Candlesticks DeMystified Copyright IMA “Candlesticking” is not an exact science, and some stocks ignore patterns 2. There is an incredible number of combinations 4. When not sure, stay out – cash is good…. 5. Need to understand stock trending patterns (3 points for trend,4 periods for reversal.) 6. Need to know fail points on candles for “stops” or “trail stops,” NOT “stop limits”) 7. For “Sideways Moving” or consolidating stocks use Covered Calls not Candlesticks 8. “Give back” large gap patterns, can be unique to the individual stocks 9. Powerful trends are pie shapes, head and shoulders and double bottom (p 8 ) 10. Average graphs: 20 or 30 day averages are best for short term Candlesticking 3. “Candlesticking” seems most favorable to swing traders (Days or week windows) 11. Always safest to “Confirm, Confirm, Confirm.” 9/27/2010 These following patterns originally were addressed for Swing Traders, those that usually trade in a frame of days, but these patterns still apply regardless of the period of the chart, whether that’s days, hours, or minutes.

Spinning Top Buy or Sell Hanging Man or Hammer Buy or Sell Inverted Hammer = Buy or Shooting Star = Sell Long-legged Doji Buy orSell Gravestone Doji Sell only BuySell Dragonfly Doji Buy only Color of body here doesn’t really matter, just where the signal shows up. Marubozus Bullish Engulfing ( Buy ) Bearish Engulfing ( Sell ) a b c (a and b >c) c a (a=>2xc) c a Copyright IMA THE “BASIC” CANDLESTICK SET, TARGETED AT CATCHING REVERSALS…. Bullish Harami (Buy) Bearish Harami (Sell) 9/27/2010

Copyright IMA Sell signal here Buy signal here Long-legged, high cross or dragonfly Doji = Buy Long-legged, lower cross or gravestone Doji = Sell The longer the shadows (tails) the stronger the signal 9/27/2010 (a=>2xc) Shooting Star = Sell a c Bearish Harami ( sell ) Bearish Engulfing ( Sell ) Spinning Top = Buy (a and b >c) a b c (a=>2xc) Inverted hammer = Buy a c Bullish Engulfing ( Buy ) Bullish Harami ( Buy ) Simple Candlestick Patterns Summary Spinning Top = Sell (a and b >c) a b c Hammer = Buy c a (a=>2xc) c Hanging Man a (a=>2xc) =sell

Copyright IMA Bullish Engulfing ( Buy ) The 2 most telling double-stick candlestick signals… Bearish Engulfing ( Sell ) 9/27/2010

Copyright IMA Signal daySetup day Bullish Harami Pattern Only the opens and Closes really matter. Shadows are Inconsequential. Typical Stop level Bearish Harami pattern Typical Stop level Not very reliable. Double-stick Haramis (Harami in Japanese means pregnant) 9/27/2010

Copyright IMA Evening Star Gap Sell Confirmed Morning Star Gap Buy Confirmed 9/27/2010 Other simple patterns

Copyright IMA Important Trend Shapes Head and Shoulders Double Bottom Symmetrical Flat resistance Flat Support 79/27/2010

Copyright IMA Sell signal here Buy signal here Long-legged, high cross or dragonfly Doji = Buy Long-legged, lower cross or gravestone Doji = Sell The longer the shadows (tails) the stronger the signal 9/27/2010 (a=>2xc) Shooting Star = Sell a c Bearish Harami ( sell ) Bearish Engulfing ( Sell ) Spinning Top = Buy (a and b >c) a b c (a=>2xc) Inverted hammer = Buy a c Bullish Engulfing ( Buy ) Bullish Harami ( Buy ) Simple Candlestick Patterns Summary Spinning Top = Sell (a and b >c) a b c Hammer = Buy c a (a=>2xc) c Hanging Man a (a=>2xc) =sell