - bad
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Three White Soldiers - good
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Three White Soldiers - bad
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bullish Kicker - good
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bullish Kicker - bad
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Stockfetcher.com Bullish Scans
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Bullish Engulfing
Bullish Morning Doji Star
Hammer
Bullish Three White Soldiers
Bullish Kicking
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Evening Star
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Evening Star
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bearish Kicker - Bad
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bearish Kicker -Good
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Stockfetcher.com Bearish Scans
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Bearish Engulfing
Bearish Evening Doji Star
Hanging Man
Bearish Three Black Crows
Bearish Kicking
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Tom Bulkowski’s
www.thepatternsite.com
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Candlesticks Statistics – where to find
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Candlesticks Statistics – cont.
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Candlesticks Statistics – cont.
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Candlesticks Statistics – cont.
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
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 Books worth reading
• Stephen Bigalow @ www.candlestickforum.com
– Profitable Candlestick Trading
– High Profit Candlestick Patterns
• Steve Nison @ www.candlecharts.com
– The Candlestick Course
– Beyond Candlesticks
• Greg Morris @ www.candlesexplained.com
– Candlestick Charting Explained
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Books and more Books
Author
Title
Van Tharp Trade Your Way To Financial Freedom
Alexander Elder Trading For A Living
Alexander Elder Come Into My Trading Room
Benjamin Graham The Intelligent Investor
Jack Schwager Market Wizards: Interviews With Top Traders
John Murphy Technical Analysis of the Financial Markets
John Murphy The Visual Investor
Mark Douglas The Disciplined Trader: Developing Winning Attitudes
Martin Pring Introduction to Technical Analysis
Martin Pring Breaking the Black Box
Steve Achelis Technical Analysis from A to Z
Thomas Bulkowski Chart Patterns
New Concepts in Technical Trading Systems – Most reference
J. Welles Wilder book in all TA
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Seminars
• Stephen Bigalow – none better
• David Elliott @ www.wallstreetteachers.com
• Kermit Prather @ www.tradingourway.com
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
CRUISE to the Panama Canal on CARNIVAL LIBERTY
Set sail April 12, 2008 for 8 glorious days!
8-Day Western Caribbean
Ports of Call Include:
Port Everglades, Costa Maya,
Puerto Limon, Colon
Inside Stateroom - $687 p/p
Oceanview Stateroom - $807 p/p
Balcony Stateroom - $1057 p/p
BOOK by October 29, 2007
You will learn to:
•Build your trading plan
•Find trade candidates
•When to Enter the trade
•Manage open trades
•When to Exit the trade
•Analyze the results
• Plus, the Trading Strategies to do all of the above
•Adjust your Trading strategy to market conditions
 Seminar fee is $795
We had an “Early Bird” special of $495 that Expired Oct 29th
IF you sign up today or within 7 days we’ll honor the $495
 Use Promo code FTL110407, good until 11/12/07
http://tradingourway.com/CruiseRegistration.htm or call Kermit Prather @ 813-681-5427
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather