Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Foundation of East + West
Founder and President: Candlecharts.com 1
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EAST & WEST CONFIRMATIONCONFIRMATIONEAST
Where a candle signal confirms a Western Technical signal
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1 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Foundation of East + West: Candles and Trend Lines
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Sloping Trend Line
Channels
Horizontal Trend Line
Change Polarity
Crack/Snap
Falling Off the Roof
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Sloping trend Lines
Rising support line 1 Falling resistance line 3 (higher lows) (lower highs)
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Falling support line Rising resistance line (lower lows) (higher highs)
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2 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Rising Support Line
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trend lines
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Candles for Early Reversals
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3 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Scenario 1
Scenario 2
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Candles and Trend lines
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How Education Saves You Big $$$
Major resistance 2.00-2.01
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4 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
How Education Saves You Big $$$
Long term resistance zone
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How Education Saves You Big $$$
Long term resistance zone
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The Value of Owning the Knowledge
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5 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Trend Lines
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Trend lines and Candle Confirmation
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Reading the Market’s Message with the Light of the Candles
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6 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
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© Steve Nison’s Candlecharts.com 20
Resistance Resistance
Support Support
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7 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Change of Polarity
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Change of Polarity
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Change of Polarity
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8 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Don’t look through a well!
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1 3
Why would we trade differently with Piercing Patterns 4 and 5, compared to Piercing Patterns 1,2 and 3?
Hint: “Change of Polarity” 4
5
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If I had only seen this!
2 3 1- Bear Harami 1 2- Dark Cloud Cover 3- Bearish Engulfing Pattern
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Target
Snap Buy Stop Crack
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9 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Crack and Snap
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Crack and Snap
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Crack and Snap
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10 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Hammer and Crack and Snap
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Crack and Snap
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Stop
Sell
Target
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11 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Falling off the Roof
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Falling Off the Roof
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What’s different about this session?
Watch slope of trend lines
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12 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
East and West: 1 of 3
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East and West: 2 of 3
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East and West: 3 of 3
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13 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Foundation of East + West: Candles and Volume
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Candles and Volume
And then! Light volume breakout
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Reading the Shifting Market Psychology
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14 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Volume
Higher volumeon white candle compared to black on this bullish engulfing pattern magnifies the likelihood of a reversal
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Candles and Volume to increase success
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Volume and Candles
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15 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Volume Confirming the Candle Signal
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Candles And Volume: High Volume Doji
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Crack and Snap with Volume
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16 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Selling Climax Confirmed
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Candles and Open Interest
Followed by bear harami O.I declined
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Candles and Open Interest
Resistance
Open Interest
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17 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles, West and Open Interest
Bullish Engulfing Pattern Bottom Bollinger Band Declining O.I.
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The West
Oscillators
Intraday Charts
The East
Record Sessions
Disparity Index
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Overbought/Oversold
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18 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Foundation of East + West: Candles and Bollinger Bands
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Doji in context
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Candles and Bollinger Bands
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19 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Bollinger Bands
Bearish Engulfing Pattern
Bullish Engulfing Pattern
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Candles and Bollinger Bands
Besides the BB what are other turning signals ala’ candles?
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Candles and Bollinger Bands
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20 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
The East and the West
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East and West = Higher Confidence
Who’s in charge Who’s in here? charge here? How about now?
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Foundation of East + West: Candles and Oscillators
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21 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Oscillators
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Oscillators
Objective Derived from price- plotted separately Includes Stochastics, MACD, RSI, etc. Best in lateral markets Overbought/Oversold Divergence
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Divergence
Positive Divergence Negative Divergence
2 1 1 2 Price Price
1 2
2 1
Oscillator Oscillator
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22 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Oscillators Not Effective in Strongly Trending Markets
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Stochastics
Concept – closes cluster to highs Most common – 9 and 14 period Two lines - %K and %D
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Stochastics
Using Stochastics
Faster %K Bullish and line crosses Bearish % D line from Divergence overextended levels
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23 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Doji without/with confirmation
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Candles and Stochastic Cross
No confirmation confirmation
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Candles and Stochastics Cross
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24 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Stochastics Cross
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Candles and Negative Divergence
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Candles and Stochastics Cross
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25 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles - Stochastics Cross - Divergence
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Candles and Bearish Divergence
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Candles and Stochastic Cross
Bullish Bullish Crossover, but no crossover on bullish candle this close, signals any hints with the candles?
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26 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Relative Strength Index (RSI)
• Compares advances to declines • Most common 9 and 14 period • Uses : Divergence, Extremes (70% and 30%)
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Candles and Oscillators: Divergence
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Candles and Positive Divergence
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27 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Bearish Divergence
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Moving Average Convergence/Divergence (MACD)
MACD line and Signal line
MACD Line – spread of two exponential moving averages
Signal Line – Exponential moving average of MACD line
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Moving Average Convergence/Divergence (MACD)
Using the MACD
MACD lines Overbought Bullish and Crosses and Bearish Signal line Oversold Divergence
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28 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Bearish Divergence
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MACD Cross: Candles for Early Reversals
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Candles in Context with Oscillators
Harami
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29 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
MACD Cross: Candles for Early Reversals
doji
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Candles and MACD Cross
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Candles and MACD Cross
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30 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and MACD Crossover
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Candles and MACD Cross and Divergence
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Dual Moving Averages
Short term from longer term m.a. Example: 10 day moving average = $23 30 day moving average = $31 Price oscillator = $23-$31= -$8 If 10 and 30 day moving averages are the same Moving Average Price Oscillator = 0 Overbought/oversold, divergence
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31 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
East and West – Candles for Confirmation
Any reversal signals?
Any reversal signals?
Overbought area
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Foundation of East + West: The Disparity Index
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The Disparity Index
A method to gauge overbought/oversold that compares current close to a moving average
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32 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Disparity Index
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Disparity Index
On the blue lines this market is overbought, but trading overbought laterally relieves this as shown by the time the market gets to the red lines. This is a plus for momentum traders on a breakout.
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Foundation of East + West: Record Sessions
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33 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Record Session High: After a new low for 9 record session highs the recent move, each succeeding high is called a record session high. 9 Record session lows: after a high for the recent move each lower low is a record 8 session low 7 6 5 4 3 2 These are 1 not record sessions
low for move
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Record Session Highs
10 Bearish engulfing pattern
The rally that started with the hammer Hammer culminated at a bearish engulfing pattern at 10 record session highs
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Record Session Lows
Note how the eighth record session low formed a dragonfly doji at a support area
1 2
3
4 5 6 7 8
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34 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Record Sessions Lows
8
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Record Sessions
9 10
8 1 2 1 7 2 3 3 6 4 5 5 4 Haven’t made a 3 lower low and now 2 1 1 relieved potential 2 oversold situation 3 4 so count starts 5 6 again
7 8 9 10
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Foundation of East + West: Retracements
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35 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Retracements
(B) $200
38.2%($162)
50% ($150) 61.8% ($138)
(A) $100
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Retracements
62%
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Retracements
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36 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Retracements
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Earlier Reversal Signals “Hidden” support/resistance Using Intraday windows Successful retest of support/resistance on daily chart including daily windows Is the market overextended? Deeper insights into the importance of daily chart’s support/resistance
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Using intraday charts to uncover “hidden” support (1 of 3)
On this daily chart where is first support after this tall white candle on April 15? Let’s go to the intraday….
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37 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Using intraday charts to uncover “hidden” support (2 of 3)
On this 15 minute chart from April 15, see how we get a support zone near 82? So instead of 78 as first support (from prior daily chart) we have 82 as first support.
April 15
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Using intraday charts to uncover “hidden” support (3 of 3)
On this daily chart we see what occurred after April 15
Support zone obtained from intraday chart
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Foundation of East + West: Candles and Moving Averages
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38 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Types of Moving Averages
• Simple • Weighted • Exponential • Dual and Triple Moving Averages
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Simple Moving Average
• Formula: Add price (usually close) for N periods / N periods
• Example: 20 day moving average of close: add total of last 20 day’s closing prices and divide by 20.
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Moving Average Not Effective in a Sideways Market
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39 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Uses of Moving Averages
Moving average
price
Trend Indicator Support / Resistance
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Candles and Moving Averages
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Convergence of Signals
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40 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Moving Averages
Gravestone doji
Close under m.a. support area but note 25 day how we got an moving earlier reversal average with the gravestone
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Candles and Moving Averages
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Foundation of East + West: Candles and Western Price Patterns
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41 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Left Head Shoulder Right Shoulder
Neckline Neckline
Head and Shoulders Top Inverted Head and Shoulders
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Three Buddha Top
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Candles and Western Patterns
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42 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Inverted Three Buddha
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Getting in Before the Move
Candles shout sell here!
H&S sell signal here
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Buying Before the Market ‘Does its Thing”
Inverted head and shoulders confirmed here at 132.90
Note how the neckline became support
Now let’s see what the candles show!
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43 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Buying Before the Market ‘Does its Thing”
Buy signal based on Inverted head and shoulders at 1.3290 from prior slide
Buy here
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Candles “Shine” for Safety First Trading
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West for Targets
Bullish shadows
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44 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
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Box Range Breakouts
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East & West = Profits
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45 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Box Range Breakout
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Descending
Ascending
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Descending Triangle
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46 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Ascending triangle
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Target
First Leg
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Candles and Swing target
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47 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
East and West
Doji as signal to exit
For Bull Flag pattern take height of move before the consolidation and add that to the bottom of the box range
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Flag Pole
Bull Flag Bear Flag
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East and West
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48 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
West for Targets, Candles for Confirm
Bear harami
Bull harami www.candlecharts.com 145
Target Confirmed
Bear pennant confirmed
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How it all comes together – The highs in the NASAQ
2 3 5
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1- Rising Resistance Line 2- Shooting Star 2a – Bearish Engulfing 3- Falling Window 4- Bearish Divergence 5- High-Wave 4 Candle
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49 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
How it all comes together (hourly)
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TASC Interview - Jan. 24, 2003 S&P at 860
Head and 1) Once the neckline’s Shoulder top support is broken, it should become resistance.
2) To get a target with the head and shoulders top we measure from the top of the head to the neckline.
neckline Interview
“… the heads and shoulders top on the S&P gives a target to near 775. A close over 870 would void this.” Hammer
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Bloomberg TV Interview - July 28, 2003 S&P at 996
target
“Major support near 960. My upside target is 1160”
Next Interview here Shooting star on Jan. 24 as Doji market approaching my target …….
Lows Prior hammer predicted in resistance January becomes new support
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50 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Bloomberg TV Interview – January 24 , 2004 S&P at 1154
From July 28 interview: “My upside target is 1160” “Falling off the roof”
New Interview: “I am looking for major resistance at 1150 to 1175” Bearish Engulfing Pattern
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What we learned:What learned:
Importance of East with West Candles and trend lines Candles and volume Candles and Bollinger Bands Candles and oscillators Record session highs and lows Candles and retracements Disparity Index Candles and price patterns Bringing it all together-calling the highs and lows
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Trade Management Essentials
www.candlecharts.comFounder and President: Candlecharts.com 153
51 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
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If a candle signal does not confirm another signal then use candle signal to offset a trade
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52 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
A candle signal confirming another signal is a necessary condition (but not sufficient) for a new trade
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East + West Confirmation
Where a candle signal confirms a Western technical signal
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Candles and trend Lines
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53 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
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Candlestick Western Charting Charting Techniques Tools
Trade Management
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Trade Management • Protective Stops • Price Targets • Risk/Reward • Prevailing Trend • News •If … Then Principle •Market Chameleon
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54 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
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The Importance of Protective Stops: 1 of 4
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The Importance of Protective Stops: 2 of 4
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55 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
The Importance of Protective Stops: 3 of 4
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The Importance of Protective Stops: 4 of 4
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Why Use Protective Stops Lots of reasons to be bearish!
Out
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56 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Protective Stops
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Protective Stops
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Protective Stops
Look at all the Wrong! reversal signals
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57 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Protective Stops>
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Protective Stops
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Protective Stops
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58 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
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Candlesticks do not give price targets
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Support and Resistance/Pivot Highs and Lows
This high is higher than the session before and after it
This low is lower than the session before and after it
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59 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Pivot highs
P1 P = Pivot High: Higher high than candle before and after
P2
P3
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Box range Breakout
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Bull Flag
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60 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Price Targets
Bullish Engulfing patterns as support Bear Stearns Collapse
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Falling off the Roof
target
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Trend Channels
A Target line B
C C
B Target line A
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61 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles for reversals and Western for targets
Bearish engulfing pattern at top of bull channel
target
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Trade Management • Protective Stops • Price Targets • Risk/Reward • Prevailing Trend • News •If … Then Principle •Market Chameleon
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62 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
A candle signal – even if it confirms other indicators – is not enough of a reason for a trade. You must always consider risk/reward
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Reading the Market’s Psychology
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Risk/Reward
Why I went long:
1) Bullish engulfing at support
2) Other spinning tops confirming support 3) Trend line breakout of price
Was this a good trade that just didn't work out or did I make a mistake in judgment that I can't see?
Thank you, Gary B
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63 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Same Signal- but how different the strategy!
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Same signal but how different the tactics
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Risk/Reward
Great looking hammer, but what about risk/reward?
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64 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Risk – Reward: part 1
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Candles and Risk - Reward: Part 2
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Bearish Engulfing Pattern but R/R?
Weekly
[email protected] 732.254.8660 USA www.candlecharts.com 195
65 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles in Context
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Candles in Context – 1 of 2
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Candles in Context – 2 of 2
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Candles in Context of R/R
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Risk- Reward
Group of bull signals- but can’t do anything with them
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Candles in Context- R/R
Hammer and crack and snap but?
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Candles in Context – R/R
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Candles in Context – R/R
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Candles in Context
Dragonfly but?
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68 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles in Context – R/R
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A candlestick line or pattern requires two criteria:
• The shape of the line or pattern • The preceding trend
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Candles and Trend
Bearish Engulfing Pattern
Hi Steve, I love your analysis but I have a question. Wouldn’t the next candle after the bearish engulfing pattern be a bullish engulfing pattern and negate the bearishness of the first candle? - Bob
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Candles and Trend: 1 of 2
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Candles and Trend: 2 of 2
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70 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Candles and Trend
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Candles and Trend
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71 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Going with longer term trend
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Prevailing Trend
Bearish Shadows
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Prevailing trend
20 day m.a under 50 day m.a and both sloping down
Short term rally
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72 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Prevailing Trend
20 day m.a over 50 day m.a and both sloping up
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Prevailing Trend
20 day m.a over If shorting just look 50 day m.a and both for a small move sloping up
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Trend and Battle of windows
Falling window as resistance
Rising window as support
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73 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Trend
Based on the market holding above this 30 period moving average the odds favor a breakout to the upside
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Going with the Trend with Windows
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Trend of Higher Degree
Daily chart Aug. 13 Hammer intraday Aug. 13
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74 Steve Nison’s Candle Charting Essentials and Beyond Volume 2 of the Nison Educational Series
Sector Analysis
AMGN Buy ?
Biotech Sector
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Stay Away from the Trade
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The If…Then Principle: • If the market does not act as forecasted then exit the position (Protective Stops) • Initiate a position when the market justifies your potential trade (i.e. If the market breaks above resistance, then buy. • If the market does something different than before then adjust trading strategy
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Double Top
Double Top Confirmed
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If… then
Head and Shoulders Top?
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If… then
Was Head and Shoulders Top Confirmed ?
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Potential Inverted Head and Shoulders
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Potential Inverted Head and Shoulders
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If…Then
The bullish ascending triangle and the new high close for the move strongly hints that the market will break out. But resistance held.
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If… Then
Near support, any clues bears losing force?
H&S confirmed
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If…Then
Breaks the cycle
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As market changes we must adapt our market outlook and trading stance
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Adapting
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Adapting Slide 1 of 3
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Adapting Slide 2 of 3
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Adapting Slide 3 of 3
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Adapting to What the Market is Saying
Anything happening to change your mind?
Initial Target
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Adapting
The low of the bullish engulfing pattern as support. Once hammer is formed (at the arrow) we then adjust our support
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Candles in Context: 1 of 3
Which is a better sale?
Scenario 1 Scenario 2
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Candles in Context: 2 of 3 Which is a better sale?
Scenario 1 Scenario 2
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Candles in Context: 3 of 3
Scenario 1 Scenario 2
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What we learnedWhat learned
Candles in context Candles to ext Candle to enter a new trade Candle by candle analysis Protective Stops Targets Risk/Reward Trend News If.. then principle Adapting to the market Candles through the prism of market conditions
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