Instructors:

Syl Desaulniers, Nison Certified Trainer™

Tracy Knudsen, Nison Certified Trainer™ Improve Your Process… Get BIG Results KAIZEN TRADING APPRENTICESHIP Bonus Session

Address student trades, concerns, follow-up questions Analysis of current market conditions

Awarding of Kaizen Technician™ certification

Strict Candlestick Patterns

Qualifications for Strict Candle Patterns: - Shape of Candle Lines or Pattern - Trend requirement is the same for strict and non-strict patterns

Important Concept with Candle Lines/Patterns: - Confirmation: Using a move after the initial candle signal to validate a move - Less important with East/West Confirmation

Candlestick Lines and Patterns

In Order of Candle Progression - Least to Most Bullish - Least to Most Bearish - Risk/Reward Tradeoff comes with candle progression Strict Candlestick Patterns - Bullish Strict Candlestick Patterns - Bearish Trend Progression/Multiple Time Frames

Monthly, Weekly, Daily, 4 Hour, 2 Hour, 60 Minute, 30 Minute, 15 Minute…

• Involves monitoring the same instrument across different frequencies (or time compressions)

• No real limit as to how many frequencies can be monitored or which specific ones to choose

• Trades placed in direction of longer term trend have higher probability of success

• There are general guidelines that most practitioners will follow Trend Progression/Multiple Time Frames

• Looking at a stock through different time frames can be confusing as a new trader. Why? • Because each time frame looks different! • A stock may look great on the daily chart, but look horrible on a 5 minute chart.

• How many timeframes should a trader use? • Using three different periods gives a broad enough reading on the market • using fewer than this can result in a considerable loss of data • while using more typically provides redundant analysis. Trend Progression/Multiple Time Frames Rule of 4

When choosing the three time frequencies, a simple strategy can be to follow a "rule of four.“

Using short-term, intermediate and long-term time frames Eg. : 15 min, 60 min, 240 min (4 hour)

It’s imperative to select the correct time frame for all 3 periods….. Long-term trader holding positions for months will find little use for a 15 min, 60 min and 240 min combination

Day trader holding positions for hours find little advantage in Daily, Weekly and Monthly Trend Progression/Multiple Time Frames

• When combining three time frames, a trader will easily improve the odds of success for a trade

• Performing the top-down analysis encourages trading with the larger trend • This alone lowers risk as there is a higher probability that price action will eventually continue on the longer trend. Trend Progression/Multiple Time Frames

• For example • If the larger trend is to the upside but the medium- and short-term trends are heading lower, cautious shorts should be taken with reasonable profit targets and stops. • Alternatively, a trader may wait until a bearish wave runs its course on the lower frequency charts and look to go long at a good level when the three time frames line up once again.

• Another clear benefit from incorporating multiple time frames into analyzing trades is the ability to identify readings as well as strong entry and exit levels. Nison Candlesticks + Western Indicators Nison Power Concept EAST & WEST CONFIRMATION

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

Nison candles with:

• Trendlines • • RSI • Stochastics • MACD • Price Patterns • Fib Retracements • Moving Averages • Etc. The Essentials of

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

• Japanese Candlesticks • • 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 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 www.candlecharts.com Most Common Indicators

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

• Momentum oscillators can become overbought (oversold) and remain so in a strong up (down) trend.

• Like many momentum oscillators, overbought and oversold readings for RSI work best when prices move sideways within a range (wide range - multiple dollars) Ranging Markets

Set the Overbought level at 70 and Oversold at 30. • Go long when RSI falls below the 30 level and rises back above it or on a bullish divergence where the first trough is below 30. • Go short when RSI rises above the 70 level and falls back below it or on a bearish divergence where the first peak is above 70. Trending Markets

Only take signals in the direction of the trend.

• Go long, in an up-trend, when RSI falls below 40 and rises back above it. • Go short, in a down-trend, when RSI rises above 60 and falls back below it. How to Identify Support and Resistance Levels

Support and resistance identify areas of Supply and Demand.

What exactly is Supply and Demand? SUPPLY

Supply is an area on a chart where sellers are likely going to overwhelm buyers causing price to go down.

On a chart, we call this resistance. DEMAND

Demand is an area on a chart where buyers are likely going to overwhelm sellers causing price to go up.

On a chart, we call this support. SUPPLY AND DEMAND

Knowing this, it only makes sense to buy at support and sell at resistance! SUPPLY AND DEMAND

Price runs into resistance (supply) because those traders that bought too late and saw the price go down now want to get out at break even so they sell. Price finds support (demand) because those traders that missed the move up now have a second chance to get in so they buy. Ok, you probably already knew all that but here is something that most traders do not know. There are varying degrees of support and resistance. 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…. Price Patterns

Head and Shoulders Top/Bottom Ascending Triangle Descending Triangle Symmetrical Triangle Flags and Pennants Double Tops and Bottom Box Range Crack and Snap Falling off the Roof Trade Entry

Intraday and End of Day When to enter a trade

When to avoid a trade

Risk/Reward

Buy XYZ at 100

Support at 96

Price target at 108

Risking 4 looking to make 8 = 1:2 risk/reward A candle signal – even if it confirms other indicators – is not enough of a reason for a trade. You must always consider risk/reward © 2004 Steve Nison’s Candlecharts.com The Value of Paper Trading

To become the trader you know you can be….

You have to do more than you think you can do…. Ask Yourself…

• If you trained in the weight room as hard and as smart as you trained for trading success….

How strong would you be??? Simulated Trading

• Practice a lot….. • Practice takes more time than the main event • Key to confidence, competence and trading success • Enables to get a feel for the markets without risk • Try a system prior to committing any real money When do I start??

• As soon as introduced to the charting features and entry signals • Should be frequent and include every stock symbol appearing in your daily Watch List • Practice makes perfect • Achieve 75-95% accuracy on winning trades How Long????

• No set time • Continue until competent • Confident in using real techniques • Paper trade at least for 4-6 weeks before using real money. Risk

• No risk or pressure in paper trading like there is with real trading • Begin with a small amount of capital • Start by trading a small percentage of the account and trade single lots (100 shares) • Enter many tiny trades Walking Tall

• Start small but think tall • Learn to walk before you run • Simulations like paper trading force you to make decisions and then show you the consequences of those decisions again, without risking capital Practice makes Perfect….. Perfect Practice makes Perfect

• Paper trade to establish a track record • Develop trading discipline • Test trading strategies • Evaluate new markets • Build confidence • Trading career decisions Quote

• Paper trading is exposure to experience without risk. • Anonymous NISON TRADING PRINCIPLE

There should always be a price that says we are WRONG = THE EXIT STOP Exit Strategy Basics

Your exit strategy consists of two parts: 1. Where will you get out of the trade if it does not go in your favor? 2. Where will you take profits if it does go in your favor?

These are the two questions that make up your exit strategy. You have to be able to answer these questions in order to consistently make money in any market. Initial Stop Loss Order

•When you first buy (or short), you must set an initial stop loss point. •This protects your capital if the trade goes against you.

•There are two types: •A physical stop loss is an order to sell (or buy if you are short) that you place with your broker. •A mental stop is YOU clicking the sell (buy) button to get out of the trade. •From a technical perspective, it does not matter which type you use. THE PLAN

• Before you get into a trade you will need a plan that will determine when to get out of the trade if it does not go in your favor.

•You are a disciplined trader that always follows your plan (right?).

• Whether you use a mental stop or a physical stop, you will always want to exit the trade when your predetermined plan tells you to. The PLAN – STOP PLACEMENT

• Where is your initial stop going to be? You need a stop that makes sense and you need it to be out of the "noise" of the current activity in the chart.

• Look at the average range of the instrument over the past 10 days. If the average range of the price action is, say, $1.10, then your stop needs to be at least that far away from your entry price. It doesn't make any sense to have your stop .25 cents away from your entry price when the recent daily range is $1.10. You will surely get stopped out prematurely! • THINK ATR (Average True Range) Trailing Stops

Using trailing stops is an easy and unemotional way of exiting a trade.

If a trade is going to be a typical swing trade with a holding time of 2-5 days, then you can trail your stops 10 or 15 cents under the previous days low or the current day’s low - whichever is lower. Trailing Stops

For longer holding periods, trail your stops under the swing lows (or highs for shorts) until stopped out.

Having some big winners now and then will fatten up your trading account! Selling At Resistance

When you buy a pullback, look to the left on the chart at the previous swing point high. That is the first resistance area that price will encounter. Of course, you hope that price will power through that area. If it doesn't, sell it. Selling Into Strength

There are times when you may want to take some profits and sell into a powerful rally. There Is No Perfect Strategy

No exit strategy is perfect! Sometimes you sell too soon. Sometimes you sell too late. That's the bad news.

The good news? You do not need a perfect exit strategy to be successful. You just need to be able to protect your money when you are wrong - and take profits when you are right. Trailing Stops

Trailing your stops in this manner is a great way to remove the emotion from a trade. There is no guesswork involved. You just move your stop loss order up in the manner described above and you can eliminate the "emotional selling" that seems to plague so many traders. Things to Consider

• Consider abandoning this trailing stop strategy if price suddenly moves significantly in your favor. You do not want to give up huge gains by trailing your stop loss order under a wide range candle! Use midpoint of wide range candle. • When price moves up to test the next resistance point, consider selling half your shares and trailing your stop loss order on the remaining shares. • You do not want to get stopped out prematurely if you are at the beginning of a trend. (Average True Range) • Keep your stop loss order further away so that you can ride the trend to completion. Things to Consider

• There are no hard and fast rules for every single trade because every trade will be different.

• Just remember the #1 rule of trading: Keep your losses small and let your winners run. The 2 for 1 Money Management Strategy For Swing Traders

• The 2 for 1 money management strategy is a conservative way of trading, however, if you are new to trading then this will help you to stay alive while on the learning curve. • This money management strategy will help maximize your profits while minimizing your losses! • The basic premise of this strategy is take profits on half of your position once the instrument moves equal to your original position’s stop loss. Trading Tips

• Low volatility leads to high volatility. • High volatility leads to low volatility. • Narrow range candles mean that momentum is slowing. The buyers or sellers are losing strength. • Always look to the left on the chart to make sure that price is at a significant support or resistance area. Nison Trading Principles

1) All Western charting tools can be used on a . 2) The candle line shows not only the price, but also the force behind the move. 3) If a session makes a new high for the move, then wait for bearish confirmation by a close under the doji’s close. 4) The more signals (candles and/or west) that converge the more likely a reversal. 5) A candlestick line or pattern requires the shape of the line or pattern and the preceding trend. 6) If a candle signal confirms a Western signal, or another candle signal, the more likely a reversal. 7) Candle signals must be evaluated and acted upon within the market’s context. 8) If …Then Rule Part 1: If the market does not act as forecasted, then exit the position. Part 2: Initiate a position when the market justifies your potential trade (i.e. If the market breaks above resistance, then buy). Nison Trading Principles

9) A candle signal by itself is normally not a sufficient reason for a new trade. 10) As market environment changes we should adapt our market outlook and stance. 11) There should always be a price that says we are wrong. 12) Candlesticks do not give price targets. 13) With windows, size does not matter. 14) Do not only consider the market’s price. Analyze the shape and size of candle lines at that price. 15) ALWAYS JUDGE THE POTENTIAL TRADE’S RISK-REWARD

Improve Your Process… Get BIG Results