The Art & Science of Active Trend Trading - Meetup

Lighting the Way:

Using Candlestick Patterns

The Art & Science of Active Trend Trading

Disclaimer

• 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.

Don’t trade with money you can’t 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.

http://www.bigtrends.com/disclaimers/



Candlestick History

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

• Potentially used by Japanese Rice Traders

• Introduced to Western Traders by Steve Nison in the 1990’s

• Knowledge base and trading importance expanded by Steve Bigalow

Candles and Technicals

• Powerful Tools – Only partially understood by most traders

• Immediate feedback on investors sentiment

• Clarify Misconception and Simplify Candle Usage

• Greatly improve Reward/Risk on every trade in all time frames

• Be a detective – Look for the Convergence of Clues

Presentation Material by: The Candlelight Trader

Candles Show Us When!

Techncials show us how much! $$$$

Patterns and Trade Set Ups

Part 1

Golden Rule

Candlesticks and patterns require three criteria

for proper interpretation:

1. A Completed Line

2. Shape of the line of pattern

3. The Preceding Trend

Basic & Best Candlestick Signals

Best Candlestick Reversal Signals • Doji/Spinning Tops

• Engulfing Patterns

• Hammer/Hanging Man

• Piercing Line

• Dark Cloud

• Harami

• Shooting Star

• Morning Star

• Evening Star

• Inverted Hammer

• Kicker

Supporting Clues

Non Candlestick Supporting Clues

• Moving averages (8 EMA, 20 SMA, 50

SMA)

• Trends

• Support/Resistance

• Stochastics (12/3)

• Voided Patterns

• Daily & Weekly Charts

Basic Trading Checklist

• Trade Top Quality Growth Stock from IBD 50, Leaderboard or other IBD sources

• Define Support & Resistance (Horizontal)

• Define Trend

• Define Trading Timeline

• Look for Convergence of Clues

• Establish Reward/Risk on every trade (it’s easier than you think)

• Establish Targets and Proper Exits

• Be very careful TRADING BEFORE NEWS or NUMBERS

Sample Patterns

Single Candles

&

In Context

- Single Candlesticks tell us immediately, who won the battle

that day (Buyers or Sellers) - This translates to being able to visually determine investor sentiment - What does this do for you and your planning your trades? - In combination with trend, other candles, moving averages, i.e.; other clues they are predictive of potential trend reversals or pauses in existing trend

What do Candlesticks tell us immediately?

- Every Single Candlestick tell us immediately, who won the

battle that hour, day, week or month


Open

Open Close

Close

Buyers Sellers

Low

High

- Single Candlesticks tell us immediately, who won the battle

that day Who Won the Battle?


Bulls Bears Indecisive

Trend tells us Who’s Winning the War

Comparison

Presentation Material by: The Candlelight Trader

Doji/Spinning Tops - Doji’s show indecision between buyers & sellers

- Clue: When present at past support or moving averages

potential trend reversal or break out

- Price Action will tend to move in the direction of the open after a Doji/Spinning Top

Indecision: More than one shows greater Indecision

Doji/Spinning Top Bullish

Series of Doji’s at Support

Clue: Oversold Stochastics

26%+ Gain from Signal to High in one month

&

Doji/Spinning Top Bearish

Series of Doji’s at Resistance

Clue: Overbought Stochastics & Divergent

Notice how after the series of doji’s resistance was tested and then failure

-15% drop from signal to stop

Bullish Engulfing

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

Bullish Engulfing

Bullish Engulfing

Clue: Divergent Stochastics

12.8%+ Gain from Signal to High in 6 weeks

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

Bearish Engulfing

Bearish Engulfing


12.8%+ Gain from Signal to High in 6 weeks

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

Hammer

21%+ Gain from Signal to High in 6 weeks

Hammer


Clue: What’s the other clue?

Hanging Man

Only occurs after a

Uptrend. Shadow must

be 2X the Body

Expected move back to

swing high, trend lines or

moving averages

Resistance

Swing Low

Hanging Man

-17% Drop from 2nd Signal to Low in 2 weeks

Hanging Man: Two of them & More.

Clue: Overbought Stochastics

Piercing Line

Support

Only occurs after a downtrend. Must

open below and close more than ½

way up preceding candle.



Swing High

Piercing Line

70%+ Gain from Signal to High in 2 Months

Piercing Line


Dark Cloud

Resistance Only occurs after a uptrend. Must

open above and close more than ½

way down preceding candle.



Swing Low

Dark Cloud

-9% Drop from Signal to Low in 2 days

Dark Cloud

Clue: Overbought Stochastics

Bullish Harami


Body inside previous days candle

One of the most powerful signals

Color of candle doesn’t matter



Swing High

Bullish Harami

13%+ Gain from Signal to High in 4 Weeks

Bullish Harami


Bearish Harami

Swing Low

Only occurs after a Uptrend. Body

inside previous days candle

One of the most powerful signals




Bearish Harami

-20% Drop from Signal to Low in 5 Weeks

Bearish Harami


Shooting Star

Resistance Only occurs after a Uptrend. Body


Wick must be 2X Body




Swing Low

Shooting Star

-25% Drop from Signal to Low in 5 Days

Shooting Star


Morning Star

Hammer Support

Swing High Only occurs after a downtrend.

Body inside previous days candle

2nd Down day closes at least ½ way

down candle from 2 days prior



Morning Star


Morning Star

Clue: Stochastics @ Support

Evening Star

Resistance Only occurs after a Uptrend. Body


2nd Down day closes at least ½ way

down candle from 2 days prior



Swing Low

Evening Star

Evening Star


Inverted Hammer

Hammer Support


Shadow must be 2X the Body

Can be very powerful signal



Swing High

Inverted Hammer


Inverted Hammer

Clue: Stochastics Oversold

Kicker

Swing High

Only occurs after a downtrend. Can

follow sell off gap down.

Very Powerful Signal

Next day opens up with a gap



Reverse signal at for a bearish Kicker Gap up

Kicker—Bullish


Bullish Kicker

Clue: Stochastics Oversold

Kicker—Bearish

-7%+ Gain from Signal to Low in 2 Weeks

Bearish Kicker

Clue: Stochastics Divergence

Test Yourself

What would you do?

Buy, Sell or Hold?

What would you do?

Buy, Sell or Hold?

What would you do?

Buy, Sell or Hold?

Candle Line?

And Now?

What would you do?

Buy, Sell or Hold?

Want to go again?

Now what?

Buy or Wait?

Confirmation?

Left Right Combo

Take a Break Part 2 begins

in 10 Minutes

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The Art & Science of Active Trend Trading - Meetup

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