candlestick patterns just the ones you need!

Presented by:

Active Trend Trading

Candlestick PatternsJust the Ones You Need!

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 stocks, 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 personalcapital.

Copywrite ATTS 2007-2021

Building Wealth Stay Focused on the Process

Mark Douglas said: “What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency.

To become an expert, choose one simple trading system that identifies a pattern, preferably one that is mechanical, instead of mathematical, so that you will be working with a visual representation of market behavior.”

Webb PhD, Paula T; Douglas, Mark. Becoming "The Disciplined Trader": Instilling a Comprehensive Winning State of Mind

3

Candlesticks –Just the Ones

You Need!

A c t i v e Tr e n d Tra d i n gD e n n i s W. W i l b o r n


“If you don’t know precisely what signal is yours & how you will size and manage your position—STOP TRADING!

~Peter Brandt

5

What do stock/ETF charts really reflect?

1. The Combined belief of every person who is trading or not trading an entity at a specific moment

2. Decision & Indecision

3. Areas of Value where Institutions will likely “take action”

Not understanding what’s happening on the chart will result in trading against the probabilities

If Only We Really Understood….

Copywrite ATTS 2007-2021 6

If Only We Really Understood….

What do stock/ETF charts really reflect?

4. Econ 101 – Supply & Demand

What Happens at a Value Area which has been conquered by Sellers (Lots of Supply)?

What Happens at a Value Area which has been conquered by Buyers (Lots of Demand)?


If Only We Really Understood….When Institution buy or sell it leaves footprints!

If we understand what the footprints are telling us, we will make better trading decisions!

If a footprint identifies where a band of sellers are hanging out, what will you do?

If a footprint identifies where band of buyers are hanging out what will you do?

What’s keeping you from acting?



Quality of Belief Determines Quality of Action —Faulty Beliefs Lead to Faulty Actions!

~ Active Trend Trading

9

History of Candlesticks Patterns…

Charting method originating In Japan between the 18th 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

MAJOR NEWS – CANDLESTICKS ARE NOT A TRADING STRATEGY!


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

5. UNDERSTAND WHO’s IN CONTROL & WHO WON THE BATTLE

- Wicks: Long Shadows and Tails tell exactly where buyers or sellers are coming into the trade

Remember

Location LocationLocation

Location

Location

- 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

Other Considerations

Big Red Followed by Green

Green Followed by Big Red



Green Followed by Big Red Green Followed by

Big Red

Questions


Candlestick Basics

Candles and Technical Analysis go together

Powerful Tools – Only partially understood by most traders

Immediate feedback on investors sentiment

Greatly improve Reward/Risk on every trade in all time frames

Be a detective – Look for the Convergence of Clues

Presentation Material by: Active Trend Traders


What’s the Difference?Bar Chart vs Candlesticks

Open

OpenClose

Close

Bullish Bearish

Low

High


Primary & Best Candlestick Signals

There are many, many Candlestick Patterns but these represent the Primary & Best

Indecisive

Doji's/Spinning Tops

Bullish Bearish

Hammer Hanging Man

Engulfing Patterns Engulfing Patterns

Piercing Line Dark Cloud

Harami Harami

Inverted Hammer Shooting Star

Morning Star Evening Star

Kicker Kicker


The Dynamic Doji—Watch for Small Bodies

- Doji’s and Spinning Tops show indecision between buyers & sellers—Neither side is in control!

- Clues: When present at past support/resistance or moving averages with indicator extended or divergent

- Price Action will tend to move in the direction of the open after a Doji/Spinning Top



Doji/Spinning Top Bullish

Doji’s at Support

Clue: TSI Cross & MF 3 Line Cluster

53.25% in 18 Days

&

How Many Clues?

Would be comfortable trading this of support at $27.06?

19

TNA Daily

Be a Detective: Search for Clues

12

3

How Many Clues?1. Doji 2. Strong Support?3. Crossing & Divergent Indicators

4. Break Above 8 period EMA


151% in 140 Days

TNA Weekly

Conclusion of Part 1


Candlestick Reversals Part 2


Hammers & Hanging Men

- The Basics ShapeSmall Body

Shadow must be 2X the Body



Understanding what the line tell us?- Buyers Wrestled control from sellers during the trading

period—but where it appears is equally important!

- Shows levels & zones of support and resistance

What’s Important—Context & Convergence

1. Where the line forms—Uptrend or Downtrend?

2. Quality of the Candlestick

3. Magnitude/Range of the line—Bigger Better!

4. Other Clues

5. Defining Expectations & Failure of the Signal

R

S



Quality of the Signal is determined by:

1. Where the Line appears—How long has the preceding trend been in

place? Appearing after longer trends can have greater meaning

2. The Magnitude/Range of the Line

3. Convergence of other clues include:

▪ Identify Support/Resistance

▪ Proximity to Moving Averages

▪ Indicators


Hammer

Hammer Support

Only occurs after a downtrend.

Shadow must be 2X the Body

Expected move back to swing high,

trend lines or moving averages

Swing High


41% in 28 Days

Hammer Convergence of Clues

TNA 2/3/14


Note: Retested and

Bounced

What Happened

Hanging ManOnly occurs after an

Uptrend. Shadow must

be 2X the Body

Expected move back to

swing low, trend lines or

moving averages

Resistance

Swing Low


Hanging Man Convergence of Clues

TNA 5-3-11What Happened


Two Hammer examples:

1. Too Close to Resistance of Moving Averages

2. Appearing shortly after a new downtrend

Poor Quality Hammer or Hammer Failure

AAPL 10/2012


Poor Quality Hanging Men or Hanging Men Failure

QIHU 4-2013


Two Hanging Man examples:

1. The lower wick entry signal as never triggered

2. Pattern just coming out of consolidation—uptrend yes but new uptrend

Secrets of Trading Hammers & Hanging Men

Understand the Parts:

1. Stays in effect until a close violates signal high or low

2. Both are self confirming signals

3. High is Top of a Resistance Zone

4. Low is Bottom of a Support Zone

5. Hammer—expect testing of the wick

6. Hammer use low of body as a stop after a breakout or with Long legged Hammers

7. Hammer middle of wick can be early entry

8. Violating Low is max stop loss

9. Hanging Man violating high is max stop loss

10. Both May Appear with other candlestick reversal patterns in series (Pay attention to this!)

SupportZone

ResistanceZone

ActionPoints


Secrets of Trading Hammers

Next Day Entries & Stops Hammer

1. Self confirming signals can be entered day of signal

Opens in WickEntry 2


Max Stop Any Entry

Stop From Entry 2 or 3

Opens above yesterday’s candleEntry 3


Secrets of Trading Hanging Men

Next Day Entries & Stops Hammer

1. Self confirming signals can be entered day of signal

Opens in Top Wick


Max Stop Any Entry

Opens Below yesterday’s candleEntry 3

Opens in Lower Wick

Opens in Lower WickEntry 2


Clue: Dissect Each Candlestick Signal

- Every Candlestick Signal can be broken down just like the Hammer & Hanging Man

- Use the small bodies to your benefit and plan trade Action Points for Entry & Exit

- Count the Clues


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 low, trend

lines or moving averages

Swing Low


Shooting Star

-10.74% Drops Low in 5 Days

Shooting Star

Clue: Divergent TSI

What are the Clues?


Evening Star—Two Day Pattern

Resistance

Only occurs after a Uptrend. Body inside


2nd Down day closes at least ½ way down

candle from 2 days prior

Expected move back to swing low, trend


Swing Low


Evening Star

Clue: TSI & MF Cross

What are the Clues?Expectations?

Evening Star


-13% Drops Low in 12 Days

Inverted Hammer

Hammer Support

Only occurs after a downtrend. Shadow

must be 2X the Body

Can be very powerful signal

Expected move back to swing high, trend


Swing High


Inverted Hammer

14%+ Gain to High in 13 Days

Inverted Hammer

Clue: TSI & MF Crosses

What are the Clues?


End of Part 2


Morning Star—Two Day Pattern

Hammer Support

Swing High Only occurs after a downtrend. Body inside


2nd up day closes at least ½ way up candle

from 2 days prior




Morning Star

11%+ Gain from Signal to High in 2 Weeks13%+ Gain from Second Signal in 2 Weeks

Morning Star

What are the Clues?How many do we need?Does the Morning Star

really matter?


Bullish Engulfing—Two Day Pattern

Only occurs after a downtrend. Completely

engulfs the previous days body.

Expected move back to swing high, trend lines

or moving averages

Support

Swing High


Bullish Engulfing

Bullish Engulfing

Clue: Divergent Stochastics

12.8%+ Gain from Signal to High in 6 weeks

What are the Clues?


Bearish Engulfing

Resistance

Only occurs after a Uptrend. Completely

engulfs the previous days body.

Expected move back to Swing Low, trend


Swing Low


Bearish Engulfing

Bearish Engulfing

Clue: Divergent Stochastics

12.8%+ Gain from Signal to High in 6 weeks

What are the Clues?

What’s This?


Piercing Line

Support

Only occurs after a downtrend. Must

open below and close more than ½

way up preceding candle.

Expected move back to swing high,


Swing High


Piercing Line

70%+ Move from Signal to High in 2 Months

Piercing Line

Clue: Oversold Stochastics

What are the Clues?


Dark Cloud

ResistanceOnly occurs after a uptrend. Must

open above and close more than ½

way down preceding candle.

Expected move back to swing low,


Swing Low


Dark Cloud

-9% Drop from Signal to Low in 2 days

Dark Cloud

Clue: Weak Stochastics

What are the Clues?


Bullish Harami

Only occurs after a downtrend. Body inside


One of the most powerful signals

Only Two Clues Needed




Swing High


Bullish Harami

13%+ Gain from Signal to High in 4 Weeks

Bullish Harami

Clue: Oversold Stochastics Turning Up

What are the Clues?


Bearish Harami

Swing Low

Only occurs after a Uptrend. Body inside


One of the most powerful signals


Only Two Clues Needed

Expected move back to swing low, trend lines

or moving averages


Bearish Harami

-20% Drop from Signal to Low in 5 Weeks

Bearish Harami

Clue: Divergent Stochastics Turning Down

What are the Clues?


End of Part 3


Kicker Signal


• Rare but very powerful

• 2 Day Pattern

• Investor Sentiment:• Bullish Kicker: Downtrend, a capitulation like move down, followed the next

day by a gap up move

• Bearish Kicker: Uptrend, Exhaustion move up, followed by a gap down move the next day

• Strong Reversal Clue: Clues Needed Two

Kicker

Swing High 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


Kicker—Bullish

19%+ Gain from Signal to High in 18 Days

Bullish Kicker

Clue: TSI & MF

What are the Clues?How Many Are Needed?


Bearish Kicker

Swing Low

Only occurs after a uptrend. Can follow

exhaustion gap up.

Very Powerful Signal

Next day opens down with a gap

Expected move back to swing Low, trend lines or

moving averagesGap Down


Kicker—Bearish

-66%+ Drop from Signal in 28 days

Bearish Kicker

Clue: TSI & MF

What are the Clues?How Many Are Needed?


Doji Sandwich


• Very Powerful

• 2 Day Pattern—Bullish or Bearish

• Investor Sentiment:• Bullish: Strong move up and a pause with a doji then a new strong move

• Bearish: Strong move down and a pause with a doji then a strong move down

• Strong Clue: Clues Needed Two

Doji Sandwich Bullish

Uptrend Underway

Doji forms after a large bullish candle

Next day forms a doji

If prices open up the 3rd day will likely move

an equal distance as day 1

Doji


Doji Sandwich Bearish

Swing High

Doji


Down Trend Underway

Doji forms after a large Bearish candle

Next day forms a doji

If prices open down the 3rd day will likely

move an equal distance as day 1

Doji Sandwiches

Bearish DS


Bullish DS

End of Part 4


Live Examples

GO to the Charts!!


Clarify, Simplify & Multiply

T h i s h a s b e e n t h e M o t t o o f A c t i v e T r e n d T r a d i n g f r o m t h e b e g i n n i n g !

W e c o n t i n u o u s l y w o r k t o C l a r i f y & S i m p l i f y t h r o u g h r e f i n e m e n t s t o t h e s y s t e m t o m a k e i t o b j e c t i v e a n d e a s y t o b o t h l e a r n a n d u s e .

T h e p u r p o s e o f a l l p r e s e n t a t i o n s i s t o p r o v i d e o u r f e l l o w A c t i v e T r e n d T r a d e r M e m b e r s a j u m p s t a r t t o a c c e l e r a t e p r o g r e s s u p t h e L e a r n i n g C u r v e .

W e w e l c o m e s u g g e s t i o n s o n h o w t o i m p r o v e t h e l e a r n i n g p r o c e s s !

T r a d e W i s e l y & P r o f i t a b l y ,

D e n n i s W. W i l b o r n

F o u n d e r & L e a d Te c h n i c a l A n a l y s t

candlestick patterns just the ones you need!

Documents