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Nison Candlestick Summit – Day 2
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The Candlestick SummitReaching the top levels of Nison
candlesticks- Day 2
Small real body inside an unusuallylong white real body.
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BASIC CRITERIA• Two session pattern
• Market in uptrend, but trend not critical
• First candle unusually long white candle
• Second candle is much smaller than 1st
candle (about 25% or less).
• 2nd candle can be the same- or oppositecolor- of first candle
• 2nd real body is within 1st candle’s real body
PATTERN PSYCHOLOGYThe indications based on the tall whitecandle’s vitality is for the rally to continue,But next session’s gap down and then failureto resume the advance to beyond the priorsession shows those who had forecaststrength are wrong! The rally could now berunning out of fuel.
SUPPORT/MOMENTUM TRADING
• Not used as resistance (unless 2nd
candle is reversal signal (i.e.shooting star)
• Not used for momentum trading
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For FX, intraday and indexes can havethe same (or within 2 pips for FX) openas prior close
If the 2nd candle is a doji, the pattern iscalled a harami cross
The more the 2nd candle gets deeplyinto the white candle the better thesignal.
Because FX, etc, black can’t get deeplyinto white candle, it is best to wait forbear confirmation by a lower open orclose than black candle’s real body.
In general the less the 2nd candle getsmore into the white candle the moreconfirmation is needed.
Opposite of bullish harami
FX Pattern
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Bear Harami
Not BearHarami
Because theseare near thehighs of theprior candlewould wantbear candle
confirmation
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Confirmation important in FX
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Black candle that opens higher and thencloses more than halfway into priorwhite real body.
BASIC CRITERIA• Two session pattern
• Market in uptrend
• Open of black candle higher than prior close
• Black candle closes into white candle
STRICT CRITERIA• Black candle closes more than 50% into white
real body
• Black candle opens above prior high
• Tall white and black candles
PATTERN PSYCHOLOGYWhite candle and then gap higher keeps bullshappy. But with black candle finishing wellbelow white candle’s close the “upwardenergy has cooled to the extreme” causingthe bulls to become concerned and bearsbolder.
SUPPORT/MOMENTUM TRADING
• Highest high of both candles asresistance
• Consider buying on breakout overhigh of pattern
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For FX, intraday and indexes can havethe same (or within 2 pips for FX) openas prior close
If the black candle doesn’t get morethan ½ way into white it is called an“incomplete dark cloud cover” and it isbest to wait for bear confirmation.
The more the open on black candlegaps away from the prior high/closethe better the pattern (for non FX).
Opposite of piercing patternFX Pattern
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Is it a valid Nison Candlestick Signal?
?
?
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Dark Cloud Cover defines Resistance
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Dark Cloud Cover at resistance
Why is thisnot a bullishengulfingpattern?
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Dark cloud rains pain for the bulls
Think thereis trouble
near $410?Happy time forthe bulls- new
high close!
“Oh crap!”
Dark Cloud Cover
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Dark Cloud Cover and momentum
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Dark Cloud Cover
Not dark cloud cover
Chart courtesy of Genesis FT
Is this tellingyou that there
is a shift inpsychology?
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BASIC CRITERIA• Trend not important
• White candle followed by black candle thatopens within white real body and closesunder prior open.
BASIC CRITERIA• Trend not important
• White candle followed by black candle thatopens within white real body and closesunder prior open.
STRICT CRITERIA• Both long real bodies
• 2nd candle closes under prior low
• Black real body closes at, or near, its lows
PATTERN PSYCHOLOGYThe white candle means the bulls are runningthe show. And then the next session themarket gaps lower and is not only unable tomake it this lost ground, but closes under thewhite candle. This shows the bullish energyhas been sapped out of the market resultingin very scared bulls.
SUPPORT/MOMENTUM TRADING
• Highest high of both candles asresistance
• Consider buying on breakout overhigh of pattern
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Since the market has to gap lower thispattern not applicable to FX.
The more the market gaps down on theopen and the lower the close on theblack candle the more meaningful thepattern
Keep in mind risk/reward since thispattern is completed after substantialmove has already occurred.
Opposite of Bull Sash pattern
If open of black candle is same (orlower) as prior open, it is a BearishSeparating Line.
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Bear Sash
Bear Sash
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Bear Sash
Bear Sash
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Being a Market Chameleon
Bull Sash
Bear Sash
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White candle followed by black candlethat opens at (or below) prior open. Thencloses under black candle open.
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BASIC CRITERIA• Trend not important
• White candle followed by black candle that opens at(or below) prior open. Then closes under whitecandle’s open.
STRICT CRITERIA• Both long real bodies (rare)
• Black real body closes at, or near, its lows
PATTERN PSYCHOLOGYWith the gap down on 2nd day the bulls sensedanger. And then to make matters worse for them,the market can’t even make up for the ground loston the opening. The tide of the market momentumhas now turned down.
SUPPORT/MOMENTUM TRADING
• Highest high of both candles asresistance
• Consider buying on move abovehigh of pattern
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Easy way to remember this pattern isthe opens are the about the same (orthe 2nd candle open gaps away from 1st
candle’s open.)
Since the market has to gap lower thispattern not applicable to FX.
Major challenge with this pattern issince it is completed after substantialmove, could mean poor risk/reward.
Opposite of Bull Separating Pattern
If open of black candle is within priorwhite real body, it is a Bear SashPattern.
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Bear Separating line
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Bear Separating Line
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Bear Separating line
TWEEZERS TOPTWEEZERS TOP
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Two candles that have the same lows.First candle large white.
Source: KABUSHIKISOUBA NOTECHNICAL BUNSEKI – G.Ikutaro
A blended candle is a way of “compressing” combinationsof candle lines into as if they made one candle
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open 1
close 2 =
1) Use open of the first session for open of blended candle
2) Use close of the last session of pattern for close ofblended candle.
3) Use highest high and lowest close of all sessions forupper and lower shadows of blended candle.
How do we make a Blended Candle?
think of Blended candle as a “Summary candle” of the pattern analyzed.How does this help?
1- To determine if a patternis net bullish or bearish
2- To compare variations of candlepatterns to determine the strength ofthe signal
Classic dark cloudcover
How is this non classic darkcloud cover different and whatdoes it mean to outlook?www.candlecharts.com
A falling window is resistance
ResistanceZone
Most importantresistance level
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Importance of Windows
white orblack
First candle long white, second candle small real body, and thirdcandle is black that gets deeply into first real body.
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FX
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Candles in Context
Evening Star
Morning Star
Would youbuy here?
How abouthere?
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Abandoned Baby Top
Falling Three Methods
A series of small candles inside therange of a long black candle. The lastcandle is another long black.
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Falling Three Methods
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Falling Three Methods
Why about this fallingthree gives you extrabearish confidence?
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Three consecutive black candles,each with a lower close.
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Three Black Crows
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1. What are the reversal signals?2. Where is potential support?3. Any signals confirming support
area forecasted in #2?
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Nison Case Study
1. What are the reversal signals?2. Where is potential support?3. Any signals confirming support
area forecasted in #2?
A- Chart Challenge
What 4 bear candlesignals can you find inthe box?
Nison Case Study
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CandlestickCharting
Strategies
Candlesticks +Western
Indicators
Candlesticks + Trade Management
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East + West Confirmation
Where a candle
signal confirms a
Western technical
signal
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Candles plus Bollinger Bands……
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Crack and Snap with Volume
The arrow points to a “Snap and Crack”. Whatdoes volume do to increase the likelihood of thistechnique working?
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At the arrow we see a doji.1) What is the volume on this doji telling us about the supply/demand situation?2) What 2 candlestick signals in August give us a clue that there was support at the doji?3) Although the doji was holding a support area, what happened on the day of the doji that would keep the short
term trend down? Based on this, what would we need to see to give bullish confirmation of that support area?
Nison Case Study
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Using NCS and candles to confirm resistance
Why wasn’tthis windowmy 1st
support ?
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With Nison Candle Confirmation – long put at resistance
5 days later mkt @21, 20 put @ .26
mkt @22.50Buy 20 put @.70
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Candles and the ADX:The Perfect Fit
Candles and the ADX:The Perfect Fit
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Stands for Average Directional Indicator
Shows how strongly a market is trending
Does not show direction of trend
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Strong ADX withprices in up trend. Strong ADX with
prices in down trend.
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2
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Some technical indicators, such as moving averages,momentum trading, work better in stronglytrending markets.
Some technical indicators, such as oscillators, workbetter in non trending markets.
Traders check ADX to see if the technical indicatorthey use is in right trend environment
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Use only on daily charts –except for FX
Use only for entries
Lagging indicator
Slow to recognize a new trend
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Steve-
Apple has recently gone from 120 to 150 and the ADX on a daily basis
has not moved up. This is surprising. Comments? - Pete
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Common mistake- lookingat ADX level.
Slope is the key
Slope=change in ADX fromyesterday to today.(today’s ADX level-yesterday’sADX level)
Greater the slope, strongerthe trend
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-.31
ADX at 20.64.What do we need todetermine the slopeon this day?
ADX at 20.96
Slope = 20.64-20.96 = -.32
ADX 22.04
ADX 24.11
Slope = 24.11-22.04 =+2.07
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14 PeriodADX slopeincreasing.5 or more
ADX:22.38
ADX:20.30
ADX:26.03
Slope = +2.08
What is the slope?Strong uptrend?
ADX:27.56
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Minimum:14 PeriodADX slope+.25 orless
ADX:18.57
ADX:18.26
-.31
Strict: 14PeriodADX slopedecreasing
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Candles and ADX - The Perfect Fit
Reversal candleshelp pick top andbottoms.
Increase % by notgoing againststrong trends.
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Minimum:14 PeriodADX slope+.25 orless
Strict: 14PeriodADX slopedecreasing
Do we have to measure theADX slope on this hammer?
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Minimum:14 PeriodADX slope.25 or less
Strict: 14PeriodADX slopedecreasing
-.10-.40
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Bull shadows on descent. Butbased on ADX which of these ismore likely a turn?
ADX slopes2.24, 2.53, 2.67
Why didn’t Iput ADXnumbers forthese?
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ADX : 27.98
What candle patterns are atthe dashed arrows?
What is the ADX telling us?
ADX : 30.38
ADX : 31.80
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ADX:18.57
ADX:18.26
-.31
Strict: 14PeriodADX slopedecreasing
+.95
Minimum:14 PeriodADX slope+.25 orless
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Slope +.97
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FOR BEAR CANDLEREVERSAL SIGNALS
• Step 1 – get candlesignal
• Step 2 – ADX showsuptrend easing orno trend:
ADX slopeincreases byless than .25,and better ifslope isnegative
ADX:42.85and 41.02so slope is-1.83
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FOR BULL CANDLEREVERSAL SIGNALS
• Step 1 – get candlesignal
• Step 2 – ADX showsdowntrend easing or notrend:
ADX slope increasesby less than .25, andbetter if slope isnegative
1
2
34
5
6
ADX:1-31.972-32.673-32.484-32.455-32.536-30.23
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ADXYesterday: 27.18
Today: 28.79
What patterns were at 1and 2?
What pattern wascompleted on last candle?
On the last candle, basedon ADX what is youraction/why?
1
2
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ADXYesterday: 29.75
Today: 30.95
What pattern wascompleted today?
Based on ADX what is youraction/why? What elsewould you consider?
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ADXYesterday: 31.27
Today:30.94
What pattern wascompleted today?
Based on ADX whatis your action/why?What else would youconsider?
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+.80
+.20
1- Based on ADXwhich candleline would yousell? 1,2 or 3?
-.40
2- Based on ADXwould you buy thispiercing pattern?
3- What would you do herebased on ADX and prevailingtechnical signals (candle andnon candle)?
+.59
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What pattern did this complete?(hint look at the opening of both sessions)
What else happened on this session thatwould make you nervous from the long side?
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Candlesticks do not give price targets
Pivot Highs and Lows
Resistance Levels
Support Levels
This high is higher than thesession before and after it
This low is lower than thesession before and after it
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Breakouts- long call on retracement
Stalling at resistance.Looking for pullbackto breakaway gap
Mkt @ 428Target 448Buy 430 callStop close under window
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Candles and Price Targets
This doji takes on extra significancebecause it confirms a resistance level
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Box Range
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Trading Box Ranges
New high- let’s buy
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East and West- Measured Moves
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Box Range
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Head and ShouldersHead and Shoulders
Neckline
Left ShoulderRightShoulder
Head
Head and Shoulders Top
Sellsignal
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How Candles Put More $$$ in your Pocket
Reversal with WesternTechnique at 141
What signal did wehave here at support?
Extra profit
What was candle reversalhere at 150
neckline Interview
Head andShoulder top
TASC Interview - Jan. 24, 2003 S&P at 860
“… the heads and shoulders top on theS&P gives a target to near 775. A closeover 870 would void this.” Hammer
1) Once the neckline’ssupport is broken, itshould becomeresistance.
2) To get a target with thehead and shoulders topwe measure from the topof the head to theneckline.
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Trading on the open
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Trading on the open
CandlestickCharting
Strategies
Candlesticks +Western
Indicators
Candlesticks + Trade Management
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1. Don’t forget “candles in context”
The 10 rules of Disciplined Trading and Investing
“To know whereyou stand is asimportant as
candle patternrecognition.”
Candles in Context
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Misinformation can cost you $$$
?
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Candles in Context
Would you buyon this
hammer?
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Candles in Context
Not an ideal darkcloud cover, but??
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1. Don’t forget “candles in context”
2. If…then system
Trading with Discipline
The If…Then Principle:
• If the market does not act asforecasted then exit the position (ProtectiveStops)
• Initiate a position when the marketjustifies your potential trade (i.e. If themarket breaks above resistance, then buy.
• If the market does something differentthan before then adjust trading strategy
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Head and Shoulders Top?
If… then
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Was Head and Shoulders Top Confirmed ?
If… then
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I was thinking of buying GM for a longerterm investment and was willing to give upa few $ to buy on momentum. Where doyou think my buy area was?
When would you pull the buy limit trade?
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Momentum trade
Pulled buy stop
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1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
The 10 rules of Disciplined Trading and Investing
Protectingyour Assets
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Protective Stops keep you in the game!
Lookspromising at
the whitecandles
1
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Hammer
How Education Saves you $$$$
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You shortedhere
Nison Case Study
Whatwould youdo hereand why
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Protectingyour Assets
Protective Stops keep you in the game!
Lookspromising at
the whitecandles
1
Hammer
How Education Saves you $$$$
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You shortedhere
Nison Case Study
Whatwould youdo hereand why
Exit Strategies
Protective Stops
Time Stops
Trailing Stops
© Steve Nison’s Candlecharts.com
If the market does not act asexpected within about fivesessions then considerexiting
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Don’t Stay Around
Hammer and Bull Engulf
What are you doing hangingaround! You’re wastingprecious resources.
Chart courtesy of Genesis FT
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Trailing Stops
As the market movesin your direction –stop is adjusted tohelp ride the trend.
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“Golden” and “Dead” CrossesCompares two moving averages
GOLDEN CROSS: shorter crosses above longer DEAD CROSS: shorter crosses under longer
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Answer: 3 and 12 day
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Trailing stops - letting the profits run
Fallingwindow
“I usually exit, itcorrects somewhat butthen continues to go inthe original directionafter that.”
ShootingStar
You sold at shooting star orfalling window. A rally from abull harami gets you nervousand you exit. But you’re still
playing with the market’smoney- so another option:
trailing stop….
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Falling window
ShootingStar
Where you got nervous
Trailing stops - letting the profits run
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Letting Profits Run
Buy and setprotective stop
Shooting star
Could take someor all profits here
Or use dead crossas your trailingstop and wouldthus exit here
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Trailing Stops to let profits run
Buy and setprotective stop
Potential Target
Now at target-Doji warns of
caution. But youwant to let profits
run.
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Trailing Stops to let profits run
doji
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1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
4. Consider options
The 10 rules of Disciplined Trading and Investing
How can I boost profits even when my core markets are falling?
Nison Candlesticks for Portfolio Protection
By using Nison candlesticks for pinpoint timing entering andexiting covered calls and protective puts
www.nisonoptionsacademy
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Buy putformoveto31.50
Mkt @ 33.75 buy 32.5 put @ .80In case of move to 31.50Reached target but no reversal signals (worth 1.60)So ride it down to 30.50 at bull engulf put @ 2.25.
Nison Candle strategies for portfolio protection
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www.nisonoptionsacademy.com
Time decay (or time "erosion") is the decrease, of anoption premium's time value due to the passage of time.The rate of this decay increases as expiration approaches.At expiration a call or put is worth only its intrinsic value, ifit has any.
Time decay
“With long options timing is everything since timeis working against you.”
1. NCS finds a bearish engulfing pattern2. Set up an alert if market gets to this
resistance level
Using Nison Candle Scanner software for Options:Method 1- Set up an alert
Buy 7 day 210 put @ 2.58, exit harami @ 7.28 – 182% return
From the bear side
www.nisonoptionsacademy
Using Nison Candle Scanner software for Options:Method 2- Finding markets at key support or resistance areas
NCS saved you from 8days time value decay
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1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
4. Consider options
5. Is any news expected?
The 10 rules of Disciplined Trading and Investing
Stay Awayfrom theTrade
1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
4. Consider options
5. Is any news expected?
6. Prevailing trend
The 10 rules of Disciplined Trading and Investing
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Prevailing Trend
20 day m.a over50 day m.a and bothsloping up
1) Connect to data feed
2) Set up and save Western template chart with your favoriteindicators
3) Set up and save NCS market analyzer with row filterNCS all offNCS bullNCS bear
4) Determine trend of overall market
5) Have both market analyzer and western template chart open sideby side
6) Based on trend of overall market using NCS on market analyzer toscan for bull or bear signals.
7) Based on scan put that market into Western chart template
8) Analyze to determine if good trade or not
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1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
4. Consider options
5. Is any news expected?
6. Prevailing trend
7. Let the market tell you what to do
The 10 rules of Disciplined Trading and Investing
www.candlecharts.com
The low of thebullish engulfingpattern assupport. Oncehammer is formed(at the arrow) wethen adjust oursupport
Adapting
1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
4. Consider options
5. Is any news expected?
6. Prevailing trend
7. Let the market tell you what to do
8. Indicators – the more the better
The 10 rules of Disciplined Trading and Investing
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The Multiplier Effect
Where a Nison candle signal confirms another indicator
Two hammers picked up with NCS software at small arrows andboxes (Note: only “hammer” was turned on in NCS)
1) Why is the line at the big arrow at b not a hammer?
2) Even though the candle detailed above is not a hammer, whatbullish signs are there ala’ shadows and real bodies at a,b and ctelling us?
3) What warns us of trouble at about d,e and f?
4) Would you buy at either of the two valid hammers? Why or whynot?
a
b
c
de f
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Nison Case Study
1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
4. Consider options
5. Is any news expected?
6. Prevailing trend
7. Let the market tell you what to do
8. Indicators – the more the better
9. Never trade in the belief the market is wrong
The 10 rules of Disciplined Trading and Investing
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1. Don’t forget “candles in context”
2. If…then system
3. Stops – always use them
4. Consider options
5. Is any news expected?
6. Prevailing trend
7. Let the market tell you what to do
8. Indicators – the more the better
9. Never trade in the belief the market is wrong
10. Examine risk-reward
The 10 rules of Disciplined Trading and Investing
www.candlecharts.com
1. What is your price risk?
2. What is your target?
Do you havea good
risk-reward?
Always Check Risk – Reward
www.candlecharts.com
Risk/Reward
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Which is a better sale? Part 1
Scenario 1 Scenario 2
Scenario 1 Scenario 2
Which is a better sale?- Part 2
Scenario 1 Scenario 2
Which is a better sale? Part 31
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www.candlecharts.com
Which is a Bettertrading signal?
www.candlecharts.com
Dark Cloud Cover
BearishEngulfingPattern
Risk/Reward
www.candlecharts.com
Tell me about this signal re: candle signal, westernsignal (hint- look at recent lows).Would you go long on this signal? Why or why not?
Nison Case Study
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What would you do and why?
Bull engulf at support- poor risk/reward
but can do this tradewith a special option
strategy
www.nisonoptionsacademy
Nison candlesticks for option strategies
Don’t forget “candles in context”
If…then system
Stops – always use them
Consider options
Is any news expected?
Prevailing trend
Let the market tell you what to do
Indicators – the more the better
Never trade in the belief the market is wrong
Examine risk-reward
Trading with Discipline
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Trading Journal
Goal: Keeping emotionsout of your trading
Date, market, $ amount committed Why did you do the trade Entry Price Risk Initial Target Exit Price Analyze Trade
Print out (or cut and paste) chart and make notesWhat did you do right/wrong
Date, market, $ amount committed Why did you do the trade Entry Price Risk Initial Target Exit Price Analyze Trade
Print out (or cut and paste) chart and make notesWhat did you do right/wrong
www.candlecharts.com
Trading Journal - Setting up the Trade
Entry Price
Risk
Initial Target
Why did you do the trade?
www.candlecharts.com
Trading Journal - Analyzing the Trade
Entry Price
Risk
Initial Target
Why did you do the trade?
Exit Price
Analyze the trade
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www.candlecharts.com
Entry Price
Risk
Initial Target
Why did you do the trade?
Trading Journal - Setting up the Trade
Support from a few months ago
www.candlecharts.com
Trading Journal - Analyzing the Trade
Entry Price
Risk
Initial Target
Why did you do the trade
Exit Price?
Analyze the trade
www.candlecharts.com
Trading Journal - Analyzing the Trade
Entry Price
Risk
Initial Target
Why did you do the trade
Exit Price
Analyze the trade
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Steve recommends:
What would you do and why? Part 1
What would you do? Part 2
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What would you do? Part 3
What would you do? Part 4
What would you do? Part 5
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Putting it all TogetherTrading ChecklistTrading Checklist
Use NCS to find and confirm a valid Nison candlestick signal
Does candle confirm Western signal (i.e. ADX,support/resistance, volume, or any of your favorites)
Check longer term trend
Is any news coming out?
Determine risk/reward (remember many of the candlesignals can be used as a protective stop)
Monitor trade (i.e. time or trailing stops, change in technicalpicture, etc)