Profitable Candlestick Patterns

Profitable Candlestick patternsProfitable Candlestick patternswww.tradingourway.comwww.tradingourway.com

Kermit Prather Kermit Prather

[email protected]

Copyright 2007, TradingOurWay, Prepared by Kermit Prather

mailto:[email protected]

• Plus, the Trading Strategies to do all of the above•Adjust your Trading strategy to market conditions

You will learn to:

CRUISE to the Panama Canal on CARNIVAL LIBERTY Set sail April 12, 2008 for 8 glorious days!

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

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

http://tradingourway.com/CruiseRegistration.htm or call Kermit Prather @ 813-681-5427Copyright 2007, TradingOurWay, Prepared

by Kermit Prather

http://tradingourway.com/CruiseRegistration.htm

http://tradingourway.com/CruiseRegistration.htm

Topics and Patterns for Discussion• 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

onlyCopyright 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


Bullish Candle• Sometimes referred to as a White Candle


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 Long-legged Copyright 2007, TradingOurWay, Prepared

by Kermit Prather

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


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


http://www.tradingourway.com/

http://www.candlestickchart.com/glossary.html

http://www.thepatternsite.com/

http://www.stockcharts.com/

http://www.tradeon.com/

http://www.stockfetcher.com/

Bullish Candlestick Patterns

EngulfingMorning Star

HammerThree White SoldiersKicking


http://www.litwick.com/indicators/1130.html



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


Bullish Engulfing- bad one


Bullish Engulfing- bad two


Bullish Engulfing – good one


Bullish Engulfing – good two


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


Morning Star - good


Morning Star - bad


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


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


Three White Soldiers - good


Three White Soldiers - bad


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


Bullish Kicker - good


Bullish Kicker - bad


Stockfetcher.com Bullish Scans

• Bullish Engulfing• Bullish Morning Doji Star• Hammer• Bullish Three White Soldiers• Bullish Kicking


http://www.stockfetcher.com/stockdb/fetcher?p=fts&efts=cGF0dGVybiBpcyBCdWxsaXNoIE1vcm5pbmcgRG9qaSBTdGFy

http://www.stockfetcher.com/stockdb/fetcher?p=fts&efts=cGF0dGVybiBpcyBIYW5naW5nIE1hbg

http://www.stockfetcher.com/stockdb/fetcher?p=fts&efts=cGF0dGVybiBpcyBCdWxsaXNoIFRocmVlIFdoaXRlIFNvbGRpZXJz

http://www.stockfetcher.com/stockdb/fetcher?p=fts&efts=cGF0dGVybiBpcyBCdWxsaXNoIEtpY2tpbmc

Bearish Candlestick Patterns EngulfingEvening Star

Hanging ManThree Black CrowsKicking









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


Bearish Engulfing - Bad


Bearish Engulfing - Good


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


Evening Star


Evening Star


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


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


Three Black Crows - Bad


Three Black Crows - Good


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


Bearish Kicker - Bad


Bearish Kicker -Good


Stockfetcher.com Bearish Scans

• Bearish Engulfing• Bearish Evening Doji Star• Hanging Man• Bearish Three Black Crows• Bearish Kicking


http://www.stockfetcher.com/stockdb/fetcher?p=fts&efts=cGF0dGVybiBpcyBCZWFyaXNoIEVuZ3VsZmluZw

http://www.stockfetcher.com/stockdb/fetcher?p=fts&efts=cGF0dGVybiBpcyBCZWFyaXNoIEV2ZW5pbmcgRG9qaSBTdGFy

Tom Bulkowski’swww.thepatternsite.com


Candlesticks Statistics – where to find


Candlesticks Statistics – cont.






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


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


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


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


Books and more BooksAuthor 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

J. Welles Wilder New Concepts in Technical Trading Systems – Most reference book in all TA


Seminars

• Stephen Bigalow – none better• David Elliott @ www.wallstreetteachers.com • Kermit Prather @ www.tradingourway.com


• Plus, the Trading Strategies to do all of the above•Adjust your Trading strategy to market conditions

You will learn to:

CRUISE to the Panama Canal on CARNIVAL LIBERTY Set sail April 12, 2008 for 8 glorious days!

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

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

http://tradingourway.com/CruiseRegistration.htm or call Kermit Prather @ 813-681-5427Copyright 2007, TradingOurWay, Prepared

by Kermit Prather

Documents

Profitable Candlestick Patterns