candlestick patterns - anton kolhanov patterns.pdf · how to trade candlestick patterns anton...

How To Trade Candlestick Patterns ANTON KOLHANOV

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ANTON KOLHANOV

Candlestick

Patterns


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TRADING RISKS WARNING

Trading at Futures market, Forex market, and other stock markets is a risky business. Anton

Kolhanov and “Kolhanov” company thereby cannot make any guarantees that the information

you receive from this training course will produce trading profit for you personally (due to many

uncontrollable variables such as individual attitude and ability) or for anybody else. Information

provided in this course does not constitute a complete trading system. As some crucial parts of a

trading system are covered, it can serve as an addition to your own trading system. Course

author, Anton Kolhanov, and “Kolhanov” company take no legal or financial liability for the result

of using the provided information in your trading.


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CONTENTS Pages:

5. Candles

8. Footprint chart and candles

15. Candle models

15. Thinking candle

23. Survival candle

31. Disappointment candle

39. Destruction candle

43. Analyzing the market with candle models

48. Complex interaction of candles with other types of market analysis

48. Trend channel

50. Chart patterns

52. Support and resistance

54. Volume/order flow analysis. Footprint and volume profile


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COURSE SYNOPSIS

chart 1


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CANDLES

1

Candle is a tool that displays a range of price change over a specific time period: week, day, hour,

minute (it can be anything, depending on your choice).

Candle’s shadow shows the maximum and the minimum price of a range.

Opening price shows the price at the time candle was opened (for example, in a daily candle this

price is the opening price of the day, weekly – week, hourly – hour).

Closing price shows the price at the time candle was closed (day, week, hour respectively).

How this data can be used and why is it important?


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2

CONSIDER THIS GREEN CANDLE

Point 1: candle opening price;

Point 2: maximum;

Point 3: candle closing price.

Through these points you can see the path that the price made in 1 day (for a daily candle). The

upper shadow has a size of 50% of the candle’s body. This shadow was formed by the fact that

buyers pushed the price up from point 1, then they reached a peak price at point 2, and at point

2 the sellers intercepted the initiative and returned the price to point 3. That is, the distance

between points 2 and 3 = range of sellers, these are the prices at which sellers are gathering and

putting downward pressure on the price.

When we see the range of candle prices change, we know prices where buyers and sellers are

located, and accordingly we can use these prices as support/resistance as well as levels to open

deals after they break into one or another the side.

RED CANDLE

The day opened with buyers pushing the price up from point 1 towards the peak price at point 2,

after which the initiative was intercepted by the sellers and they continued to prevail over the

buyers almost until the minimum price of the day settled in point 3.


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Inverted candles example

3

Look at the red candle in this example. The higher the closing price was relative to the lower

shadow and 50% of price range (high–low), the stronger the buyers prevailed over the sellers.

In order to understand the nature of candle formation let’s examine examples using

footprint/volume profile chart tools – volume analysis of the market.


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FOOTPRINT CHART AND CANDLES

v1

You can see the volume/amount of completed deals on each price next to the candle. Let’s take

a closer look.


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v2

Above the candle closing price, between points 3–4 you can see a large volume cluster, and a

small one between points 2–4. This suggests that between points 2–4 sellers have lost their

power and buyers intercepted the initiative.

At the same time, we see a large volume cluster between points 3–4 and the candle closed

below it (this is a daily candle), which means that sellers prevailed in the range of 3–4. The

closing price of a candle is a consensus between sellers and buyers – the balance price.

Large volume cluster constitutes the volume area (definition from volume analysis) and when

the price leaves this area, a trend begins because one of the parties prevails over the other and

establishes domination until a new volume area is formed or, more simply, until

correction/consolidation/sideways trend emerges.

Let’s examine the situation when the price leaves the volume area in greater detail, returning to

the previous chart


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v1

So, the candle formed a price range, in which the volume area with a cluster of sellers served as

resistance. The next day, green daily candle breaks the volume area, after which an uptrend

begins. In this trend, after a small correction, the market returns to the break price, which now

turns into support, and the uptrend continues from it after a rebound.

Consider one more example:


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v4

Follow the logic from point to point:

Point 1. At this price the candle was opened, and then it reached point 2;

Point 2. The minimum price of the day from which the market went upwards to point 3. Since

the previous candle was green, buyers continued to dominate from the day opening, trying to

keep moving the price up;

Point 3. The market made a sharp turn down from here towards point 4, and the sellers

prevailed during the price was moving;

Point 4. Because the closing price of the candle was below the largest volume range – sellers

prevailed between points 3-4. As a result, the price of point 4 is very close to point 2 and much

farther from point 3.

Volume range in the candle shadow between points 3-4 is the range of strong sellers, and it will

serve as resistance for all subsequent candles that are going to stay in this range.

Consider an example with subsequent candles interacting with this range of sellers:


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v3

Upon reaching candle shadow high, from where powerful sellers entered the game, the market

rebounded – this price acted as a strong resistance. As for candle low, it acted as support,

because the candle did not close below it, which means the sellers failed to overcome buyers in

the range of points 2-4 prices. This proves that powerful buyers were there. After the buyers’

support got broken downwards (candle low), a downtrend has started.

Consider example with another candle shape, and let’s scan it with an x-ray through a footprint

chart:


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v6

We have a completely upward candle from the time of price opening until close – buyers

prevailed in the entire price range. Looking at the volume, we see 3 convex zones of the volume

area (VA), in which buyers and sellers were competing. When the market returns to the VA

zones, it rebounds from the bottom up – so these zones act as supports. Just by looking at one

green candle without volume, it is hard to tell exactly where support levels are located, but with

the footprint the picture becomes more clear. Even if we do not use the footprint in our charts,

we already know that somewhere in this very strong bullish candle there are ranges of powerful

buyers.

Now consider this candle in relation to subsequent ones:


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v7

First, this strong green candle of buyers completely absorbed the previous red candle of sellers

and it is very important to understand this as part of a comprehensive analysis of candles, which

we will discuss later.

Second, if we look at a lesser time frame, how the hourly candles behaved at the time of

reaching the VA zone where buyers are located, we see that most of them rebounded from this


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range with very long shadows. That is, we are seeing the same candle shape that we saw above,

which means that powerful buyers are contained in such candles, who begin to push the price up

when the market reaches VA price of powerful buyers relative to the daily candle.

In order to learn how to perform complex analysis of the market using candles, first it is

necessary to study known candle models.

CANDLE MODELS I decided not to use the Japanese names of candles, as they are difficult to understand and

remember. Instead I came up with my own names, which simply and clearly reflect the essence

of each candle.

THINKING CANDLE

04

Thinking candle is a candle with a smaller body and shadows relative to previous candles. In the

range of this candle, the market goes into a consolidation/correction state, when it is waiting for

the trend to continue or reverse in the opposite direction. When the price range of this candle

gets broken, we get a signal of trend continuation or reversal.


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Inverted model (downtrend):

05

“Thinking” candle variations (uptrend):

06


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1. Upward candle;

2. Downward candle;

3. Candle with rather large shadows in respect to its small body. At the same time, these

shadows are very small relative to the body and the shadows of the previous candles.

Inverted model (downtrend):

07


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Real life examples:

t1

t2


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t3

In this example, two thinking candles formed the price range, where its lower boundary acted as

support, and the upper one as resistance. When resistance got broken upwards, a downtrend

reversed and turned into an uptrend.

t4

Here we can see a larger cluster of candles, where the break of their lower range caused the

continuation of the downtrend.


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t5

t6


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t7

t8


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t9


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SURVIVAL CANDLE

Trend reversal model Uptrend

010

Downtrend

011


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Survival candle – the market attempted to reverse the trend in the opposite direction and failed,

which resulted in a large shadow of the candle. The winners in the shadow’s range were buyers

(in the case of an uptrend) or sellers (downtrend), and the closing price was near the opening

price.

Basically, the market has managed to keep the current trend, but the candle behavior hints that

there was a very clear and powerful attempt to reverse the trend in the opposite direction. The

trend survived this time, but it’s not guaranteed that the next day (in subsequent candle) the

trend will be kept and not reversed.

If this type of candle is formed after the free movement at the market, it is more likely that the

trend will reverse, and this will happen if candle low gets broken downwards (at the time of

uptrend) or high gets broken upwards (at the time of downtrend).

Trend continuation model:

Uptrend

012


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Downtrend

013

If during formation of this candle it pushes off another candle model by its shadow – this candle

will continue the trend.

Real life examples:

s1


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s2

s3


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s4

s5


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s6

s7


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s8

s9


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s10


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DISSAPOINTMENT CANDLE

Trend reversal model Uptrend

014

Downtrend

015


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Disappointment candle is formed when the market no longer has the strength to continue the

trend or there is a sudden presence of powerful sellers (in the case of an uptrend), which

intercept the buyers' initiative, thereby disappointing buyers in attempts to continue the

uptrend. Previously dominant side of the market, which formed the trend, was disappointed in

the prospects for its further continuation.

Trend continuation model Uptrend

016

Downtrend

017


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It is characterized by the formation of several disappointment candles, the shadows of which are

at about the same price level, and the trend continues its development after that level gets

broken.

Real-life examples:

d1

d2


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d3

d4


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d5

d6


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d7

d8


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d9

d10


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d11


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DESTRUCTION CANDLE

Uptrend and downtrend examples

018

Destruction – this candle destroys the previous trend by the fact that its body closes below the

body of the previous candle (in the case of an uptrend), thereby showing us that the number and

volume of red candle sellers are so large that they completely absorb the volume and strength of

green candle buyers.

When the green candle low price gets broken, we have a sell signal, and the price range of the

red candle body is the resistance zone.


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Real life examples:

ds1

When the price gets back to the price range of the destruction green candle body, it receives

support from buyers contained within this body.

ds2


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ds3

In this example, two zones of resistance/support are formed by the red and the green

destruction candles. While the market was staying within these zones, it went up and down from

one level to another until it went beyond this range boundaries, after which the uptrend has

started.

ds4


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ds5

ds6


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ANALYZING THE MARKET WITH CANDLE MODELS

c1

c2


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c3

c4


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c5

c6


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c7

c8


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c9

Supports become resistances and vice versa

In the examples above you can notice that if the price breaks a resistance level upwards – then

this level turns into support later. If the price breaks a support downwards – it becomes a

resistance after that.


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COMPLEX INTERACTION OF CANDLES WITH OTHER

TYPES OF MARKET ANALYSIS

TREND CHANNELS

as1


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Chart above is weekly, chart below is daily.

On the weekly chart, we have an uptrend channel, where a disappointment candle was formed

at the very top. This candle hinted us that powerful sellers had entered the market and we could

already assume that:

1. The market will return to the lower trend boundary, so we can sell with the target set at the

boundary;

2. Uptrend channel will be broken with the subsequent development of a downtrend, so you can

place a long-term sell deal with the target set at $45, with subsequent sell upon the trend

channel gets broken.

Disappointment candle helped us to see the high potential of the trend reversal in advance.

Assistance from lesser time frame (daily)

SELL 1

Look at the daily chart, at point 1 we see that disappointment candle of the weekly chart was

confirmed by the formation of a destruction candle on the daily chart – that is, we are already

more confident in assumption that powerful sellers did enter the market and we could open a

sell deal at more exact prices.

SELL 2

We may open the second sell deal upon the market goes beyond the destruction candle range.

SELL 3

We also have an upside daily trend channel, after breaking of which we open the third sell deal.

Looking at the candle models: disappointment from the weekly chart and destruction from the

daily, we are already confident that the daily uptrend channel would be broken downwards,

because with the help of candles we got 2 confirming signals of trend reversal, and we saw the

point where powerful sellers entered the market.

SELL 4

Upon the break of weekly trend channel, we may open the fourth sell deal and, similarly to sell 3,

we are already confident that the weekly trend channel would be broken downwards.

Thus, by analyzing candle patterns, we can have a greater confidence when deciding which of

the parties currently prevails at the market (buyers or sellers), and get confirming signals of

trend reversal in advance, before the trend channel gets broken.

Learn how to trade with trend channels in lesson “Trend channel, line, waves” available here:

https://kolhanov.com/trading-training-course/trend-channel-and-line/

https://kolhanov.com/trading-training-course/trend-channel-and-line/


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CHART PATTERNS

as2


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On the daily chart (above), we see the “double bottom” pattern, and there are 3 disappointment

candles in its left and right shoulders. The first candle, at point 1, created support at the price of

47.10. When the market returned to it and bounced off, it again formed a disappointment

candle at point 2. This candle formed a trading range indicated by red vertical lines.

On the lower H4 graph at point 2 we can also see the formation of a disappointment candle,

which confirms a rebound from support at 47.10, but the market did not go above the range of

the daily candle, as it rested against resistance there.

At point 3 we can see the formation of a disappointment candle again on the daily chart, but at

the same time on H4 we have a destruction candle, which confirmed the rebound from the

support of 47.10 long before the daily candle completed its formation. Thus, at points 2 and 3,

we found proof that the daily “double bottom” reversal pattern has finished forming its right

shoulder, which helped us to predict the break of this pattern upwards with the potential for

market upside to level 52.

BUY 1

Upon rebound from support 47.10 after H4 destruction candle was closed.

BUY 2

After going beyond destruction candle range.

BUY 3

After going beyond the red disappointment candle’s resistance price range at the daily chart.

BUY 4

Upon the daily “double bottom” pattern got broken upwards.

So, by means of candle analysis, we were able to determine the end point of the “double

bottom” pattern in advance and open a lot more deals along the trend than just one deal upon

the pattern break.

However, candles alone are not enough for it to work. Without proper knowledge on pattern

shapes and conditions that should be observed for their correct drawing that avoids false breaks,

you are left in the dark – in a sense that you don’t know which exact pattern the market is

trading in, and at what points it is right to open additional deals. As such, you won’t be able to

devise a trading strategy like the one shown in this example. Learn how to trade chart patterns in

this lesson by clicking the link:

https://kolhanov.com/trading-training-course/chart-patterns/

https://kolhanov.com/trading-training-course/chart-patterns/


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SUPPORT AND RESISTANCE

as3

On the weekly chart (above), we have strong levels of resistance and support. At point 1, the

market rebounded from resistance 53.20 (trend reversal on the lesser time frame) with the

lowering target set at support level 44.20.


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To confirm the trend reversal from the resistance, see which candle patterns could be formed at

the daily chart (below). We see that a model of thinking candles cluster was formed (point 1),

where after the break of their lower boundary in the form of local support, the market

confirmed a rebound from the resistance of 53.20 and began to develop a downtrend with the

lowering target set at support level 44.20 towards point 2.

When support (point 2) was reached, we could close the deal either exactly at it, at a price of

44.20, or wait for a signal confirming the end of the downtrend. Such a signal was found in the

formation of a disappointment candle, where the break of its trading range (local resistance)

confirmed the completion of the downtrend, after which we could close the sell deal.

At the same time, this disappointment candle became a signal of an uptrend starting, and its

trading range became the level of support, where at the same time a key support is located at

the price of 44.20. We could buy either from 44.20, or upon the break of the disappointment

candle trading range (local resistance) upwards, anticipating further development of an uptrend.

Candle models only point at a fraction of the possible levels of support/resistance. There is a

separate system for more precise detection of these levels, including the possibility of strategic

market forecasting and trading by support/resistance levels, which you can explore by clicking

the link:

https://kolhanov.com/trading-training-course/support-and-resistance-levels/

https://kolhanov.com/trading-training-course/support-and-resistance-levels/


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VOLUME ANALYSIS

FOOTPRINT/VOLUME PROFILE

as4

The most accurate tool for determining the price where buyers and sellers are located is the

volume. Volume allows you to look inside the candle (footprint style), even a minute candle or

10-second one. By means of volume analysis, you can expand the chart over several time frames

and determine the trend reversal point with a surgical precision up to one tick, thereby

minimizing the risk/profit ratio, opening a deal with the maximum lot, maximizing the profit and

minimizing the loss.

If you use only candles disregarding volume, the stop loss can be 50 ticks and more (depending

on the time frame), and if volume is included it can be reduced to 5-10 ticks.

Example of trading by volume analysis with delta:


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as5


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We have a pair of two-minute “before and after” charts including volume profile + delta. At point

1, a large green delta formed, showing the area of limit orders cluster made by sellers – a strong

resistance, from which we assume the market to revere.

At point two (chart below), we see a maximum growth of the red delta, which shows a very high

activity of market sellers, who, with the volume of their transactions, seized the initiative from

buyers – sell confirmation zone. As the market goes below the red delta, we have a sell signal.

To conclude, using volume analysis, a trader can determine the point of entering the market with

the utmost precision, and you can learn how to do it by clicking the link:

https://kolhanov.com/trading-training-course/order-flow-volume-analysis/

Visit my website to find more tutorials as well as free forecasts for all markets: https://kolhanov.com/

Subscribe to my YouTube channel and follow me on social media to never miss my

trading forecasts: YouTube

https://www.youtube.com/channel/UCNfrcsiNM9KXwtH8IGQBwhw/videos

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candlestick patterns - anton kolhanov patterns.pdf · how to trade candlestick patterns anton...

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