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  • The Art & Science of

    Active Trend Trading

    CandlesticksLooking for U-Turns

    Copywrite ATTS 2007-2015 1

  • 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.

    Dont trade with money you cant afford to lose. This is neither a solicitation nor an offer to

    Buy/Sell 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 personal capital.

    All Materials Copyrighted ATTS 2007-2015

    Disclaimer

    Copywrite ATTS 2007-2015 2

  • Big Part of Convergence of Clues?

    Establishing the Convergence of Multiple Clues provides objective measurements for trades with improved probabilities

    Provides greater understanding of expectations

    Helps Minimize Risk & Maximize Profit

    Todays Objective: Provide a simple means of grading potential set ups before pulling the trigger! Combining the clues of candlesticks, support/resistance, momentum and moving averages

    Copywrite ATTS 2007-2015 3

  • Primary & Best Clues that Must Converge for a

    Higher Probability Trade

    Price Related Clues: Major Clues

    Horizontal Support Zones

    Horizontal Resistance Zones

    Trend Lines

    Flag Lines

    Moving Averages for Trend

    Moving Averages for Support

    Moving Averages for Resistance

    Candlesticks

    Other Clues: Extremes on Indicators & Divergence

    Copywrite ATTS 2007-2015 4

  • Looking for Clues & Connecting The Dots

    Before taking a Bullish Reversal Signal during a Downtrend

    o At least two or three clues must converge (be observable)

    Before taking a Bearish Reversal Signal during a Uptrend

    o At least two or three clues must converge (be observable)

    During a Uptrend or Downtrend to trade in the direction of the Trend

    o At least one additional clue must converge with the candlestick pattern

    Copywrite ATTS 2007-2015 5

  • Candlestick History

    Charting method originating In Japan between the 18th century & late 1800s

    Potentially used by Japanese Rice Traders

    Introduced to Western Traders by Steve Nison in the 1990s

    Knowledge base and trading importance expanded by Steve Bigalow

    Copywrite ATTS 2007-2015 6

  • 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

    Copywrite ATTS 2007-2015 7

  • Golden Rule of Candlesticks

    Candlesticks and patterns require three criteria for

    proper interpretation:

    1. A Completed Line (Must wait for the time period to finish!)

    2. Shape of the line or pattern

    3. The Preceding Trend

    Copywrite ATTS 2007-2015 8

  • Whats the Difference?

    Bar Chart vs Candlesticks

    Open

    OpenClose

    Close

    Bullish Bearish

    Low

    High

    Copywrite ATTS 2007-2015 9

  • Copywrite ATTS 2007-2015

    Primary & Best Candlestick Signals

    There are many, many Candlestick Reversal 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

    Doji Sandwich Doji Sandwich

    10

  • The Dynamic DojiWatch for Small Bodies

    - Dojis and Spinning Tops show indecision between buyers & sellersNeither 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

    Copywrite ATTS 2007-2015 11

  • Doji/Spinning Top Bullish

    Series of Dojis at Support

    Clue: TSI Cross & Momentum Divergence

    26%+ Move from Signal to High in one month

    &

    How Many Clues?

    Would be comfortable trading this of support at $62?

    Copywrite ATTS 2007-2015 12

  • Be a Detective: Search for Clues

    12

    3

    How Many Clues?1. Series of Dojis2. Strong Support?3. Crossing & Divergent

    Indicators

    4. Break Above 8 day EMA

    Copywrite ATTS 2007-2015 13

  • Hammers & Hanging Men

    - The Basics ShapeSmall Body

    Shadow must be 2X the Body

    Copywrite ATTS 2007-2015 14

  • Hammers & Hanging Men

    Understanding what the line tell us?- Buyers Wrestled control from sellers during the trading periodbut where it appears is equally important!

    - Shows levels & zones of support and resistance

    Whats ImportantContext & Convergence

    1. Where the line formsUptrend or Downtrend?

    2. Quality of the Candlestick

    3. Magnitude/Range of the lineBigger Better!

    4. Other Clues

    5. Defining Expectations & Failure of the Signal

    R

    S

    Copywrite ATTS 2007-2015 15

  • Hammers & Hanging Men

    Quality of the Signal is determined by:

    1. Where the Line appearsHow 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

    Copywrite ATTS 2007-2015 16

  • 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

    Copywrite ATTS 2007-2015 17

  • Hammer Convergence of Clues

    AAPL 11/16/12

    Copywrite ATTS 2007-2015 18

    Note: The Follow on

    Bounces Have a Higher

    Probability of Success

    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

    Copywrite ATTS 2007-2015 19

  • Hanging Man Convergence of Clues

    TNA 5-3-11What Happened

    Copywrite ATTS 2007-2015 20

  • Poor Quality Hammer or Hammer Failure

    AAPL 10/2012

    Two Hammer examples:

    1. Too Close to Resistance of Moving Averages

    2. Appearing shortly after a new downtrend

    Copywrite ATTS 2007-2015 21

  • Poor Quality Hanging Men or Hanging Men Failure

    Two Hanging Man examples:

    1. The lower wick entry signal as never triggered

    2. Pattern just coming out of consolidationuptrend yes but new uptrend

    QIHU 4-2013

    Copywrite ATTS 2007-2015 22

  • 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. Hammerexpect testing of the wick

    6. Hammer use low of body as a stop after a break out 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

    Copywrite ATTS 2007-2015 23

  • Secrets of Trading Hammers

    Next Day Entries & Stops Hammer

    1. Self confirming signals can be entered day of signal

    Opens in WickEntry 2

    Opens in WickEntry 1

    Max Stop Any Entry

    Stop From Entry 2 or 3

    Opens above yesterdays candleEntry 3

    Copywrite ATTS 2007-2015 24

  • Secrets of Trading Hanging Men

    Next Day Entries & Stops Hammer

    1. Self confirming signals can be entered day of signal

    Opens in Top Wick

    Opens in WickEntry 1

    Max Stop Any Entry

    Opens Below yesterdays candleEntry 3

    Opens in Lower Wick

    Opens in Lower WickEntry 2

    Copywrite ATTS 2007-2015 25

  • 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

    Copywrite ATTS 2007-2015 26

  • Shooting Star

    ResistanceOnly occurs after a Uptrend. Body

    inside previous days candle

    Wick must be 2X Body

    Color of candle doesnt matter

    Expected move back to swing low,

    trend lines or moving averages

    Swing Low

    Copywrite ATTS 2007-2015 27

  • Shooting Star

    -25% Drop from Signal to Low in 5 Days

    Shooting Star

    Clue: Divergent TSI

    What are the Clues?

    Copywrite ATTS 2007-2015 28

  • Evening StarTwo Day Pattern

    ResistanceOnly occurs after a Uptrend. Body

    inside previous days candle

    2nd Down day closes at least way

    down candle from 2 days prior

    Expected move back to swing low,

    trend lines or moving averages

    Swing Low

    Copywrite ATTS 2007-2015 29

  • Evening Star

    Clue: Divergent Momentum

    Evening Star

    What are the Clues?Expectations?

    Copywrite ATTS 2007-2015 30

  • 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 lines or moving averages

    Swing High

    Copywrite ATTS 2007-2015 31

  • Inverted Hammer

    28%+ Gain from Signal to High in 6 Weeks

    Inverted Hammer

    Clue: TSI Oversold

    What are the Clues?

    Copywrite ATTS 2007-2015 32

  • Morning StarTwo Day Pattern

    Hammer Support

    Swing High Only occurs after a downtrend.

    Body inside previous days candle

    2nd up day closes at least way up

    candle from 2 days prior

    Expected move back to swing high,

    trend lines or moving averages

    Copywrite ATTS 2007-2015 33

  • 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?

    Copywrite ATTS 2007-2015 34

  • Bullish EngulfingTwo 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

    Copywrite ATTS 2007-2015 35

  • Bullish Engulfing

    Bullish Engulfing

    Clue: Divergent TSI

    12.8%+ Gain from Signal to High in 6 weeks

    What are the Clues?

    Copywrite ATTS 2007-2015 36

  • Bearish Engulfing

    Resistance

    Only occurs after a Uptrend. Completely

    engulfs the previous days body.

    Expected move back to Swing Low, trend

    lines or moving averages

    Swing Low

    Copywrite ATTS 2007-2015 37

  • Bearish Engulfing

    Bearish Engulfing

    Clue: Divergent TSI

    12.8%+ Gain from Signal to High in 6 weeks

    What are the Clues?

    Whats This?

    Copywrite ATTS 2007-2015 38

  • Piercing Line

    Support

    Only occurs after a downtrend. Must

    open below and close more than

    way up preceding candle.

    Expected move back to swing high,

    trend lines or moving averages

    Swing High

    Copywrite ATTS 2007-2015 39

  • Piercing Line

    70%+ Move from Signal to High in 2 Months

    Piercing Line

    Clue: TSI & Momentum

    What are the Clues?

    Copywrite ATTS 2007-2015 40

  • Dark Cloud

    ResistanceOnly occurs after a uptrend. Must

    open above and close more than

    way down preceding candle.

    Expected move back to swing low,

    trend lines or moving averages

    Swing Low

    Copywrite ATTS 2007-2015 41

  • Dark Cloud

    -9% Drop from Signal to Low in 2 days

    Dark Cloud

    Clue: Weak TSI & Momentum

    What are the Clues?

    Copywrite ATTS 2007-2015 42

  • Bullish Harami

    Only occurs after a downtrend.

    Body inside previous days candle

    One of the most powerful signals

    Only Two Clues Needed

    Color of candle doesnt matter

    Expected move back to swing high,

    trend lines or moving averages

    Swing High

    Copywrite ATTS 2007-201543

  • Bullish Harami

    13%+ Gain from Signal to High in 4 Weeks

    Bullish Harami

    Clue: TSI & Momentum

    What are the Clues?

    Copywrite ATTS 2007-2015 44

  • Bearish Harami

    Swing Low

    Only occurs after a Uptrend. Body

    inside previous days candle

    One of the most powerful signals

    Color of candle doesnt matter

    Only Two Clues Needed

    Expected move back to swing low,

    trend lines or moving averages

    Copywrite ATTS 2007-2015 45

  • Bearish Harami

    -20% Drop from Signal to Low in 5 Weeks

    Bearish Harami

    Clue: Divergent TSI & Momentum

    What are the Clues?

    Copywrite ATTS 2007-2015 46

  • Kicker Signal

    Rare but very powerful

    2 Day Pattern

    Investor Sentiment:

    o Bullish Kicker: Downtrend, a capitulation like move down, followed the next day by a gap up move

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

    Strong Reversal Clue: Clues Needed Two

    Copywrite ATTS 2007-2015 47

  • 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

    Copywrite ATTS 2007-201548

  • KickerBullish

    13%+ Gain from Signal to High in 4 Weeks

    Bullish Kicker

    Clue: TSI & Momentum

    What are the Clues?How Many Are Needed?

    Copywrite ATTS 2007-2015 49

  • 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

    Copywrite ATTS 2007-2015 50

  • KickerBearish

    -19%+ Gain from Signal to 100 day EMA in 26 days

    Bearish Kicker

    Clue: TSI & Momentum

    What are the Clues?How Many Are Needed?

    Copywrite ATTS 2007-2015 51

  • Doji Sandwich

    Very Powerful

    2 Day PatternBullish or Bearish

    Investor Sentiment:

    o Bullish: Strong move up and a pause with a doji then a new strong move

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

    Strong Clue: Clues Needed Two

    Copywrite ATTS 2007-2015 52

  • 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

    Copywrite ATTS 2007-2015 53

  • Doji Sandwich Bearish

    Swing High

    Doji

    Copywrite ATTS 2007-2015 54

    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

    Copywrite ATTS 2007-2015 55

    Bullish DS

  • Dennis W. Wilborn, P.E.

    Founder, President

    Active Trend Trading

    dww@activetrendtrading.com

    Ph: 808-366-0397

    - Chief Technical Analyst for ATTS

    - Leads: Bay Area Money Makers for 8 years

    - Certified Candlestick Technician

    - Co-Host Weekly Market Stock Talk Webinar Show

    - Tech Tips at Market Tech Talk Channel

    - Affiliate with Market Technician Association

    - Trading System Researcher

    - Trading stocks since 1987

    - Trading Options since 1999

    - BS of University of Texas: Aerospace Engineering

    - MSs of Cal: Civil Engineering and City Planning

    Copywrite ATTS 2007-2015 56

    mailto:dww@activetrendtrading.com