Vol4handoutsopt1 PDF

Advanced
Western
Technical Tools
Founder www.candlecharts.com
and President: Candlecharts.com 212
Candlestick Western
Charting Charting
Techniques Tools
Trade Management
213
214
2
Western Technicals
• Enhance winning %s
• Using candles for
new trade
• Price targets
215
A candle signal is normally not a
sufficient reason for a new trade
216
East + West Confirmation
Where a candle
signal confirms a
Western technical
signal
www.candlecharts.com 217
East + West = Greater Winning %
Candles plus…..
Candles plus Bollinger Bands……
Convergence of Clues
Open Interest
East and West = Higher Confidence
Candles look good- but what about m.a?
Crack and Snap with Volume
The arrow points to a “Snap and Crack”. What

does volume do to increase the likelihood of this
technique working?
Candles and the ADX:
The Perfect Fit
 Stands for Average Directional Indicator
 Shows how strongly a market is trending
 Does not show direction of trend
Strong ADX with
prices in up trend. Strong ADX with
prices in down trend.
1
2
 Some technical indicators, such as moving averages,
momentum trading, work better in strongly trending
markets.
 Some technical indicators, such as oscillators, work
better in non trending markets.
 Traders check ADX to see if the technical indicator
they use is in right trend environment
 Use only on daily charts –
except for FX
 Use only for entries
 Lagging indicator
 Slow to recognize a new trend
Steve-
Apple has recently gone from 120 to 150 and the ADX on a daily basis
has not moved up. This is surprising. Comments? - Pete
 Common mistake- looking
at ADX level.
 Slope is the key
 Slope=change in ADX from

yesterday to today.
(today’s ADX level-yesterday’s
ADX level)
 Greater the slope, stronger

the trend
234
-.31
ADX 22.04 Slope = 24.11-22.04 =+2.07

ADX at 20.96 ADX 24.11
ADX at 20.64.
What do we need to
determine the slope
on this day?
Slope = 20.64-20.96 = -.32
ADX:22.38
Slope = +2.08 ADX:27.56
14 Period
ADX:20.30
ADX:26.03
ADX slope
increasing What is the slope?
Strong uptrend?
.5 or more
ADX:18.26
-.31
Minimum: ADX:18.57
14 Period
ADX slope
+.25 or
less
Strict: 14
Period
ADX slope
decreasing
Chuck@smartstops.net
Candles and ADX - The Perfect Fit
Reversal candles
help pick top and
bottoms.
Increase % by not
going against
strong trends.
239
Minimum:
14 Period
ADX slope
+.25 or
less
Strict: 14
Period Do we have to measure the
ADX slope on this hammer?
ADX slope
decreasing
Minimum:
14 Period -.40 -.10
ADX slope
.25 or less
Strict: 14
Period
ADX slope
decreasing
ADX slopes
2.24, 2.53, 2.67
Bull shadows on descent. But
based on ADX which of these is
more likely a turn?
Why didn’t I
put ADX
numbers for
these?
ADX : 27.98
ADX : 30.38
What candle patterns are at

the dashed arrows?
ADX : 31.80
What is the ADX telling us?
+.95
ADX:18.26
-.31
Minimum: ADX:18.57
14 Period
ADX slope
+.25 or
less
Strict: 14
Period
ADX slope
decreasing
Slope +.97
FOR BEAR CANDLE
REVERSAL SIGNALS
• Step 1 – get candle

signal
• Step 2 – ADX shows

ADX:42.85
uptrend easing or and 41.02
no trend: so slope is
ADX slope -1.83
increases by
less than .25,
and better if
slope is
negative
FOR BULL CANDLE ADX:
REVERSAL SIGNALS 1-31.97
2-32.67
3-32.48
• Step 1 – get candle 4-32.45
5-32.53
signal 6-30.23
6
• Step 2 – ADX shows
downtrend easing or no 1
trend: 4
3
ADX slope increases 2
by less than .25, and 5
better if slope is
negative
Gravestone doji at resistance
After the gravestone

where is a potential
target?
Candles for reversals and Western for targets
Bearish engulfing
pattern at top of bull
channel
target
Swing Target
target
First
leg
East and West
Doji as signal to exit
Becoming a Confident Trader
Head and Shoulders
Head Right
Left Shoulder Shoulder
Neckline
Sell
signal
Head and Shoulders Top
Three Buddha Pattern
256
Why we are here!
We got the reversal here with
candles ….
Compared to here with

a classic western signal
How Education Saves You $$$$
2 3
1
… New resistance
Old support
becomes…..
1- Bear Harami
2- Dark Cloud Cover
3- Bearish Engulfing Pattern
TASC Interview - Jan. 24, 2003 S&P at 860
1) Once the neckline’s
Head and support is broken, it
Shoulder top should become
resistance.
2) To get a target with the

head and shoulders top
we measure from the top
of the head to the
neckline.
neckline Interview
“… the heads and shoulders top on the

S&P gives a target to near 775. A close
over 870 would void this.” Hammer
259
STEVE’S FAVORITE
MEASURING TACTIC
260
“Box Range” Breakout
Box range breakout
Harami with
target bottom of
box
Box range Breakouts
East & West = Profits
Box range Breakout/ momentum trading
The Tools of the West with
the Light of the Candles
Scenario
1
Scenario
2
The Nison Candlestick Screener™
Using candles at support or resistance
for the high probability trades
Two simple questions
Question 1- Is the market at support or resistance?
Question 2- Are there any reversal candles?
2) What is this
candle line
hinting?
1) Who’s in control during

this ascent?
Major resistance 2.00-2.01
How education saves you $$$$
1) Is the £ at resistance?
Long term resistance zone
2) Are there any candle signals
showing hesitation?
The Value of Owning the Knowledge
Long term resistance

zone
The Value of Owning the Knowledge
Near support?
Any reversal signals yet?
“Market refreshed”
Near resistance?
Any reversal signals yet?
280
 Using Measured Moves including:
 Box range
 Head and Shoulders
 Swing Targets
 The Candlestick Screener™
281
 What are Sectors?
 Technically analyze sectors like any other market
 Can’t trade sectors –
so why are sectors important to traders?
Candles and Sectors
Why are Sectors important
Sectors account for 37-60%
of an individual stock’s performance
This means you need to know what the sector is doing!

How can we use Sectors?
 Bottom Up: Stock to Sector
 Top Down : Sector to Stocks
 Check the stock’s sector
 Try to place new trades in direction of sector outlook
 If must go counter trend to sector, use to take profits
Bottom Up Sector Analysis
AMGN - Aug 17 Biotech Sector- Aug 17
Although falling
window what is it’s sector
strongly hinting?
Buy ?
AMGN – Sept. 11
Biotech Sector
Buy
Sept.11
Setting up scanning pages for
Nison Sector Analyses
Scanning with Nison Candle Sector Analyses
STEP 1 – Scan Sectors
Internets Banks Biotech
Aug. 16
Gold- Silver Semis Retail
STEP 2 – Scan Component Stocks in Chosen Sector(s): Internets for this example
Aug. 16
STEP 3 – Do Analysis on Stock for Potential Trade
Aug. 16
Aug. 16
ETFs
Exchange Traded Funds
 Track All Major Sectors and Indices
 Popularity/Liquidity
 Can Trade ETFs
Analyze and Trade ETFs like any other market
Dark cloud confirming resistance
Golden and Dead Crosses
Bull sash
patterns
Hammers
Windows and ETFs
Sectors
 Important for stocks
 Can analyze with candles
 Bottom up trading
 Top down to filter
 Scan for best sectors
 Find best stocks in those sectors
 Analyze those stocks
ETFs
 Ability to trade sectors
 Instant diversification
302
3
Trade Management
• “Market Chameleon”
• “Candles in Context”
• Risk-reward
• Exit Strategies
Adapting to the Market
Being a Market Chameleon:

As market conditions change,
adjust your market stance.
Looks good
anything
different?
Target
Sell here
Adapting to the market
Where’s
Where’s
support
support?
now?
Become a Market Chameleon
Bear
Stearns
Collapse
Candles in Context
Analyzing candle
signals within the
context of
surrounding
technical picture
Misinformation can cost you $$$
Same Signal- but how different the strategy!
Which is a Better
trading signal?
Candles in Context
Dark Cloud Cover
Bearish
Engulfing
Pattern
Which is a better
trading signal?
Hammer Morning Star

318
Candles in Context
Morning Star
Hammer
Always Check Risk – Reward
1. What is your price risk?

2. What is your target?
Do you have a
good
risk-reward?
Risk/Reward
Waiting for time to ripen
Classic bearish
engulfing pattern:
But what about
risk/reward aspect?
Trade Management Essentials
 Adapting to the Market
 Candles in Context
 Importance of risk/reward
323
Founder and President: Candlecharts.com 324
Protecting
your Assets
Slide 115
The race is not always to the

swiftest, but to those who keep
running.
326
Protective Stops keep you in the game!
Looks
promising at
the white
candles
How Education Saves you $$$$
Hammer
Closed under support
How Education Saves you $$$$
Hammer
Exit Strategies
 Protective Stops
 Time Stops
 Trailing Stops
© Steve Nison’s Candlecharts.com

331
If the market does not act
as expected within about
five sessions then consider
exiting
Don’t Stay Around
What are you doing hanging

around! You’re wasting
precious resources.
Hammer and Bull Engulf
Chart courtesy of Genesis FT
You’re Wasting Resources
Trailing Stops
As the market moves

in your direction –
stop is adjusted to
help ride the trend.
“Golden” and “Dead” Crosses
Compares two moving averages
GOLDEN CROSS: shorter crosses above longer DEAD CROSS: shorter crosses under longer
Answer: 3 and 12 day
Trailing stops - letting the profits run
“I usually exit, it
Shooting
Star
corrects somewhat Falling

window
but then continues
to go in the original
direction after that.”
You sold at shooting star or
falling window. A rally from a
bull harami gets you nervous
and you exit. But you’re still
playing with the market’s
money- so another option:
trailing stop….
Trailing stops - letting the profits run
Shooting
Star
Falling window
Where you got nervous
Letting Profits Run
Could take some

or all profits here
Shooting star
Or use dead cross

as your trailing
stop and would
thus exit here
Buy and set

protective stop
Trailing Stops to let profits run
Now at target-
Doji warns of
caution. But you
want to let
profits run.
Potential Target
Buy and set

protective stop
Trailing Stops to let profits run
doji
Exit Strategies
 Protective Stops
 Time Stops
 Trailing Stops
346
Trading Journal
(setting up the Trade)
From Toni Turner’s Book- Short Term Trading in the New Stock Market - www.toniturner.com
 Date, market, $ amount committed

 Why did you do the trade
 Entry Price
 Risk
 Initial Target
 Exit Price
 Analyze Trade
Print out (or cut and paste) chart and make notes
What did you do right/wrong
Goal: Keeping emotions

out of your trading 347
348
Trading Journal - Setting up the Trade
 Entry Price
 Risk
 Initial Target
 Why did you do the trade?
Trading Journal - Analyzing the Trade
 Entry Price
 Risk
 Initial Target
 Exit Price
 Analyze the trade
Trading Journal - Setting up the Trade
 Entry Price
 Risk
 Initial Target
Support from a few months ago
 Entry Price
 Risk
 Initial Target
 Exit Price?
 Entry Price
 Risk
 Initial Target
 Exit Price
Putting it all Together
Trading Checklist
 Have VALID Candle signal (if not sure-
confirm with Nison candlestick
recognition software)
 Does candle confirm Western signal (i.e.
ADX, support/resistance, volume, or any
of your favorites)
 Stock traders check sector
 Determine risk/reward (remember many

of the candle signals can be used as a
protective stop)
 Monitor trade (i.e. time or trailing stops,
change in technical picture, etc)
 Use Trade Journal
355

Vol4handoutsopt1 PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Vol4handoutsopt1 PDF

Uploaded by

Copyright:

Available Formats

Advanced

The arrow points to a “Snap and Crack”. What

 Slope is the key

 Slope=change in ADX from

 Greater the slope, stronger

ADX 22.04 Slope = 24.11-22.04 =+2.07

Slope = 20.64-20.96 = -.32

What candle patterns are at

• Step 1 – get candle

• Step 2 – ADX shows

After the gravestone

Doji as signal to exit

Head and Shoulders Top

Compared to here with

2) To get a target with the

“… the heads and shoulders top on the

Two simple questions

Question 1- Is the market at support or resistance?

Question 2- Are there any reversal candles?

1) Who’s in control during

Major resistance 2.00-2.01

Long term resistance

 The Candlestick Screener™

This means you need to know what the sector is doing!

 Bottom Up: Stock to Sector

 Top Down : Sector to Stocks

 Try to place new trades in direction of sector outlook

 If must go counter trend to sector, use to take profits

AMGN - Aug 17 Biotech Sector- Aug 17

Internets Banks Biotech

Gold- Silver Semis Retail

STEP 3 – Do Analysis on Stock for Potential Trade

Exchange Traded Funds

 Track All Major Sectors and Indices

 Can Trade ETFs

Dark cloud confirming resistance

Golden and Dead Crosses

Being a Market Chameleon:

Dark Cloud Cover

Hammer Morning Star

1. What is your price risk?

The race is not always to the

Closed under support

© Steve Nison’s Candlecharts.com

What are you doing hanging

Hammer and Bull Engulf

Chart courtesy of Genesis FT

As the market moves

corrects somewhat Falling

Where you got nervous

Could take some

Or use dead cross

Buy and set

Buy and set

 Date, market, $ amount committed

Goal: Keeping emotions

 Why did you do the trade?

 Why did you do the trade?

 Analyze the trade

 Why did you do the trade?

Support from a few months ago

 Why did you do the trade

 Analyze the trade