Profitable Candlestick patterns

www.tradingourway.com

Kermit Prather
kermitp@tradingourway.com

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 CRUISE to the Panama Canal on CARNIVAL LIBERTY
Set sail April 12, 2008 for 8 glorious days!
8-Day Western Caribbean Inside Stateroom - $687 p/p
Ports of Call Include: Oceanview Stateroom - $807 p/p
Port Everglades, Costa Maya, Balcony Stateroom - $1057 p/p
Puerto Limon, Colon BOOK by October 29, 2007
You will learn to:
•Build your trading plan •Manage open trades
•Find trade candidates •When to Exit the trade
•When to Enter the trade •Analyze the results
• Plus, the Trading Strategies to do all of the above
•Adjust your Trading strategy to market conditions

 Seminar fee is $795

We had an “Early Bird” special of $495 that Expired Oct 29th
IF you sign up today or within 7 days we’ll honor the $495
 Use Promo code FTL110407, good until 11/12/07
http://tradingourway.com/CruiseRegistration.htm or call Kermit Prather @ 813-681-5427
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
 Topics and Patterns for Discussion
• Basics of Candlesticks
• Major Bearish patterns
• Major Bullish patterns
• How to improve probabilities and profitability
• Recent examples for each candlestick pattern
• Where to find more information on
candlesticks
• Seminar at Sea special pricing for attendees
only
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
 Candlestick Basics
• Japanese Rice Traders created them over 400
years ago
• Steve Nison is credited with introducing them
into the U S markets
• Gregory Morris and Stephen Bigalow are the
other 2 major candlestick guru’s
• There are over 100 Candlestick patterns
• Candlesticks show investor sentiment more
visual than OHLC bars
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
 Bearish Candle
• Sometimes referred to as a Black Candle

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Bullish Candle
• Sometimes referred to as a White Candle

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Indecisive Candles
• Doji at the top should never be ignored
• The smaller the body the more indecision

Doji body is very small 10% of daily

range

• Dragon-Fly Tombstone Long-legged

Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
 Indecisive Candles (cont)
• Spinning-Top
– No one won the battle of the Bulls and Bears
– Body is less than 1/3rd of the candle range H – L
– The tails are longer than the body

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Candlestick Web Sites
• www.tradingourway.com

• www.candlestickforum.com - Steve Bigalow

• www.candlestickchart.com/glossary.html - Litwit.com

• www.thepatternsite.com - Tom Bulkowski

• www.stockcharts.com - John Murphy’s

• www.tradeon.com for TC2007users

• www.stockfetcher.com Scans for candlestick patterns and more

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bullish Candlestick Patterns

Engulfing

Morning Star

Hammer

Three White Soldiers

Kicking

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Bullish Engulfing Definition
Bullish Reversal 63% of the time

How to Identify it
• Candle 1 is a bearish candle
• Candle 2 completely engulfs the body
of the candle 1
•Stock in a downtrend or consolidating
• Pattern suggests downtrend has lost
momentum and the bulls may be
gaining strength
• Engulfing pattern is also the first two
candles of the Three Outside patterns.
• Confirmation is suggested

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bullish Engulfing- bad one

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bullish Engulfing- bad two

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bullish Engulfing – good one

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bullish Engulfing – good two

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Morning Star
Bullish Reversal 78% of the time
How to Identify it
• First candle is a long black candle
•Second candle gaps down and trades
within a small range and closes at or
near its open.
•The third candle is a white candle
•Stock has in a downtrend or
consolidating
• Pattern suggests the trading sentiment
has changed and trend reversal is a high
probability
• No confirmation is required or
suggested

•Note:
•The second candle can be a Doji or
spinning top
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Morning Star - good

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Morning Star - bad

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Hammer
Bullish Reversal 60% of the time

How to Identify it
• Single candle pattern
• Candle can be bullish or bearish
• Signal considered stronger if candle is
bullish
• Candle body is less than 1/3 of the
range H – L
•Stock is in a downtrend
• Long tail implies sharp sell-off after
open but the bulls rallied and won the
battle
• suggest more buying to come
• Requires confirmation

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Three White Soldiers
Bullish Reversal 82% of the time

How to Identify it
• Three white candles occur, each with a
close above the previous candle
• Each candle opens within the body of
the previous candle
• Each candle closes near or at its high
• Stock is in a downtrend
• Pattern suggests the market has been
selling of for too long, and buyers are
beginning to come back into it
• No confirmation is required or
suggested

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Three White Soldiers - good

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Three White Soldiers - bad

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Bullish Kicker
Bullish Reversal 53% of the time

How to Identify it
• The first candle’s open and the second
candle’s open are the same.
• The price movement is in opposite
directions from the opening price.
• The trend has no relevance in a Kicker
situation.
• The signal is usually formed by surprise
news before or after market hours.
• The price never retraces into the
previous candle's trading range.
• No confirmation is required or
suggested
• The first day is a Black Marubozu day
• The second day is a White Marubozu
day that gaps upward
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Bullish Kicker - good

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bullish Kicker - bad

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Stockfetcher.com Bullish Scans

• Bullish Engulfing
• Bullish Morning Doji Star
• Hammer
• Bullish Three White Soldiers
• Bullish Kicking

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bearish Candlestick Patterns

Engulfing

Evening Star

Hanging Man

Three Black Crows

Kicking

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Bearish Engulfing
Bearish Reversal 79% of the time

How to Identify it
• First candle is a white candle
• Second candle is Bearish and its body
completely “Engulfs” the first candle’s
candle body
• Stock has been in an uptrend
• Pattern suggests the bears have taken
control and the trend is about to
reverse.
• Confirmation is suggested

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bearish Engulfing - Bad

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bearish Engulfing - Good

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Evening Star
Bearish Reversal 72% of the time

How to Identify it
• First candle is a long white candle
•Second candle trades within a small
range and closes at or near its open.
•The third candle is a black candle
•Stock is in an uptrend
• Pattern suggests the trading sentiment
has changed and trend reversal is high
probability
• No confirmation is required or
suggested

•Note:
•The second candle can be a Doji or
spinning top
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather
Evening Star

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Evening Star

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Hanging Man
Bearish Reversal 59% of the time

How to Identify it
• Single candle pattern
• Candle can be bullish or bearish
• Signal considered stronger if candle
bearish
• Candle body is less than 1/3 of the
range H – L
•Stock is in an uptrend
• Long tail implies sharp sell-off after
open and suggest more selling to come
• Requires confirmation

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Three Black Crows
Bearish Reversal 78% of the time

How to Identify it
• Three black candles occur, each with a
close below the previous candle
• Each candle opens within the body of
the previous candle
• Each candle closes near or at its lows
• Stock is in an uptrend
• Pattern suggests the market has been
at a high price for too long, and
investors are beginning to compensate
for it.
• No confirmation is required or
suggested

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Three Black Crows - Bad

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Three Black Crows - Good

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Bearish Kicker
Bearish Reversal 54% of the time

How to Identify it
• The first candle’s open and the second
candle’s open are the same.
• The price movement is in opposite
directions from the opening price.
• The trend has no relevance in a Kicker
situation.
• The signal is usually formed by surprise
news before or after market hours.
• The price never retraces into the
previous candle's trading range.
• No confirmation is required or
suggested

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bearish Kicker - Bad

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Bearish Kicker -Good

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Stockfetcher.com Bearish Scans

• Bearish Engulfing
• Bearish Evening Doji Star
• Hanging Man
• Bearish Three Black Crows
• Bearish Kicking

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Tom Bulkowski’s
www.thepatternsite.com

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Candlesticks Statistics – where to find

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Candlesticks Statistics – cont.

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Candlesticks Statistics – cont.

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
Candlesticks Statistics – cont.

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 How to enhance probabilities
• Visually observe the chart for proper trend
• Up-trend Moving Averages align top-down
20, 40, 50
• Downtrend from top-down 50, 40 ,20
• Trendline
• Linear regression slope
• Pattern occurs at or near a major MA

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Use Efficiency Rating
• Van Tharp uses an efficiency rating created from
price change during 4 time periods
• Pick any 4 periods such 20, 45, 90, & 180
• TC2007 Formula using daily range
(((C – C180) / (AVGH180 – AVGL180)) +
((C – C90) / (AVGH90 – AVGL90)) +
((C – C45) / (AVGH45 – AVGL45)) +
((C – C20) / (AVGH20 – AVGL20))) / 4
• Rating > + 7 are in an uptrend while < -7 in a downtrend
• Tharp uses an ATR but daily range works as well
• Stockfetcher results

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 How to enhance profitability
• Use Overbought / Oversold indicators
– Stochastics 12.3.3 or 14.5.5 crossover
– Wilder’s RSI 5 or 14
• Relative Strength
• Comparison to its index
• Use stocks that have made an extended move

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Candlestick Books worth reading
• Stephen Bigalow @ www.candlestickforum.com
– Profitable Candlestick Trading
– High Profit Candlestick Patterns
• Steve Nison @ www.candlecharts.com
– The Candlestick Course
– Beyond Candlesticks
• Greg Morris @ www.candlesexplained.com
– Candlestick Charting Explained

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Books and more Books
Author Title
Van Tharp Trade Your Way To Financial Freedom
Alexander Elder Trading For A Living
Alexander Elder Come Into My Trading Room
Benjamin Graham The Intelligent Investor

Jack Schwager Market Wizards: Interviews With Top Traders

John Murphy Technical Analysis of the Financial Markets

John Murphy The Visual Investor

Mark Douglas The Disciplined Trader: Developing Winning Attitudes

Martin Pring Introduction to Technical Analysis

Martin Pring Breaking the Black Box

Steve Achelis Technical Analysis from A to Z

Thomas Bulkowski Chart Patterns

New Concepts in Technical Trading Systems – Most reference
J. Welles Wilder book in all TA

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 Seminars
• Stephen Bigalow – none better
• David Elliott @ www.wallstreetteachers.com
• Kermit Prather @ www.tradingourway.com

Copyright 2007, TradingOurWay, Prepared

by Kermit Prather
 CRUISE to the Panama Canal on CARNIVAL LIBERTY
Set sail April 12, 2008 for 8 glorious days!
8-Day Western Caribbean Inside Stateroom - $687 p/p
Ports of Call Include: Oceanview Stateroom - $807 p/p
Port Everglades, Costa Maya, Balcony Stateroom - $1057 p/p
Puerto Limon, Colon BOOK by October 29, 2007
You will learn to:
•Build your trading plan •Manage open trades
•Find trade candidates •When to Exit the trade
•When to Enter the trade •Analyze the results
• Plus, the Trading Strategies to do all of the above
•Adjust your Trading strategy to market conditions

 Seminar fee is $795

We had an “Early Bird” special of $495 that Expired Oct 29th
IF you sign up today or within 7 days we’ll honor the $495
 Use Promo code FTL110407, good until 11/12/07
http://tradingourway.com/CruiseRegistration.htm or call Kermit Prather @ 813-681-5427
Copyright 2007, TradingOurWay, Prepared
by Kermit Prather