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Indicators Nison Power Concept EAST & WEST CONFIRMATION 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 support and resistance 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 • Bollinger Bands • RSI • Stochastics • MACD • Price Patterns • Fib Retracements • Moving Averages • Etc. The Essentials of Technical Analysis The following Technical Analysis (TA) tools are 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 Indicators • Average True Range • Moving Averages • Breadth Advance/Decline • Money Flow • Commodity Channel Index (CCI) • Relative Strength Index (RSI) • Directional Moving Index (DMI) • Stochastics • Force Index • Ultimate Oscillator • MACD • Volatility • McClellan Oscillator • Volume and Volume Average • Momentum • 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 moving average 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 chart pattern shows a descending triangle 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….
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