Instructors:

Syl Desaulniers, Nison Certified Trainer™ Brian Houston, Nison Certified Trainer™

KAIZEN TRADING APPRENTICESHIP WELCOME Improve Your Process… Get BIG Results KAIZEN TRADING APPRENTICESHIP SESSION THREE

•Candles and Western Technicals •Identifying trends using moving averages and MAs as . •Using moving averages as a trading system •Fibonacci - high probability levels •Stochastic, RSI, MACD - what they measure and how to avoid redundancy and paralysis by analysis (too many indicators) •: candle confirmation and implications of heavy volume spikes both at the start of a trend and after and extended move

Nison Candlesticks + Western Indicators Nison Power Concept

Add classic western indicators to your Nison candle analysis for even greater success The Multiplier Effect

EAST & WEST CONFIRMATION

Where a candle signal confirms a Western Technical signal EAST & WEST CONFIRMATION

Nison candles possible with: • Trendlines • • RSI • Stochastics • MACD • Price Patterns • Fib Retracements • Moving Averages • Etc.

The Essentials of

The following Technical Analysis (TA) tools are typically part of the daily charting arsenal:

•Japanese Candlesticks •Volume •Volume provides clues as to the intensity of a given price move. •Volume can help determine the strength of an existing trend. •Moving Averages •shows the average value of a security's price over a period of time. Available Technical Indicators General Indicators

• •Moving Averages •Breadth Advance/Decline •Money Flow • (CCI) • Index (RSI) •Directional Moving Index (DMI) •Stochastics • • •MACD • •McClellan Oscillator •Volume and Volume Average • •William %R

www.candlecharts.com Available Technical Indicators Nison Indicators •Nison Candle Scanner •ADX Slope

www.candlecharts.com Most Common Indicators

•Bollinger Bands •Moving Averages (20, 50) •MACD •RSI •Stochastics •Volume

•Nison Candle Scanner •ADX Slope Indicators Alert, Confirm, Predict Why Use Indicators? • Indicators serve three broad functions: • to alert, to confirm and to predict.

• An indicator can act as an alert to study price action a little more closely. • If momentum is waning, it may be a signal to watch for a break of support. • Or, if there is a large positive divergence building, it may serve as an alert to watch for a resistance breakout. Why Use Indicators?

• Indicators can be used to confirm other technical analysis tools. • If there is a breakout on the price chart, a corresponding crossover could serve to confirm the breakout. • Or, if a stock breaks support, a corresponding low in the On-Balance- Volume (OBV) could serve to confirm the weakness.

• Some investors and traders use indicators to predict the direction of future prices. Tips When Using Indicators?

•Indicators indicate.

•They are derivatives and not direct reflections of the price action.

•Any analysis of an indicator should be taken with the price action in mind. •What is the indicator saying about the price action of a security? •Is the price action getting stronger? Weaker? Tips When Using Indicators?

•Even though it may be obvious when indicators generate BUY and SELL signals, the signals should be taken in context with other technical analysis tools. •An indicator may flash a BUY signal, but if the shows a descending with a series of declining peaks, it may be a false signal.

•Learning how to read indicators is more of an art than a science. •The same indicator may exhibit different behavioral patterns when applied to different stocks. Indicators that work well for IBM might not work the same for Delta Airlines. Conclusion

• Indicators

• Choose carefully and moderately

• Focus on 2 or 3, and learn intricacies well

• Choose those that compliment, not provide same signal

Indicators Candles & Volume Generally, if Volume expanded with Nison candle flashing….probability likely quite good

www.candlecharts.com www.candlecharts.com Capitulatory Volume

www.candlecharts.com Breakout Volume

www.candlecharts.com No breakout on strong volume….hence, transitional (buyers to sellers)

www.candlecharts.com Capitulatory

www.candlecharts.com www.candlecharts.com Indicators Candles & Moving Averages 30 Exponential Moving Average

www.candlecharts.com 10 SMA / 30 EMA

10 Above 30 = Long

10 Above 30 = Long 10 Below 30 = Short

www.candlecharts.com Arrows represent the “first pullback” after a moving average crossover.

www.candlecharts.com See how you are buying in strong up trends after a wave of selling has occurred?

www.candlecharts.com www.candlecharts.com www.candlecharts.com Now see how you are shorting after a wave of buying has occurred.

www.candlecharts.com www.candlecharts.com Profits taken here, trailing rest

Polarity

Anticipated support

www.candlecharts.com Upper shadow in sweet spot and resistance confirmed (Counter attack / Dark Cloud hybrid) This was an easy swing trade… easy because the initial risk was easily defined. If this stock moved above the double top, then the trade would be considered invalid.

www.candlecharts.com Rallied up into the Sweet Spot and formed patterns where This stock has rallied up into the price was previously rejected Sweet Spot (window and (upper shadows). polarity) and has formed a bearish “Dark Cloud” pattern.

www. candlecharts.com/special/swing-trading-2/ This stock rallied up into the Sweet Spot (and Window) and formed a Bearish Engulfing pattern.

www.candlecharts.com This stock fades into the Sweet Spot and formed a Hammer.

www.candlecharts.com This stock fades into the Sweet Spot and formed a Hammer hybrid following an hybrid.

www.candlecharts.com This stock fades into the Sweet Spot and formed a Hammer.

www.candlecharts.com This stock fades into the Sweet Spot and formed a Bullish Engulfing.

www.candlecharts.com 8ema = blue 3 Moving Averages 21ema = red 55ema = fucsia Resistance and upper shadows

Doji

8ema crosses 55ema Doji SELL signal Doji

-E

8ema crosses 55ema BUY signal Support

www.candlecharts.com 8ema = blue 8ema crosses 55ema *Note width of all MA’s… 21ema = red SELL signal reversion to mean likely signaling 5ema = fucsia

Polarity

Piercing

Polarity Hammer?

8ema crosses 55ema BUY signal

www.candlecharts.com Indicators Candles & Fibonacci Retracements/Extensions Candles , Fibonacci Retracements & Stochastics www.candlecharts.com www.candlecharts.com Fibs with Stochastics

Target

Entry

Stop Loss

Bullish Engulfing at 61.8%

www.candlecharts.com Fibs with Stochastics

Target

Entry Stop Loss

Doji at 50% followed by Morning Star

www.candlecharts.com Indicators Candles & Stochastics Candles & MACD Candles & RSI Stochastics Stochastics

%D %K

overbought

oversold Settings How To Trade Stochastics

3 Classic ways: •80/20 Line Break •%K / %D Crossover •Divergences (Positive / Negative) %K-%D Crossover %K-%D Crossover 80/20 Line Break 80/20 Line Break Divergence Divergence Bad Signals? RSI RSI

overbought

oversold How To Trade RSI

4 Classic ways: •70/30 Line Break •Divergences (Positive / Negative) •Trend •Centerline cross 70/30 Line Break 70/30 Line Break Divergences

•According to Wilder, divergences signal a potential reversal point because directional momentum does not confirm price. • A bullish divergence occurs when the underlying security makes a lower low and RSI forms a higher low. •ie. RSI does not confirm the lower low and this shows strengthening momentum. •A bearish divergence forms when the security records a higher high and RSI forms a lower high. •ie. RSI does not confirm the new high and this shows weakening momentum.

Divergence Divergence Divergences

•Before getting too excited about divergences as great trading signals, it must be noted that divergences are misleading in a strong trend. •A strong uptrend can show numerous bearish divergences before a top actually materializes. •Conversely, bullish divergences can appear in a strong downtrend - and yet the downtrend continues.

Divergence Centerline Crossover

Shooting Star

Separating Line

Morning Star at support Centerline Crossover

Bearish Engulfing RSI

Conclusion •A versatile momentum oscillator that has stood the test of time, remaining as relevant now as it was in Wilder's days. •Wilder considers overbought conditions ripe for a reversal, but overbought can also be a sign of strength. •Bearish divergences still produce some good sell signals, but chartists must be careful in strong trends when bearish divergences are actually normal. RSI

Conclusion •RSI can be used for: •Overbought / Oversold •Buy / Sell with Candle pattern •Continuation on trending swing trades

•ALWAYS confirm with Candle pattern and/or additional indicator MACD MACD

•Trend following MOMENTUM indicator •Moving Average Convergence / Divergence •Spread of 2 exponential moving averages •Subtracting the 26 EMA from the 12 EMA •MACD Signal Line •Exponential moving average of the MACD line •A nine period EMA of the MACD plotted on top of the MACD, functioning as a trigger for BUY and SELL signals

How To Trade MACD

3 Classic ways: •MACD line crosses Signal line •Divergences (Positive / Negative) •Overbought / Oversold MACD Crossover

THE TRADING RULES OF THE MACD CROSSOVER •To enter into a trade using the MACD crossover: •Wait for the MACD to cross •Then Place your order - preferably a buy stop or sell stop order. •Your stop loss should be placed significantly away from your trade entry point to avoid getting prematurely stopped out. •To exit a trade or take profit, wait for the opposite trade signal before you exit. •For example, if you were in a buy trade, then wait for a sell signal and when that happens, you exit your buy trade and enter a sell trade

www.candlecharts. com Large upper shadows…Shooting Star? SELL HERE

BUY HERE

Bullish Engulfing confirming support

MACD Crossover to the Downside

MACD Crossover to the Upside

www.candlecharts.com Large upper shadows and hybrid Shooting Star Large upper shadows confirming resistance along with negative divergence on MACD

SELL HERE SELL HERE BETTER

BUY HERE

Morning MACD Star Bullish Engulfing Crossover to at support the MACD Downside Crossover to the Downside

MACD Crossover to MACD the Upside Crossover to the Upside

www.candlecharts.com Dark Cloud Cover with mild negative divergence on MACD

SELL HERE

BUY HERE

Morning Star and Hammer

MACD Crossover to the Downside

MACD Crossover to the Upside

www.candlecharts.com MACD Divergence

Positive Divergence MACD

Negative Divergence MACD Oversold MACD OB / OS A little known secret…

•There are other forms of support and resistance that are not so common. •For example, look for charts that pull back and find support halfway into a prior wide range candle…. Wide range candle

Pull back

www.candlecharts.com Wide range candle

Pull back

www.candlecharts.com Supplemental and Bonus Material - Lesson Two

1. Additional material on Indicators reviewed 2. Bollinger Bands 3. Stochastics trading strategy

Session Three - Homework Homework

Review prior trades / setups with various discussed indicators… • Were setups with indicators confirming high probabilities trades? • Was management of trade confirmed with indicator signals? • Was the outcome same, better, worse with Indicators? KAIZEN TRADING APPRENTICESHIP SESSION FOUR

• Trade Entry Techniques (intraday and end of day techniques) • Calculation of Risk/Reward • Psychology of entries • The importance of Paper Trading