The Candlestick Summit Reaching the top levels of Nison candlesticks- Day 1

Transcription

1 The Candlestick Summit Reaching the top levels of Nison candlesticks- Day 1 Candlestick Charting Strategies Candlesticks + Western Indicators Candlesticks + Trade Management Approximate Time Line Day Neutral and Bullish Advanced Candlesticks Break 10:15 Lunch Advanced Bear Candlesticks Break 2:15 Day Candlesticks + Advanced Western Indicators Break 10:15 Lunch Candlesticks + Advanced Trade Management Break 2:15 Note: will be interspersing using Nison Candle Scanner throughout the session 1

2 THE 3 CHALLENGES 1. When to Enter 2. When to Exit 3. Which Markets Solution: Use Software to Quickly Find a Watch List Contact Paul for info Steve Nison s Candlecharts.com 2

3 Any trader who relies on candlestick charting will find [NCS] a fast, flexible, and efficient tool that could add to their trading effectiveness I was quickly and easily able to implement all of the features of the NCS software. And that it was coupled with the free Ninja Trader was especially helpful. NCS saves time for quicker and timelier analysis potentially leading to better trades, fewer losses, and more profitability. A tool such as this that provides quick and accurate analysis is a trader s dream. Mark Kowalkowski 3

4 INTRODUCING STEVE NISON S 360 CANDLE ANALYSIS New Nison Insights New Strict criteria of a candle signal New Candles as support/resistance New Pattern in FX and non FX New Price confirmation of a candle signal New Momentum trading with candles New Detailed psychology behind each signal BASIC CRITERIA Open and close the same (or within a few cents or pips) Market trending up or down Also called a cross Doji in a rally called Northern doji Doji in a decline called Southern doji A time to wait without a position in the market PATTERN PSYCHOLOGY For a sustainablerally market has to be pushed up - a doji shows the bullish momentum has now been curbed. The bulls now become concerned with this lack of sustained strength. Markets can sink of their own weight (i.e. don t need sellers to pull markets lower- lack of buyers will do that) a doji hints buyers are now starting to absorb supply. The market is at a delicate turning period and could go either way. 1 4

5 If early in uptrends/downtrends, or middle of a box range doji not important Doji and Prior Move Is the market overextended at these doji? This doji is showing a shift in psychology since it comes during a rally Is this doji telling us there is something different about the market? 5

6 Doji in a Box Range Nison Case Study If flat, whatwouldyou do at doji lines at 1,2 and 3 and why? Chart courtesy of Genesis FT This doji is showing a shift in psychology since it comes during a rally Is this doji telling us there is something different about the market? 6

7 If early in uptrends/downtrends, or middle of a box range doji not important Spinning tops and doji could be just a pause to a continuing trend The pause that refreshes? If early in uptrends/downtrends, or middle of a box range doji not important Spinning tops and doji could be just a pause to a continuing trend Don t forget shadows 7

8 Analyze shadows. Interpretation will differ on the type of upper and lower shadows. Center Doji = Equal length shadows Most classic doji where bulls and bears are in balance Upper Shadow Doji: Unsustainablebuying strength Lower Shadow Doji: Some buying strengthleftin themarket Source: Kabushiki Keisen no Mikata Tsukaikata Toshika No Tame No Senryakuzu- Kichitaro Kisamori If early in uptrends/downtrends, or middle of a box range doji not important Spinning tops and doji could be just a pause to a continuing trend Don t forget shadows Confirmation is important since market at tipping point. Confirmation Two Kinds of Confirmation East + West Price Confirmation 8

9 Price Confirmation Using a move after the initial candle signal to validate signal Can be a close (or open) above (for bull candle signal) or below (for bear candle signal) the close of candle signal. Less important if have East/West confirmation Less important for momentum trades The more ideal the candle pattern the less important the candle confirmation Candles and Price Confirmation Plus of price confirmation: Improve odds of hammer working, But Candles and Price Confirmation Plus of price confirmation: Improve odds of hammer working, But at cost of higher entry price Price confirmation 9

10 Price Confirmation Cautions Consider buy/sell stop limits Remember risk/reward! Depends on your trading style Higher probability at cost of profit potential Price confirmation cautions Consider buy/sell stop limits Remember risk/reward! Depends on your trading style Higher probability at cost of profit potential Confirmed Hammer Which of these two scenarios is it more important to have bearish price confirmation of the doji? Note: this will not happen in FX 10

11 Doji and Price Confirmation New high close and bull shadow. Bear confirmation thus more important confirmed Because a doji or a spinning top in FX will be near the prior session close you may want to wait for bear confirmation Forex doji and Price Confirmation confirmed Why would you not be too nervous on this doji? 11

12 Doji but also a new high close confirmed What about this doji? Which of these two scenarios is it more important to have bearish price confirmation of the doji? Doji and Shadows Equal shadows Bull shadow 12

13 Criteria: Use the highest high of those two sessions (top of upper shadow) as resistance Implication: Close over that area: market is refreshed. That is when we consider the bull momentum trade Doji and Momentum Doji as resistance Doji and momentum trading Market refreshed 13

14 Rolling up with calls 5 days later getting nervous. 94 ½ Sell to close Use $2.35 profit and buy 96 $.2.75 Breakout! Buy a call. No need to limit profit potential 90.5 Buy FIRST TIME EVER! Las Vegas, Sat/Sun- June 4 & 5 Presentedby Steve Nison President: candlecharts.com Quickly finding the best opportunities in the options markets Doji and momentum trading Doji confirming resistance 14

15 Session with long upper and lower shadow compared to real body More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions 15

16 More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 1 Tall white double crew cut (Yorikiri) No shadows More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 2 Tall white closing crew cut Yorikiri) Small lower shadow Lower shadow shows market can break under opening price More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 3 Power line (hammer) Shadow 2x or more real body. Can have very small upper shadow. 16

17 More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 4 Tall White Upper shadow 25% or less real body Upper shadow shows some rejection at higher prices More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 5 Small white with bull shadow Lower shadow less than 2x real body. Can have very small upper shadow. More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 6 Medium upper shadow Tall white Same as line 4 but upper shadow 25% to 100% real body Maintains the Strength but showing increasing price rejection 17

18 More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 7 Long upper shadow tall white Same as 4 but upper shadow more than 100% of real body Rare candle Gives slight fearful feeling More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 8 White spinning top Can have upper and lower shadows less than 100% of real body A drifting market More Bullish Less Bullish/Bear Very Strong Sessions Strong Sessions Neutral Sessions Bearish Sessions # Name Characteristics Nison Notes 9 Small white with bear shadow Upper shadow from 1 to less than 2x real body. Can have small lower shadow. 18

19 More Bullish 1 2 Less Bullish/Bear 3 Very Strong Sessions # 4 6 Strong Sessions Name 10 Shooting star Neutral Sessions Characteristics 9 10 Bearish Sessions Nison Notes Upper shadow at least 2x real body. Can have small lower shadow. YORIKIRI (TALL) CANDLES 1st support (50% of entire candle) 2nd support 19

20 YORIKIRI (TALL) CANDLES Very Long Real Bodies as Support Middle Tall White Candle 20

21 More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions Weak Sessions Neutral Sessions Bullish Sessions More Bearish 1 2 Less Bearish/Bullish # Name Characteristics 1 Long black double crew cut No shadows 10 Nison Notes More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions # 2 Weak Sessions Name Long black closing crew cut Neutral Sessions Bullish Sessions Characteristics Nison Notes Small Upper shadow Upper shadow shows market push over opening price 10 21

22 More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions # 3 Weak Sessions Name Shooting Star Neutral Sessions Characteristics 10 Bullish Sessions Nison Notes Shadow 2x or more real body. Can have very small lower shadow. More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions # 4 Weak Sessions Name Long black Neutral Sessions 10 Bullish Sessions Characteristics Nison Notes Lower shadow 25% or less real body Lower shadow shows demand at lower prices More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions Weak Sessions Neutral Sessions # Name Characteristics 5 Small black with bear shadow Upper shadow less than 2x real body. Can have very small lower shadow. 10 Bullish Sessions Nison Notes 22

23 More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions Weak Sessions Neutral Sessions 10 Bullish Sessions # Name Characteristics Nison Notes 6 Medium lower shadow long black Same as line 4 but lower shadow 25% to 100% real body Showing increasing demand and price rejection at lower levels More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions # 7 Weak Sessions Name Long lower shadow black Neutral Sessions Nison Notes Same as 4 but lower shadow more than 100% of real body Rare candle Gives slight fearful feeling to bears More Bearish 2 Bullish Sessions Characteristics 1 Less Bearish/Bullish Very Weak Sessions # 8 10 Weak Sessions Name Black spinning top Neutral Sessions 10 Bullish Sessions Characteristics Nison Notes Can have upper and lower shadows less than 100% of real body A drifting market 23

24 More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions Weak Sessions Neutral Sessions # Name Characteristics 9 Small black with bull shadow Lower shadow from 1 to less than 2x real body. Can have small upper shadow. 10 Bullish Sessions Nison Notes More Bearish 1 2 Less Bearish/Bullish Very Weak Sessions # Weak Sessions Name 10 Hammer Neutral Sessions Characteristics 10 Bullish Sessions Nison Notes Lower shadow at least 2x real body. Can have small upper shadow. 2nd resistance 1st resistance (50% of entire candle) 24

25 YORIKIRI (TALL) CANDLES Very Long Real Bodies as Resistance The 25

26 Black or white candle with long lower shadow compared to real body. Basic Criteria Market in a downtrend Small real body (either color) at, or near, top of range. Lower shadow at least 2x height real body Market Implication A chance to buy at the bottom Support Low of hammer as support BASIC CRITERIA Market in a downtrend Real Body White or Black Small real body at, or near, top of range. Lower shadow at least 2x height real body A chance to buy at the bottom STRICT CRITERIA White real body No upper shadow PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Low of hammer as support Consider shorting under low of pattern. After this last burst of selling, new buying has started. This rejection of lower prices is indicating a change in balance between bulls and bears. The net result: lessening of bears confidence of sustainability of lower price levels (and a reason for bulls to start getting more optimistic). 26

27 White real body hammer is called a Power Candle Can have small upper shadow (around 10% of lower shadow) The more oversold and the longer the shadow, the higher degree of confidence Often a retest of lower shadow Bullish counterpart of Shooting Star (not a Hanging Man). A hammer with a open/high/close at high is a Dragonfly doji As a single candle line it is same in FX as other markets Hammer and trend Not a hammer Power line Hammer As Support Will often retest lower shadow 27

28 Hammer Stops/Momentum Exit (or short) Hammers and Stops/Momentum Hammer near support Protective stop or momentum trade 28

29 29

30 30

31 31

32 No need to learn all Ninja! Just a few simple tools from Ninja to fully use NCS. No software to deliver. 1) download 2) get license approved and then you re ready! Text or video versions of User Manuals Accelerate your Analysis Find Steve s Favorite Candle Signals in Seconds BASIC CRITERIA Market in downtrend Small real body at, or near, bottom of range. Must come at new low for move or significant decline Upper shadow at least 2x height real body PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Not used as support While the market closes at, or near its low, it has shown an ability to rise. This may get the bears slightly nervous. Momentum: Trend is still down with this signal 32

33 Same as the shooting star except market in a downtrend Can have small lower shadow (around 10% of lower shadow) Must have bull confirmation with a higher close, or for those more aggressive, a higher opening This is not the bullish counterpart of Shooting Star. The Hammer is the bullish counterpart. Because of the bearish shadow do not place much emphasis on this signal. Importance of Price Confirmation While a typical candle signal requires less candle confirmation if at support/resistance with this signal (and hanging man) you always need candle confirmation 33

34 34

35 Bullish Counter Attack Pattern Piercing Pattern Bullish Engulfing Pattern Bull Sash Pattern Bull Separating Line Black real body followed by a white real body that gaps lower on the open and then closes at, or near, black candle close. 35

36 BASIC CRITERIA Two session pattern Downtrend but even with no apparent trend would be a positive signal Black real body followed by a long white real body that gaps lower on the open and then closes at or near black candle close. 2nd candle tall white STRICT CRITERIA Both candles are large (very rare) PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Not used as support or resistance. Consider selling on move under low of pattern. With the gap down bears are relieved. The bulls are backed into a corner and came out fighting in a heroic fight. Kamikaze fights are always frightening, so the bears seeing this take to the sidelines and the bulls may get reinforcements. No pattern like this for FX since the market gaps lower. While the ideal pattern is both large real bodies, we would still view this as important even if only the white candle was large Closes do not have to be exactly the same Opposite of bearish counter attack Bull Counter Attack What do you think the bears are thinking after this session? PS- watch your language! Bull Counter Attack 36

37 White real body that wraps around prior session black real body or doji. BASIC CRITERIA Two session pattern Market in a downtrend White real body wraps around dark real body STRICT CRITERIA Small first candle small dark candle or doji Second candle is tall white that wraps around high-low range of first candle. SUPPORT/MOMENTUM TRADING Lowest low of either candle as support Consider shorting under low of pattern. PATTERN PSYCHOLOGY Small first candle reflects deterioration of bear trend. Tall white candle leaves no doubt the bulls now in driver s seat. For FX, intraday and indexes can have the same open (or within 2 pips for FX) of prior close The pattern has less significance if the real bodies are about the same size. First candle can be doji Candles in Engulfing Pattern (large wraps around small candle) are opposite those in Harami Pattern (small candle in a large candle) FX Pattern If Bullish Engulfing pattern appears during rally Japanese call it a last engulfing pattern and may be buying climax. Confirmation close under close of white candle. This is not an important pattern, just think about not buying. 37

38 This is interesting: I recently purchased a technical analysis package from a WELL KNOWN technical analysis guru. During his charting presentation he made several references to candlestick patterns, and each references that he made was absolutely wrong! During a strong uptrend, he called a large white real body after a small black real body a bullish engulfing pattern. If I remember right a bullish engulfing pattern doesn t count during an uptrend. If I hadn t bought and studied your package, I never would have known that and would have assumed that he was right. Thanks again for your great work! Carl Bullish Engulfing Patterns Price confirmation No price confirmation after this bullish engulfing pattern Why didn t I have this window as resistance? Price confirmation after this bullish engulfing pattern, but risk is still to low of pattern 38

39 Price confirmation If you waited for the close of session of the bull engulf look at what price you would be buying. Momentum trade Why would you not buy on this pattern? Bear momentum trade Small real body inside an unusually long black real body. 39

40 BASIC CRITERIA Two session pattern Market in downtrend, but trend not critical First candle unusually long dark candle Second candle is much smaller than 1st candle (about 25% or less). 2nd candle can be the same- or opposite colorof first candle 2nd real body is within 1st candle s real body PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Not used as support (unless 2nd candle is reversal signal (i.e. hammer) The long black candle echoes the heaviness of supply. But the next session s gap up and lack of downside follow through results in the bears seeing that their drive is becoming impeded. Not used for momentum trading For FX, intraday and indexes can have the same (or within 2 pips for FX) open as prior close If the 2nd candle is a doji, the pattern is called a harami cross The more the 2nd candle gets deeply into the black candle the better the signal. Because FX, etc, white candle can t get deeply into black real body it is best to wait for bull confirmation by a higher open or close than the white real body. FX Pattern In general the less the 2nd candle gets into the black candle the more confirmation is needed. Opposite of bearish harami Bull harami Think the market is different on this session compared to prior session? 40

41 Bull Harami Potential Selling climax Bull Harami and momentum trading Momentum Trade BASIC CRITERIA Two session pattern Market in downtrend Open of white candle under prior close White candle closes more than ½ way into black real body. STRICT CRITERIA White candle opens under prior low Long black and tall white candle PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Lowest low of both candles as support Consider selling on move under support level Bears in control is echoed by long dark candle. Sharp gap lower means bears have a strong foothold. But with sharp bounce back by end of the session the market has displayed uneasiness at a low price. The bears now sense danger. 41

42 For FX can have the same (or within a few 2 pips) open as prior close Long black and then long white shows extreme shift in psychology The more the white candle opens under prior low /close the better the signal (for non FX). Opposite of dark cloud cover Related patterns which need not be remembered are on-neck (atekubi), inneck(irikubi) and thrusting (sashikomi). FX Pattern Piercing pattern as support Piercing Pattern And this? Not Piercing Patterns Although first candle wasn t long black what pattern is this? 42

43 Piercing Pattern Not a piercing pattern For intraday okay to have open at- or very close- to prior close Early clues of shifting supply/demand Black candle followed by white candle that opens within black real body and closes over prior open. 43

44 BASIC CRITERIA Trend not important Black candle followed by white candle that opens within black real body and closes over prior open. STRICT CRITERIA Both long real bodies 2nd candle closes over prior high White real body closes at, or near, its highs PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Lowest low of both candles as support Consider selling on move under low of pattern The surprise gap higher opening on the second day after a strong selling session may initially be of minor concern. But with the white candle s strong close the bears sense danger and also gives the bulls cause for optimism. Since the market has to gap higher this pattern not applicable to FX. The higher the market gaps on the open, and the higher the close on the white candle the more meaningful the pattern Remember risk/reward since this pattern is completed after substantial move has already occurred. Opposite of Bear Sash pattern If open of white candle is same (or higher) as prior open, it is a Bull Separating Line. Bull Sash Pattern Bull Sash 44

45 Risk/Reward Bull Sash Bull Sash Both of these are poor trade candidates BASIC CRITERIA Trend not important Black candle followed by white candle that opens at (or above) prior open. Then closes over black candle open. STRICT CRITERIA Both long real bodies (rare) White real body closes at, or near, its highs PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Lowest low of both candles as support Consider selling on move under low of pattern While the bears may be surprised to see the market gapping sharply higher from a prior weak session, imagine their fear (and the bulls happiness) as the market continues its advance without hesitation the next session. The tide of the market has changed from one to which the bears were in control to one where the bulls are now calling the shots. Easy way to remember this pattern is the opens are the about the same (or the 2nd candle open gaps away from 1st candles open.) Since the market has to gap higher this pattern not applicable to FX. Major challenge with this pattern is since it is completed after substantial move, it usually means poor risk/reward. Opposite of Bear Separating Pattern If open of white candle is within prior black real body, it is a Bull Sash Pattern. 45

46 Bull Separating line Looks good on the outside! This is a poor trade candidate- why? Bull Separating line 46

47 Bull Separating line Bull separating but look where it is! TWEEZERS BOTTOM Two candles that have the same lows. First candle large black. CRITERIA Two candles with matching highs (tweezers top) or lows (tweezers bottom) Uptrend for tweezers top and downtrend for tweezers bottom. But trend not critical. The first candle must be a long white (tweezers top) or long black (tweezers bottom) 2nd candle must reflect diminishing of prior force Source: HAJIMETE KABUKA CHATO WO YOMU HITO NO HON by K. Hoshi PATTERN PSYCHOLOGY The first candle shows bulls (tweezers top) or bears (tweezers bottom) are dominating. With the second candle showing an inability to continue the move implied by the first candle, we are starting to see the power of the prior trend dissipating. 47

48 The more the 2nd candle closes into the first candle the better the signal. This is a minor pattern unless there is a candle reversal signal that also emerges at the 2nd candle (i.e. piercing pattern, shooting star). Not used as support or resistance or momentum trading unless 2nd candle is a reversal candle. Source: HAJIMETE KABUKA CHATO WO YOMU HITO NO HON by K. Hoshi If both candles for tweezers top close at, or near the highs, or tweezers bottom close at or near the lows, this pattern would have less significance. Tweezers Bottom First candle long black, second candle small real body, third candle is white that gets deeply into first real body. FX white or black 48

49 Morning Star as support Abandoned Baby Almost abandoned baby 49

50 RISING THREE METHODS A series of small candles inside the range of a tall white candle. The last candle is another tall white. RISING THREE METHODS Highlight Key - $79 value NinjaTrader Trade Navigator Trade Station 50

51 Three consecutive white candles, each with a higher close. Three Soldiers Founder and President: Candlecharts.com 51

52 A rising window is support Support Zone Most important support level Small vs. Large windows Large window Small window Importance of Windows Shooting Star 52

53 Quickly see Windows If I had only seen this! Change of Polarity Resistance Support Resistance Support 53

54 Windows and Change of Polarity The most important aspect is the many times this resistance was tested- (which may have to do with the window) Windows and Confirmation Closed under window by 2 and 9 cents and next day opened and closed over window again 54

55 Three windows-note of caution Secrets of Using Intraday Candle Charts to Refine Entries with Windows For small windows or when near the bottom of larger windows look for intraday candle reversals Using intraday candles to confirm a Daily window Turn signal at $31.15 on this 30 minute chart compared to $31.60 on daily chart. Bottom of rising window on daily chart While the bottom of this window (red dashed line) did hold as support: 1) Based on black candle it looked dangerous to buy. 2) By the end of the bull engulf day it would have been a poor trade- why? 55

56 BASIC CRITERIA Market in an uptrend Black or White real Body Small real body at, or near, bottom of range. Upper shadow at least 2x height real body A crack has entered the market STRICT CRITERIA Black real body No lower shadow SUPPORT/MOMENTUM TRADING High of shooting star as resistance Consider buying above high of pattern PATTERN PSYCHOLOGY The strong retreat from higher prices shows either or/and: 1) bulls stepping back at higher levels 2) bears getting more aggressive The result is that the bulls have second thoughts of their power and bears now have encouragement

57 Black real body most important. Can have small lower shadow (around 10% of upper shadow). The more overextended the rally and the longer the shadow, the higher degree of confidence. Unlike a hammer, market doesn t often retest upper shadow. Bearish counterpart of Hammer (not Inverted Hammer.) A Shooting Star with a open/high/close at low is a Gravestone doji. As a single candle line this is the same in FX Shooting Star with Price Confirmation confirmed Shooting star but no price confirmation 57

58 How Education and NCS Helps Improve Profits BASIC CRITERIA Market in a uptrend Small real body at, or near, top of range. Must come at new high for move or significant rally Lower shadow at least 2x height real body Suggests a peak in the market PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Not used as resistance Momentum: Trend is still up with this signal Although it may seem that the market still has rising power left, it has shown that once the market has fallen, it has become very fragile. Same as the hammer except market in an uptrend Can have small upper shadow (around 10% of lower shadow) Must have bear confirmation with a lower close, or for those more aggressive, a lower opening This is not the bearish counterpart of Hammer. The Shooting Star is the bearish counterpart. Because of the bullish shadow, do not place much emphasis on this signal. 58

59 Importance of Price confirmation Pain! Tweezers top Think this market had troubles near $8.20? Tweezers top Why is this not a Tweezers bottom? CANDLE PROGRESSION DESCENDING BLACK REAL BODY 59

60 CANDLE PROGRESSION DESCENDING BLACK REAL BODY CANDLE PROGRESSION DESCENDING BLACK REAL BODY CANDLE PROGRESSION DESCENDING BLACK REAL BODY 60

61 CANDLE PROGRESSION DESCENDING BLACK REAL BODY CANDLE PROGRESSION DESCENDING BLACK Bearish Counter Attack Pattern Dark Cloud Cover Bearish Engulfing Pattern REAL BODY Bear Sash Pattern Bear Separating Line White real body followed by a black real body that gaps higher on the open and then closes at, or near, white candle close. 61

62 BASIC CRITERIA Two session pattern Uptrend but even with no apparent trend would be a cautionary signal White real body followed by a black real body that gaps up on the open and then closes at or near white candles' close STRICT CRITERIA Both candles are large (very rare) Large black real body PATTERN PSYCHOLOGY SUPPORT/MOMENTUM TRADING Not used as support or resistance. Consider buying on breakout over high of pattern. With the tall white, and especially with the gap higher next session the bulls are happy. But then a strong bear counter force comes in to drag the market back to the prior close. The tone of the market now shifts from bullish optimism to uncertainty. No pattern like this for FX since the market gaps higher While the ideal pattern is both large real bodies, we would still view this as important even if only the black candle was large Closes do not have to be exactly the same Opposite of bullish counter attack Bear Counter Attack 62

63 Bear Counter- Attack While this is not a bear counter attack since the closes are not the same- do you think there is a change in psychology after this session? Bull Counter Attack? Black real body wraps around prior session white real body or doji. BASIC CRITERIA Two session pattern Market in an uptrend Black real body wraps around light real body STRICT CRITERIA Small first candle small white or doji Second candle is long dark that wraps around high-low range of first candle. SUPPORT/MOMENTUM TRADING Highest high of either candle as resistance. Consider buying on breakout over high of pattern. PATTERN PSYCHOLOGY Small first candle reflects rallying could be running out of steam Long black candle visually shows the bears are now the controlling force. 63

64 For FX, intraday and indexes can have the same (or within 2 pips for FX) open as prior close The pattern has less significance if the real bodies are about the same size. First candle can be doji Candles in Engulfing Pattern (large wraps around small candle) are opposite those in Harami Pattern (small candle in a large candle) If Bearish Engulfing pattern appears during selloff Japanese call it a last engulfing pattern and may be selling climax. Confirmation is a close above black candle close. This is not an important pattern- just think about not selling. FX Pattern Misinformation can cost you Big $$$ Candles as Support S1 64

65 Candles and Momentum trading the breakouts Price confirmation The less ideal the pattern the more candle confirmation is needed. Why is this bearish engulfing pattern less than ideal? Confirmation with lower close but risk still to high of pattern Price confirmation Since pattern confirmed resistance less reason for price confirmation- but it depends on you trading style. 65