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Profitable Candlestick patterns Kermit Prather Copyright 2007, TradingOurWay, Prepared by Kermit Prather.

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Presentation on theme: "Profitable Candlestick patterns Kermit Prather Copyright 2007, TradingOurWay, Prepared by Kermit Prather."— Presentation transcript:

1 Profitable Candlestick patterns Kermit Prather Copyright 2007, TradingOurWay, Prepared by Kermit Prather

2 Build your trading plan Find trade candidates When to Enter the trade Manage open trades When to Exit the trade Analyze the results Plus, the Trading Strategies to do all of the above Adjust your Trading strategy to market conditions You will learn to: CRUISE to the Panama Canal on CARNIVAL LIBERTY Set sail April 12, 2008 for 8 glorious days!  Seminar fee is $795  We had an “Early Bird” special of $495 that Expired Oct 29 th  IF you sign up today or within 7 days we’ll honor the $495  Use Promo code FTL110407, good until 11/12/07 8-Day Western Caribbean Ports of Call Include: Port Everglades, Costa Maya, Puerto Limon, Colon Inside Stateroom - $687 p/p Oceanview Stateroom - $807 p/p Balcony Stateroom - $1057 p/p BOOK by October 29, or call Kermit Copyright 2007, TradingOurWay, Prepared by Kermit Prather

3 Topics and Patterns for Discussion Basics of Candlesticks Major Bearish patterns Major Bullish patterns How to improve probabilities and profitability Recent examples for each candlestick pattern Where to find more information on candlesticks Seminar at Sea special pricing for attendees only Copyright 2007, TradingOurWay, Prepared by Kermit Prather

4 Candlestick Basics Japanese Rice Traders created them over 400 years ago Steve Nison is credited with introducing them into the U S markets Gregory Morris and Stephen Bigalow are the other 2 major candlestick guru’s There are over 100 Candlestick patterns Candlesticks show investor sentiment more visual than OHLC bars Copyright 2007, TradingOurWay, Prepared by Kermit Prather

5 Bearish Candle Sometimes referred to as a Black Candle Copyright 2007, TradingOurWay, Prepared by Kermit Prather

6 Bullish Candle Sometimes referred to as a White Candle Copyright 2007, TradingOurWay, Prepared by Kermit Prather

7 Indecisive Candles Doji at the top should never be ignored The smaller the body the more indecision Doji body is very small 10% of daily range Dragon-Fly Tombstone Long-legged Copyright 2007, TradingOurWay, Prepared by Kermit Prather

8 Indecisive Candles (cont) Spinning-Top – No one won the battle of the Bulls and Bears – Body is less than 1/3 rd of the candle range H – L – The tails are longer than the body Copyright 2007, TradingOurWay, Prepared by Kermit Prather

9 Candlestick Web Sites - Steve Bigalow - Litwit.com - Tom Bulkowski - John Murphy’swww.stockcharts.com for TC2007users Scans for candlestick patterns and more Copyright 2007, TradingOurWay, Prepared by Kermit Prather

10 Bullish Candlestick Patterns Engulfing Morning Star Hammer Three White Soldiers Kicking Copyright 2007, TradingOurWay, Prepared by Kermit Prather

11 Bullish Engulfing Definition Bullish Reversal 63% of the time How to Identify it Candle 1 is a bearish candle Candle 2 completely engulfs the body of the candle 1 Stock in a downtrend or consolidating Pattern suggests downtrend has lost momentum and the bulls may be gaining strength Engulfing pattern is also the first two candles of the Three Outside patterns. Confirmation is suggested Copyright 2007, TradingOurWay, Prepared by Kermit Prather

12 Bullish Engulfing- bad one Copyright 2007, TradingOurWay, Prepared by Kermit Prather

13 Bullish Engulfing- bad two Copyright 2007, TradingOurWay, Prepared by Kermit Prather

14 Bullish Engulfing – good one Copyright 2007, TradingOurWay, Prepared by Kermit Prather

15 Bullish Engulfing – good two Copyright 2007, TradingOurWay, Prepared by Kermit Prather

16 Morning Star Bullish Reversal 78% of the time How to Identify it First candle is a long black candle Second candle gaps down and trades within a small range and closes at or near its open. The third candle is a white candle Stock has in a downtrend or consolidating Pattern suggests the trading sentiment has changed and trend reversal is a high probability No confirmation is required or suggested Note: The second candle can be a Doji or spinning top Copyright 2007, TradingOurWay, Prepared by Kermit Prather

17 Morning Star - good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

18 Morning Star - bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

19 Hammer Bullish Reversal 60% of the time How to Identify it Single candle pattern Candle can be bullish or bearish Signal considered stronger if candle is bullish Candle body is less than 1/3 of the range H – L Stock is in a downtrend Long tail implies sharp sell-off after open but the bulls rallied and won the battle suggest more buying to come Requires confirmation Copyright 2007, TradingOurWay, Prepared by Kermit Prather

20 Three White Soldiers Bullish Reversal 82% of the time How to Identify it Three white candles occur, each with a close above the previous candle Each candle opens within the body of the previous candle Each candle closes near or at its high Stock is in a downtrend Pattern suggests the market has been selling of for too long, and buyers are beginning to come back into it No confirmation is required or suggested Copyright 2007, TradingOurWay, Prepared by Kermit Prather

21 Three White Soldiers - good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

22 Three White Soldiers - bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

23 Bullish Kicker Bullish Reversal 53% of the time How to Identify it The first candle’s open and the second candle’s open are the same. The price movement is in opposite directions from the opening price. The trend has no relevance in a Kicker situation. The signal is usually formed by surprise news before or after market hours. The price never retraces into the previous candle's trading range. No confirmation is required or suggested The first day is a Black Marubozu day The second day is a White Marubozu day that gaps upward Copyright 2007, TradingOurWay, Prepared by Kermit Prather

24 Bullish Kicker - good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

25 Bullish Kicker - bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

26 Stockfetcher.com Bullish Scans Bullish Engulfing Bullish Morning Doji Star Hammer Bullish Three White Soldiers Bullish Kicking Copyright 2007, TradingOurWay, Prepared by Kermit Prather

27 Bearish Candlestick Patterns Engulfing Evening Star Hanging Man Three Black Crows Kicking Copyright 2007, TradingOurWay, Prepared by Kermit Prather

28 Bearish Engulfing Bearish Reversal 79% of the time How to Identify it First candle is a white candle Second candle is Bearish and its body completely “Engulfs” the first candle’s candle body Stock has been in an uptrend Pattern suggests the bears have taken control and the trend is about to reverse. Confirmation is suggested Copyright 2007, TradingOurWay, Prepared by Kermit Prather

29 Bearish Engulfing - Bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

30 Bearish Engulfing - Good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

31 Evening Star Bearish Reversal 72% of the time How to Identify it First candle is a long white candle Second candle trades within a small range and closes at or near its open. The third candle is a black candle Stock is in an uptrend Pattern suggests the trading sentiment has changed and trend reversal is high probability No confirmation is required or suggested Note: The second candle can be a Doji or spinning top Copyright 2007, TradingOurWay, Prepared by Kermit Prather

32 Evening Star Copyright 2007, TradingOurWay, Prepared by Kermit Prather

33 Evening Star Copyright 2007, TradingOurWay, Prepared by Kermit Prather

34 Hanging Man Bearish Reversal 59% of the time How to Identify it Single candle pattern Candle can be bullish or bearish Signal considered stronger if candle bearish Candle body is less than 1/3 of the range H – L Stock is in an uptrend Long tail implies sharp sell-off after open and suggest more selling to come Requires confirmation Copyright 2007, TradingOurWay, Prepared by Kermit Prather

35 Three Black Crows Bearish Reversal 78% of the time How to Identify it Three black candles occur, each with a close below the previous candle Each candle opens within the body of the previous candle Each candle closes near or at its lows Stock is in an uptrend Pattern suggests the market has been at a high price for too long, and investors are beginning to compensate for it. No confirmation is required or suggested Copyright 2007, TradingOurWay, Prepared by Kermit Prather

36 Three Black Crows - Bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

37 Three Black Crows - Good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

38 Bearish Kicker Bearish Reversal 54% of the time How to Identify it The first candle’s open and the second candle’s open are the same. The price movement is in opposite directions from the opening price. The trend has no relevance in a Kicker situation. The signal is usually formed by surprise news before or after market hours. The price never retraces into the previous candle's trading range. No confirmation is required or suggested Copyright 2007, TradingOurWay, Prepared by Kermit Prather

39 Bearish Kicker - Bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

40 Bearish Kicker -Good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

41 Stockfetcher.com Bearish Scans Bearish Engulfing Bearish Evening Doji Star Hanging Man Bearish Three Black Crows Bearish Kicking Copyright 2007, TradingOurWay, Prepared by Kermit Prather

42 Tom Bulkowski’s Copyright 2007, TradingOurWay, Prepared by Kermit Prather

43 Candlesticks Statistics – where to find Copyright 2007, TradingOurWay, Prepared by Kermit Prather

44 Candlesticks Statistics – cont. Copyright 2007, TradingOurWay, Prepared by Kermit Prather

45 Candlesticks Statistics – cont. Copyright 2007, TradingOurWay, Prepared by Kermit Prather

46 Candlesticks Statistics – cont. Copyright 2007, TradingOurWay, Prepared by Kermit Prather

47 How to enhance probabilities Visually observe the chart for proper trend Up-trend Moving Averages align top-down 20, 40, 50 Downtrend from top-down 50, 40,20 Trendline Linear regression slope Pattern occurs at or near a major MA Copyright 2007, TradingOurWay, Prepared by Kermit Prather

48 Use Efficiency Rating Van Tharp uses an efficiency rating created from price change during 4 time periods Pick any 4 periods such 20, 45, 90, & 180 TC2007 Formula using daily range (((C – C180) / (AVGH180 – AVGL180)) + ((C – C90) / (AVGH90 – AVGL90)) + ((C – C45) / (AVGH45 – AVGL45)) + ((C – C20) / (AVGH20 – AVGL20))) / 4 Rating > + 7 are in an uptrend while < -7 in a downtrend Tharp uses an ATR but daily range works as well Stockfetcher results Copyright 2007, TradingOurWay, Prepared by Kermit Prather

49 How to enhance profitability Use Overbought / Oversold indicators – Stochastics or crossover – Wilder’s RSI 5 or 14 Relative Strength Comparison to its index Use stocks that have made an extended move Copyright 2007, TradingOurWay, Prepared by Kermit Prather

50 Candlestick Books worth reading Stephen – Profitable Candlestick Trading – High Profit Candlestick Patterns Steve – The Candlestick Course – Beyond Candlesticks Greg – Candlestick Charting Explained Copyright 2007, TradingOurWay, Prepared by Kermit Prather

51 Books and more Books Author Title Van TharpTrade Your Way To Financial Freedom Alexander ElderTrading For A Living Alexander ElderCome Into My Trading Room Benjamin GrahamThe Intelligent Investor Jack SchwagerMarket Wizards: Interviews With Top Traders John MurphyTechnical Analysis of the Financial Markets John MurphyThe Visual Investor Mark DouglasThe Disciplined Trader: Developing Winning Attitudes Martin PringIntroduction to Technical Analysis Martin PringBreaking the Black Box Steve AchelisTechnical Analysis from A to Z Thomas BulkowskiChart Patterns J. Welles Wilder New Concepts in Technical Trading Systems – Most reference book in all TA Copyright 2007, TradingOurWay, Prepared by Kermit Prather

52 Seminars Stephen Bigalow – none better David Kermit Copyright 2007, TradingOurWay, Prepared by Kermit Prather

53 Build your trading plan Find trade candidates When to Enter the trade Manage open trades When to Exit the trade Analyze the results Plus, the Trading Strategies to do all of the above Adjust your Trading strategy to market conditions You will learn to: CRUISE to the Panama Canal on CARNIVAL LIBERTY Set sail April 12, 2008 for 8 glorious days!  Seminar fee is $795  We had an “Early Bird” special of $495 that Expired Oct 29 th  IF you sign up today or within 7 days we’ll honor the $495  Use Promo code FTL110407, good until 11/12/07 8-Day Western Caribbean Ports of Call Include: Port Everglades, Costa Maya, Puerto Limon, Colon Inside Stateroom - $687 p/p Oceanview Stateroom - $807 p/p Balcony Stateroom - $1057 p/p BOOK by October 29, or call Kermit Copyright 2007, TradingOurWay, Prepared by Kermit Prather


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