Steve Nison's The Candlestick Success Formula Day 1

Steve Nison’s The Candlestick Success Formula Day 1

1

TheCandlestick

SuccessFormula

With

Steve Nison, CMTPresident: Candlecharts.com

Day 1

CandlestickCharting

Techniques

Candlesticks +Western

Indicators

Candlesticks + Trade Management

Steve Nison’s

Trading TriadSuccessSystem

Steve Nison’s

Trading TriadSuccessSystem

Candlestick Success Formula Agenda


2

www.candlecharts.com

Reversal SignalsReversal Signals

• Where the currenttrend slows orreverses after thereversal pattern.

• Most candle signalsare potentialreversals.

SIMPLE!



The Framework:Analyzing Real Bodies

and Shadows

The Framework:Analyzing Real Bodies

and Shadows


3

open close

open

RealBody

high

low

Shadow

Real Bodies / Shadows

close


The longer the realbody the strongerthe momentum.

The relative sizeand position of theshadow displaysthe extent of pricerejection.



4

Who’s in control?

Who’s in control?

These have the sameclosing prices, but what arethe candles telling us?

CANDLES REVEAL THE FORCE BEHIND THE MOVE:HOW DOES THIS KNOWLEDGE IMPROVE YOUR TRADING?


What does this bar chart say?

Holding the highs verywell so looks fine

Chart courtesy of Genesis FT


5


Now what does this candle chart say?

Does the market still lookfine?



And what happened after ….

7


Stocks

Options

FX

1 Minute

15 Minute

30 Minute

Hourly

Daily

Weekly

ETF’s

Futures

Bonds


6


Basic Criteria:• Market in up or down trend

• Open and close prices are the same(or nearly the same)

Market Implication:Market at a point of indecision


Saved by the light of the candles!

Those poortraders whogot fooled intobuying here.


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[email protected] 732.254.8660 USA

Scenario 1 Scenario 2

Which of thesescenarios is a morelikely top reversal?

Non Forex Doji

13


Doji in Forex

14


8

Doji as Warning

Weekly Weakly

Doji Confirms resistance


Use the highest high ofthose two sessions (topof upper shadow) asresistance


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Candles can be used in all time frames

“Market istired”


Nison Candles and Options - the Perfect Fit

www.candlecharts.comwww.candlecharts.com

This doji is showing ashift in psychology sinceit comes during a rally

Is this doji telling us there issomething different about themarket?


10


There is no trend toreverse with thisdoji– thus weignore it.

Doji in Context


Analyze these doji in the context of what happened before.

Are any of these a more likely reversal and why?

A B C

Nison Case Study


11


Which three prices of thesession are on the high?

What happened duringthe session and bysession’s end?

DRAGONFLY DOJI


Dragonfly


Dragonfly Doji (and failure to hold lows)


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Which three prices ofthe session are on thelow?

What happened duringthe session and bysession’s end?

Gravestone Doji


25 daymovingaverage

Close underm.a. supportarea but notehow we got anearlierreversal withthe gravestone

FMNA Bond Prices

Gravestone doji


With the idea ofcandles in contexttell me aboutthese doji (anddoji like) candles

Nison Case Study


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Shadows

Remember: location and size of the shadow should beconsidered when analyzing the market psychology.

Implication: Bearish long upper shadow offsets “rallyingstrength.” Bullish long lower shadows hints bears losingforce.


Market Rising inAgony

Long Upper Shadows

Quickly Reading Market Psychology



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Basic Criteria• Market in a downtrend

• Small real body (either color) at, ornear, top of range.

• Lower shadow at least 2x height realbody

Market Implication“A chance to buy at the bottom “

Support or ResistanceLow of hammer as support


HAMMER AND BULL SHADOWS


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hammer’s lower shadow as Support

The market will often retest thelower shadow of the hammer


SECRET HAMMER TACTIC

Will oftenretestlower

shadow


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HAMMER


PATIENCE TO LOWER RISK


1

2

34

5

Which are hammers and why

48

Nison Case Study


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Basic Criteria:• Market in up trend

• Small real body (black or white) at,or near, bottom of session

• Upper shadow at least twice heightof the real body

Market Implication:Potential top reversal

Support or Resistance:High of signal as resistance


Hammer and shooting star

hammer

Shooting star


Shooting Star “signals trouble overhead”


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Shooting Stars as Resistance


Shooting Stars

Theseare NOTshootingstars!


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Shooting Stars Signal Trouble Overhead

Rally started with a hammer

Ends with back to backShooting stars


1) Name the two reversal signals atthe arrows.

2) Would you use these signals to sellshort? Liquidate longs? Why?

3) What is bearish confirmation of thereversal signals?

Nison Case Study

Shooting star

Hammer


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High wave

Convergence of Candles Define Support

1

2 3 4

Single Candle Lines: Reading the Market’s Psychology


21

Reading the Market’s Message Quickly and Accurately

If I had only known this!

Basic Criteria• Market in down trend

• White real body wraps around priorsession black real body

Market ImplicationBottom reversal

SupportThe lowest low of the two sessionsof the pattern

Nison Power Concept

Bullish Bearish


22

close

openopen

Shadows for Insights

Lower closes, butwhat are shadowshinting?

Getting into the Market Before it makes its Move


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Bullish Engulfing Pattern

How many black candles didthis wrap around?


Basic Criteria• Market in up trend

• Black real body wraps around priorsession opposite color real body

Market ImplicationTop Reversal

ResistanceThe highest high of the two sessionsof the pattern


24

closeopen

open


Bearish Engulfing Pattern

Bearish Engulfing pattern as resistance


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Candles: Support and Resistance

Getting into the Market Before it makes its Move


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?

1) What candle clues were there in the circledarea at A?

2) What was happening to the highs?

3) Why concept does 1 and 2 show that increaseodds of a turn? And would you sell short oradjust longs?

4) Should we be selling short at B with the spinningtop and doji?

5) What pattern is at C?

B

C

A

Nison Case Study


• Opens below prior low (or close)

• White candle closes more than 50%into prior black real body

Market ImplicationBottom reversal

SupportThe lowest low of the twocandlestick lines


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Piercing Pattern

Piercing Pattern Confirms Support

Piercing Pattern

Not Piercing Patterns


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• Opens above prior high (or close)

• Black candle closes deeply intoprior long white candle

Market ImplicationTop reversal

Support or ResistanceThe highest high of the two linesthat make up the pattern

Dark Cloud Cover as Resistance- FX

Dark Cloud Cover- Futures



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Dark Cloud Cover - Stock

Dark Cloud Cover


• First candle is an unusually longblack real body

• Second relatively small real body(either color) within prior real body

Market ImplicationPrior trend is “losing its breath”

SupportNot used


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Bull Harami

Rising Window Hammer

Bull Harami

PotentialSellingclimax


• First candle is an unusually longwhite real body

• Second relatively small real body(either color) within prior real body

Market ImplicationBulls losing momentum


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Bear harami

Forex Harami

black real body

white

Criteria:• First candle is unusually long• Second real body spinning top or doji• Second real body within prior real body• Second real body opposite color

Implication: ‘Change in flow of market”

Bearish

Bullish


Bear Harami

Not harami



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Black candle followed by white candlethat opens at (or above) prior open. Thencloses over black candle open.



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Bull Separating line

Bull separating but lookwhere it is!

152


White candle followed by black candlethat opens at (or below) prior open. Thencloses under white candle’s open.


Bear Separating line


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Black candle followed by white candlethat opens within black real body andcloses over prior open.


Bull Sash Pattern

Bull Sash

White candle followed by blackcandle that opens within white realbody and closes under prior open.


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BASIC CRITERIA• Trend not important

• White candle followed by black candle thatopens within white real body and closesunder prior open.

STRICT CRITERIA• Both long real bodies

• 2nd candle closes under prior low

• Black real body closes at, or near, its lows

PATTERN PSYCHOLOGYThe white candle means the bulls are runningthe show. And then the next session themarket gaps lower and is not only unable tomake it this lost ground, but closes under thewhite candle. This shows the bullish energyhas been sapped out of the market resultingin very scared bulls.

SUPPORT/MOMENTUM TRADING

• Highest high of both candles asresistance

• Consider buying on breakout overhigh of pattern


Since the market has to gap lower thispattern not applicable to FX.

The more the market gaps down on theopen and the lower the close on theblack candle the more meaningful thepattern

Keep in mind risk/reward since thispattern is completed after substantialmove has already occurred.

Opposite of Bull Sash pattern

If open of black candle is same (orlower) as prior open, it is a BearishSeparating Line.


Bear Sash

Bear Sash


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Criteria• Market in downtrend

• First candle is long black

• Second candle small real body thatdoesn’t (or slightly) overlaps first realbody

• Third candle is white real body thatgets deeply into first real body

Market ImplicationBulls now in control

SupportLow of three candles

white or black

Morning Star as Support

Morning Star as Support


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white or blackCriteria• Market in uptrend

• First candle is long white

• Second candle small real body thatdoesn’t (or slightly) overlaps first realbody

• Third candle black real body that getsdeeply into first real body

Market ImplicationBears are now in control

ResistanceHighest high of three candle lines

Evening Star


Evening Star



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Evening Star as resistance area

Evening Star


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1 2 3

A- What candle signals at 1 to 4reflect trouble near 1.9550?

4

Nison Case Study

Go in the direction of thewindow

Corrections stop at thewindow

WindowsWindows

A rising window issupport

Corrections stop at the window

SupportZone


40

Candles in Context

ShootingStar, but…

Rising Window

How education SAVES you money

Bearish engulfingpattern, but you mustnot sell here!


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Importance of Windows

Shooting Star


1) What is the pattern at A?

2) What were the two aspects thatmade pattern A more likely bottomreversal?

3) After the week of October 8 whywas there support near $23?

A

122

Nison Case Study

A falling window isresistance

Corrections stop at the window

ResistanceZone


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Large and small windows

Smallwindow

Largewindow withthe bottom ofthis windowas pivotalsupport

Falling Window


Falling window with extra confirmation

The spinningtops helpedconfirm theimportance ofthe fallingwindow’sresistance

Fallingwindow


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Closed under the window’s support

Breaks the risingwindow‘s

support area


1. What are the reversal signals?

2. Where is potential support?

3. Any signals confirmingsupport area forecasted in #2?

128

Nison Case Study

When the market gaps above resistance – or below support

Breakaway Gap


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Breakaway gap

The stock not only breaks support – but does sowith a falling window. This increases the potencyof the window’s resistance. Note the shooting starand bearish engulfing pattern on the rebound


Breakaway Gap


Breakaway Gap


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Fry Pan Bottom Dumpling Top

Fry Pan Bottom


Fry Pan Bottom

Small window

Fry Pan Bottom

Broke support


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Dumpling top

Island Top and BottomIsland Top and Bottom

Island Top

Island Bottom


Island Top and windows


The falling window portion ofan island top becomes 1st

resistance.

Candlestick resistance level

Traditional Western resistance level


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Window and Island top

Gap up Gap down

R1

R2


Timing advantages of candlesticks


Windows and Island Bottom

Island Bottom

This is our first support,not the low of the island

What is nextsupport underthis window?


48


Island Top


1. What pattern is highlighted?

2. When would you sell short based on this pattern?

Nison Case Study

During this time, themarket is ascending.However, what are

reasons for caution?

Nison Case Study


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CandlestickCharting

Techniques


Indicators


The Multiplier Effect

Where a Nison candle signal confirms another indicator

How NOT to use candlesticks

Oh my goodness! Themarket rallied after theshooting star!


50

Bullish Engulfing Pattern at Support


Scenario1

Scenario2


Use candles at support orresistance to screen for thebest probability trades.

Just ask two questions:1) Is market at support or

resistance?2) What is the candlestick

signal hinting at thatlevel?


51

Candles and Trend lines


How Education Saves You Big $$$

Major resistance 2.00-2.01


Long term resistance zone




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Long term resistancezone



Trend lines and Candle Confirmation


Reading the Market’s Message with the Light of the Candles



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SupportSupport

ResistanceResistance


Change of Polarity



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Change of Polarity


Don’t look through a well!

1

2

3

4

5

Why would we trade differently with Piercing Patterns4 and 5, compared to Piercing Patterns 1,2 and 3?

Hint: “Change of Polarity”


How Education SAVES you money


55

What candle signals are at 1 to 8?Assume you buy at 8 where is your stop andwhy?Where are some areas of resistance ?

12

3

4

5

6

7

8

Nison Case Study

What patterns at 1 and 2? Even if pattern at 1 is not classic(explain why it may not be) why would you still be cautious there?

Based on Change of Polarity give S1, S2And then where is S3

1

2

Nison Case Study

Snap

Crack

Target

Stop

Buy



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Crack and Snap


Crack and Snap


Hammer and Crack and Snap



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Crack and Snap


Sell

Target

Stop



Falling off the roof

PriceTarget


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Falling off the Roof


Falling off the Roof


Bollinger Bands


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Doji in context


Candles and Bollinger Bands







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SQUEEZE

Candles and Volume

Light volumebreakout

And then!


Candles and Volume

Higher volume on white candlecompared to black on this bullishengulfing pattern magnifies thelikelihood of a reversal



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Candles and Volume to increase success


Volume Confirming the Candle Signal


Oscillators



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Oscillators

Objective

Separate from price

Best in lateral markets

Includes stochastics, MACD,RSI, price oscillator, etc.

Positive Divergence Negative Divergence

Price

Oscillator

2

12

1

Oscillator

Price

12

12

Divergence

• Compares advances to declines

• Most common 9 and 14 period

• Uses : Divergence, Extremes (70%and 30%), Trend lines

Relative Strength Index(RSI)


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Relative Strength Index

Formula: = 100 – (100/1+RS)

Where RS = average of N day’s up closesaverage of N day’s down closes

Example: If total up points (close to close) over 14 days was $28 andtotal down points for 14 days was $14:Average up = 28/14=$2and Average down 14/14=$1.

So, RS= 2/1=2 and RSI = 100 – (100/1+2)=100-33.33 = 66.67%

Concept – closes cluster to highs

Most common – 9 and 14 period

Two lines - %K and %D

Stochastics

a) %K – close compared to price range

b)%D – 3 period average of %K

(a) and (b) - Fast Stochastics

3 period average of (a) and (b) = Slow

Stochastics

Stochastics


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Stochastics

Formula for %K:today’s close-lowest close in N periodshighest high in N periods-lowest low in N periods

100 *

Example: for 14 day %K, today’s close is 41, if highest high

was 46 and lowest low was 41, for %K we have:

%K = 41-38/46-38 *100= 37.5%

This means today’s close was 37.5% relative to the entire

range of last 14 sessions.

a) %K – close compared to price range

b)%D – 3 period average of %K

(a) and (b) = Fast Stochastics

Stochastics

Slow Stochastics = The %D in Fast

Stochastics becomes %K in SlowStochastics, and %D in slow is a 3 periodma of Fast %D.

Faster %Kline crosses% D line

OverboughtandOversold

Using Stochastics

Bullish andBearishDivergence

Stochastics


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Short term from longer term m.a.

Overbought/oversold, divergence

Dual Moving Averagesaka Price Oscillator

Price Oscillator

Formula:short term moving average – long term movingaverage

Example:

10 day moving average = $2330 day moving average = $31

Price oscillator = $23-$31= -8

If 10 and 30 day moving averages are the same Price Oscillator = 0

MACD line and Signal line

MACD Line – spread of two

exponential moving averages

Signal Line – Exponential moving

average of MACD line

Moving AverageConvergence/Divergence

(MACD)


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MACD linesCrossesSignal line

OverboughtandOversold

Using the MACD

Bullish andBearishDivergence

Moving AverageConvergence/Divergence

(MACD)


Bearish Divergence


Bearish divergence with candle confirmation

Doji and shooting

star warning of

trouble overhead


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East + West = Higher Confidence

Two doji, but one ismore likely a reversalbased a westernindicator

Candles in Context: East + West

Two doji, but….


Oscillators – Bearish Divergence


68


Bullish Divergence confirmed with candles

Hammer and bullishdivergence


Stochastic Crossovers


Bearish Crossover with stoch. confirmed by candles

Bullish engulfingpattern and %Kcrossing under %Dline from overboughtreading in oscillator


69


Oscillator- Stochastic with Candles


Overbought/Oversold

1 and 2 are the same price, but whereis the stock healthier?

1 2

Moving Averages

Support / ResistanceTrend Indicator

price

Moving average


70


Moving Average


Convergence of Signals


Candles in Context – Moving Averages


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Moving Average


Moving Average


Candles in Context – Moving Averages


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Doji in context









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Retracements

(B)

(A)

50%

38.2%

61.8%

$100

$200

($150)

($162)

($138)


Retracements


Candlesticks do not give price targets


74


Support and Resistance/Pivot Highs and Lows

This high is higher than thesession before and after it

This low is lowerthan the sessionbefore and after it


NecklineNeckline

LeftShoulder Right

Shoulder

Head

Head and Shoulders Top Inverted Head and Shoulders

Head and ShouldersHead and Shoulders

Neckline

Left ShoulderRightShoulder

Head

Head and Shoulders Top

Sellsignal


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neckline Interview

Head andShoulder top

TASC Interview - Jan. 24, 2003 S&P at 860

“… the heads and shoulders top on theS&P gives a target to near 775. A closeover 870 would void this.” Hammer

1) Once the neckline’ssupport is broken, itshould becomeresistance.

2) To get a target with thehead and shoulders topwe measure from the topof the head to theneckline.

neckline Interview

Head andShoulder top

TASC Interview - Jan. 24, 2003 S&P at 860

“… the heads and shoulders top on theS&P gives a target to near 775. A closeover 870 would void this.” Hammer

1) Once the neckline’ssupport is broken, itshould becomeresistance.

2) To get a target with thehead and shoulders topwe measure from the topof the head to theneckline.


Candles “Shine” for Safety First Trading



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Ascending

Descending


Ascending triangle



Candles for reversals and Western for targets

Bearish engulfingpattern at top of bullchannel

target


77


East and West


Candles and Price Targets

This doji takes on extra significancebecause it confirms a resistance level


BOX RANGE


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“Box Range” Breakout“Box Range” Breakout


Box range Breakouts


Box range breakout

Harami withtarget bottom ofbox


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East & West = Profits

Steve Nison’s Candlestick Success Formula- Day 2: How Steve Trades

1

Find a watch list of markets

Review watch list for potentialtrades

Reasons for the potentialtrade

Cautions Risk -why Target Check for any expected news


2


Track open trades

Move stop? Adapt?

Exit

Exit price Why did you exit Analyze the trade


3

Go through watch list for high potential candidates

Reasons for thepotential trade

Cautions Risk Target

Exiting the Trade

sold

Covered at supportbefore weekend


Protectingyour Assets


4

Setting up the trade

Placing and monitoring the trade

Exit and analyze


5

Setting up the trade – May 3



Getting into the trade – May 4

Monitoring the trade – May 5


6


What wouldyou do andwhy?

BB20-50 day


Trade Overview

After close of this day I scanned themarkets for recent bear candles. Twocame up at the same resistance. Nextday sold short 6.06


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How Education helps SAVE and MAKE you money

Liquidated my stock portfolio

Re-entered the market here


How Education helps SAVE money

Exited my stocks here

Evening star variation


How Education helps MAKE money

Morning starvariation

Entered themarket here


Falling window

Steve Nison’s Candlestick Success Formula- Day 2: Candlesticks and Options- The Essentials

1

NisonCandlesticks

withOptions:TheEssentials

What Are Options?

Options are contracts:

• Giving the owner the right to buy or sell an assetat a fixed price for a specific period of time

• and obligating the seller to take the oppositeside if and when the right embedded in theoption contract is exercised by the owner.

ExamplesXYZ January 70 Call at $3.10ABC February 35 Put at $1.20

Call or Put

• Calls are options to buy a stock.

– The buyer obtains the right (but not the obligation) topurchase the underlying stock.

• Puts are options to sell a stock.

– The buyer obtains the right (but not the obligation) tosell the underlying stock.



2

Underlying

• Options are customarily on one underlying.

• Equity options ordinarily represent 100 shares ofthe underlying stock.


Four Basic Trades

Right tobuy

Right tosell

CALL PUT

Obligationto buy

Obligationto sell

Buyer(long)

Seller(short)


Exercise & Assignment Defined

Exercise:

• to invoke the right contained in an optioncontract

Assignment:

• to be required to fulfill the obligation


3

If long or short an option trade here are your choices

• Sell to close or buy to close

• Exercise or acceptassignment

– Shares are exchanged at

the predetermined price(strike)

• Let expire (worthless)

– If long, lost what was paid

– If short, gained the maximumpossible

I’m Long or Short, What Now?

• Sell to close or buy to close

• Exercise or acceptassignment

– Shares are exchanged at thepredetermined price

• Let expire (worthless)

– If long, lost what was paid

– If short, gained the maximumpossible

69.4%

11.6%

19%

Source:Option Clearing Corporation

* Calendar year 2008

Major Components of Option’s Price (Premium)

Price of Underlying Security

Strike Price

Expiration

Implied Volatility


4

Premium

• The price of the option.

• Paid by buyer; received by seller.

• The price is multiplied by the number of sharesthe contract represents, generally 100 shares.

– $3.10 option actually costs 100 x 3.10 or $310

– $1.20 option actually costs 100 x 1.20 or $120

ExamplesXYZ January 70 Call at $3.10ABC January 35 Put at $1.20

Strike Price

• The pre-determinedprice at which theunderlying asset will bebought or sold shouldthe option be exercised.

• In the listed optionsmarketplace the strikeprices are standardized.– Stocks priced between 0-

25 intervals of 2 1/2

– Stocks priced between 25- 200 intervals of 5

– Stocks priced greaterthan 200 intervals of 10


Intrinsic value: the amount, if any, by which an option contractis in-the-money. By definition, at- and out-of-the- money optionsdo not have intrinsic value.

Time Value: the portion of an option's total premium thatexceeds its intrinsic value, if it has any. By definition, the premiumof at- and out-of-the-money options is entirely time value.

Intrinsic Value and Time Value


5

The relationship between the strike price andunderlying security’s price determines if call orput option is In, At, or Out of the Money

In, At, or Out of the Money

For calls: a call option is in-the-money if the strike priceis less than the current price of the underlying securityor index.

Example: underlying@40, 35 strike

For puts: a put option is in-the-money if the strike priceis greater than the current price of the underlyingsecurity or index.


In-the-money

For calls: a call option is out-of-the-money if thestrike price is greater than the price of theunderlying security or index.


For puts: a put option is out-of-the money if thestrike price is less than the price of theunderlying security or index.


Out-of-the-money


6

For calls and puts: When the price of theunderlying security or index is equal tothe strike price

At-the-money

In, At and Out’s for Call Options 80 Strike Call Option

MarketPrice

At-the-Money

70

75

80

85

90 In-the-Money

Out-of-the-Money

In, At and Out’s for Put Options 80 Strike Put Option

MarketPrice

At-the-Money

70

75

80

85

90 In-the-Money

Out-of-the-Money


7

Market at $49

Strike Price Intrinsic ? Time Value? Premium In-At, or Outof theMoney?

$48.00 3.77

$49.00 3.15

$50.00 2.75

$52.50 1.76

$55.00 1.17

Calls

Strike Price Intrinsic Time Value Premium In-At or Outof the Money

$48.00 2.55

$49.00 3.01

$50.00 3.62

$52.50 5.20

$55.00 7.05

Puts

Market at $49

Time decay (or time "erosion") is the decrease, of an optionpremium's time value due to the passage of time. The rate of thisdecay increases as expiration approaches. At expiration a call orput is worth only its intrinsic value, if it has any.

Time decay


8

Implied volatility is the volatility as implied bythe market price of the security's options. Inother words, implied volatility is the market'sopinion of the volatility of the option's underlyingsecurity and is determined using the followinginformation:

Implied Volatility (IV)

RISK CONTROL

Buy stock at 183. Risk 179 on aclose (due to rising window) .

You’re at work and by the timeyou get back market at 160.70.Loss on stock about $19

If you bought the 30 day ATMcall @ $5.30 loss would be$5.06

Also in getting the call at $5.30means that is your max loss

LEVERAGE

Buy at 144.50Sell at 151.50% gain on stock = 4.8%

Buy ATM 145 call @4.98Liquidate call @ 8.49 withmkt @ 152

% gain on options =70%


9

Why Nison Candlesticks are a perfect fitfor option traders

MSFT

1) Hold Vol constant at 22% and price +20%

MSFT @ $25: 30-day 25 call = 56 cents

MSFT @ $30: 14 day 25 call = $5.00

2) Hold Price Constant at $25 and Vol +20%

30-day 25 call Vol @22% = 56 cents

14 day 25 call, Vol @26.4% = 51 cents

Result:

20% change in price = + $4.44 change in premium (792% gain)

20% change in Vol = - 5 cents change in premium (8.9% loss)

Volatility vs. Direction


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Nison Candles and Options- the Perfect Fit

Scenario 1 – buy at hammerMkt @ $395: 400 call @ $11.31

Exit remaining at 2nd doji (13 daysafter hammer) mkt @ 447: 400 call@ $47.53 (320 % return)

Note: Could take some profits at 1st doji 6 dayslater: Mkt @$405: 400 call @ $15.05 (33%return)

Scenario 2 – buy based on MACDMkt @ $418 : 420 call @ $13.43

Exit at doji (5 days later) mkt @ 447:420 call @ $31.19 (132% return)

Result: Nison candlesticksgenerated almost 2x the profit!

Nison Candles and Options for Protection

Time Decay


11


East and West

32

5 days later mkt @21: 20 put @ 26 cents

Buy 20 put: mkt @22.50 @7 cents

Candle Confidence Level

At supportbut any signsof bears’losing force?bull putspread

MakedirectionalTrade- legout ofspreadand buyback shortput

BULL PUT:Mkt at 20:Buy 30-day 17.50 put for .05Sell 30-day 20 put for .70Net credit of 65 cents

Next session closes @ 19which is under support- youturn bearish:

Cover short 20 strike puts @1.20 (1.20 - .70 = .50 loss)

Net: long 17.50 strike puts

(8 days later) Mkt at 13.52:Liquidate long 17.50 putmkt@ $4.00.


12

Flexibility for Stops Using Options

Buy 7 day 310 put @ 37 cents

Can wait for close

Exit at $3.87

Steve Nison’s Candlestick Success Formula- Day 2: Trade Management

1

TheCandlestick

SuccessFormula

Day 2

With


CandlestickCharting

Techniques


Indicators



2

A candlestick line or patternrequires two criteria:

• The shape of the line or pattern• The preceding trend


Importance of Owning the Correct Knowledge

1

2

3

45

54


How Education MAKES you money

These areNOT bearishengulfingpatterns!

This is a bullishengulfingpattern


3

What defines a trend?

• Higher highs and higher lows

• Chart of higher degree

• Price above a moving average

• Dual moving averages – and use golden anddead crosses


Prevailing Trend

20 day m.a over50 day m.a and bothsloping up


4

Longer Term Trend


Stops


5

Protective Stops

What candle signal?If flat what would you do here and why?

Nison Case Study

A candle signal – even if itconfirms other indicators – is notenough of a reason for a trade.You must always considerrisk/reward


6


“To know whereyou stand is asimportant as

candle patternrecognition.”

Candles in Context


Hammer and Risk/Reward

Risk

reward


Risk-reward

1

2

Two hammers at 1 and 2. Butdue to falling windows onlyhammer 2 presents a buyingopportunity due to the r/r.


7


Risk/Reward

Why I went long:

1) Bullish engulfing at support

2) Other spinning topsconfirming support

3) Trend line breakout of price

Was this a good trade that justdidn't work out or did I make amistake in judgment that I can'tsee?

Thank you,Gary B

Why I went long:

1) Bullish engulfing at support

2) Other spinning topsconfirming support

3) Trend line breakout of price

Was this a good trade that justdidn't work out or did I make amistake in judgment that I can'tsee?

Thank you,Gary B


Candles in Context – R/R


1

2

3Is this hammer apotential good tradecandidate?Why or why not?

Tell me about how youview each of the threedoji with the idea ofprior trend, overbought,confirming a technicalsignal, etc

Nison Case Study


8


If….Then Rule (slide 1 of 2)

Head and ShouldersTop?


If….Then Rule (slide 2 of 2)

Was Head and ShouldersTop Confirmed ?


If….Then Rule

The bullishascending triangleand the new highclose for the movestrongly hints thatthe market willbreak out. Butresistance held.


9


Adapting


Adapting to the Market

Sell here

1



1


10



1


Market Chameleon

Fallingwindow

Buy

orginaltarget

Shooting star(new target)

Buy on these back to backhammers. Original target isresistance as defined by recenthigh and falling window. Withthe resistance and decline fromthe shooting star that zone nowbecomes the area to take profits.


11


The low of thebullish engulfingpattern assupport. Oncehammer is formed(at the arrow) wethen adjust oursupport

Adapting

Trading Journal

Entry Price Risk Initial Target- and

how did you get it

Exit price and reasons for exit Was your initial analysis correct? Did news come out during the trade, and

should you have known this before? Did you use precepts of trade management

like adapting to the market, risk/reward, etc? What would you have done differently ?

Goal: Keeping emotionsout of your trading





12

Monitor, Exit and analyze

window

Case Study Part 1

At last session on chart: Entry Price Risk Initial Target- and

how did you get it Number of shares

or contracts

Your notes:

Case Study Part 2

At last session on chart:1) Would you do a new trade2) If had a trade from before

what would you do now?

YOUR NOTES:


13

Case Study Part 3

At last session on chart:1) Would you do a new

trade?2) If had a trade from

before what wouldyou do now?

YOUR NOTES:

Case Study Part 4

Say you have been using amoving average crossoverwhere you are bullish whendashed line is over the solidline. Based on adding thesemoving averages does thischange what you have done onPart 3?

At last session on chart:1) Would you do a new trade2) If had a trade from before

what would you do now?

YOUR NOTES:

Case Study

Which is a better sale?

Scenario 1 Scenario 2

1

Steve Nison’s Candlestick Success Formula- Day 2: Intraday secrets

With


Intraday Candle Charts

Be more flexible withcandle patterns onintraday candle chartsthan with daily orweekly candles

Be more flexible withcandle patterns onintraday candle chartsthan with daily orweekly candles



2


close

open



Close Open


closeopen


3


Dark Cloud Cover as Resistance

Close Open


Piercing Pattern

For intraday okay to haveopen at- or very close- to

prior close


Secrets of IntradayCandle Charts

(for intraday traders):Monitoring Daily

Support/Resistance


(for intraday traders):Monitoring Daily

Support/Resistance

4


Using Key Levels from daily Charts

Daily Chart

Feb.28

Hourly Chart

Feb.28


Daily chart for support ( 1 of 2)

We are thinking of buying on the session at the arrow as marketapproaches solid band of support 43.25 on June 26. Let’s turn toan intra-day chart to see if there are any buy signals as the stocknears 43.25 ….. (see next chart).

June26

Buyingarea


Intra-day to place trade on confirmation of support ( 2 of 2)

On this 5 minute chart onJune 26, the dashed lineshows support area obtainedfrom prior daily chart near43.25. The hammer at thissupport was the buy signal

Hammer


5


Daily Chart for Resistance (1 of 2)

High volume fallingwindow on Jan. 7


Intra-day chart to place trade (2 of 2)

Thespinning

tops hint ofweakness

$40. Time topull thetrigger

Fallingwindow

Althoughnearresistancemarket isstill strong



(for Swing Traders):Finding the Extra Early

Reversal Areas


(for Swing Traders):Finding the Extra Early

Reversal Areas

6


Intraday Candles for Early Reversals

Hammer onthis daily chartgives reversal

at $53.05

Hammer onthis intradaychart givesreversal at

$49.09 on thesame day


Bull hammer signal at $50.79

Intraday for Swing Traders – earlier reversals 1 of 2

Let’s look at thisdaily session froman intradayperspective

Bull signal at $48.68

On daily chart got bullish hammerat $50.79. On this 5 minute chartgot reversal more than $2 earlier withthis bullish engulfing pattern.

Intraday for Swing Traders – earlier reversals 2 of 2

7


Hello Steve,

I attended your seminar in NY. Pleaseattached find the log of my trade onEUR/USD. The first picture shows myshort entry based on a daily chart'sShooting star which confirmed theResistance.

Later on the 4hr. chart, a Dojiappeared which confirmed thesupport level. I exited the trade with+61 pips.

If you have anycomments/suggestions, please feelfree to do so.

Many thanks,Frank C.

“The first picture shows myshort entry based on a dailychart's shooting star whichconfirmed the resistance atbearish engulfing pattern.”

Harnessing the insights of intraday candles


Harnessing the insights of intraday candles

“Later on the 4hr. chart, aDoji appeared whichconfirmed the supportlevel. I exited the tradewith +61 pips.”

Resistance area frombear engulf on dailychart

Daily chart reversal withshooting star at 1.2900. Withthe reversal on intraday at1.2930 Frank would haveimproved his profit by 50%



(for Swing Traders):Finding “Hidden”

Support/Resistance


(for Swing Traders):Finding “Hidden”

Support/Resistance

8


Using intraday charts to uncover “hidden” support: 1 of 3

DailyOn this daily chart where isfirst support after this tallwhite candle on April 15?Let’s go to the intraday….


April 15


Intraday


Support zoneobtained fromintraday chart

On this daily chart we see whatoccurred after April 15


Daily


9


This daily chartshows harami andhesitation on May5,8,9. To get a senseof the importance ofthis resistance seeintraday…

May 5,8,9

60 minute chart

Intraday candles for “Deep” Insights


IntradayDaily

Intraday candles for “Deep” Insights


Howimportantis thisharami on11/21?

Finding Hidden Insights with Intraday Candles

10


Dec 9

Secrets of intraday Candles

DailyIntraday

Usingintradayget buysignalhere


(for Swing Traders):Using Intraday Windows


(for Swing Traders):Using Intraday Windows

RisingWindow

FallingWindow


11


Intraday Windows

Most intradaywindows fromone day to thenext


27th

28th

Intra-day window – not a window on daily chart


Window on Intraday- But not daily

3/28 3/29

Intraday Daily


12



(for Swing Traders):Is the Market

Overextended?


(for Swing Traders):Is the Market

Overextended?

Overbought/Oversold


On this daily chart marketlooks oversold

Overbought/Oversold


13


This intraday chart gives adifferent perspective

Overbought/Oversold



(for Swing Traders):Was There a Successful

Test ofSupport/Resistance?


(for Swing Traders):Was There a Successful

Test ofSupport/Resistance?

Successful test of Hammer? … 1 of 3

Aug 2

Daily Chart


14


Successful test of Hammer? 2 of 3

August 2 - 60 and 15 minute candle charts


Aug. 2 was Successful test of Hammer: 3 of 3

Aug 2


www.nisonfx.com

Successful test of Resistance? 1 of 3

Daily Chart

15


www.nisonfx.com

Successful test of Resistance? … 2 of 3

Intraday chart

www.nisonfx.com

Successful test of Resistance? – Yes! 3 of 3

Daily Chart

Steve Nison's The Candlestick Success Formula Day 1

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Transcript of Steve Nison's The Candlestick Success Formula Day 1