Candlesticks DeMystified

Copyright IMA 2010 1

1. “Candlesticking” is not an exact science, and some stocks ignore patterns

2. There is an incredible number of combinations

4. When not sure, stay out – cash is good….

5. Need to understand stock trending patterns (3 points for trend ,4 periods for reversal.)

6. Need to know fail points on candles for “stops” or “trail stops,” NOT “stop limits”)

7. For “Sideways Moving” or consolidating stocks use Covered Calls not Candlesticks

8. “Give back” large gap patterns, can be unique to the individual stocks

9. Powerful trends are pie shapes, head and shoulders and double bottom (p 8 )

10. Average graphs: 20 or 30 day averages are best for short term Candlesticking

3. “Candlesticking” seems most favorable to swing traders (Days or week windows)

11. Always safest to “Confirm, Confirm, Confirm.”

9/27/2010

These following patterns originally were addressed for SwingTraders, those that usually trade in a frame of days, but these

patterns still apply regardless of the period of the chart, whether that’s days, hours, or minutes.

Spinning Top

Buy or Sell

Hanging Manor

HammerBuy or Sell

Inverted Hammer= Buy

orShooting Star

= Sell

Long-leggedDoji

Buy orSell

Gravestone Doji

Sell only

Buy Sell

Dragonfly DojiBuy only

Color of body here doesn’t really matter, just where the signal shows up.

Marubozus

BullishEngulfing

( Buy )

BearishEngulfing

( Sell )

a

b

c

(a and b >c)

c

a (a=>2xc)

c

a

Copyright IMA 20102

THE “BASIC” CANDLESTICK SET, TARGETED AT CATCHING REVERSALS….

BullishHarami(Buy)

BearishHarami(Sell)

9/27/2010

Copyright IMA 2010 3

Sell signal here

Buy signal here

Long-legged, high crossor dragonfly Doji = Buy

Long-legged, lower cross or gravestone Doji = Sell

The longer the shadows (tails) the stronger the signal

9/27/2010

(a=>2xc)

Shooting Star

= Sella

c

Bearish Harami( sell )

BearishEngulfing

( Sell )

Spinning Top

= Buy

(a and b >c)

a

b

c

(a=>2xc)

Invertedhammer

= Buy

a

cBullish

Engulfing( Buy )

BullishHarami( Buy )

Simple Candlestick Patterns Summary

Spinning Top

= Sell

(a and b >c)

a

b

c

Hammer= Buy

c

a

(a=>2xc)

c Hanging Man

a (a=>2xc)

=sell

Copyright IMA 2010 4

BullishEngulfing

( Buy )

The 2 most telling double-stick candlestick signals…

BearishEngulfing

( Sell )

9/27/2010

Copyright IMA 2010 5

Signal daySetup day

Bullish Harami Pattern

Only the opens andCloses really matter.

Shadows areInconsequential.

TypicalStop level

Bearish Harami pattern

TypicalStop level

Not veryreliable.

Double-stick Haramis (Harami in Japanese means pregnant)

9/27/2010

Copyright IMA 2010 6

Evening Star

Gap

Sell

Confirmed

Morning Star

Gap Buy

Confirmed

9/27/2010

Other simple patterns

Copyright IMA 2010

5 Important Trend Shapes

Head and Shoulders

Double Bottom

Symmetrical

Flat resistance

Flat Support

79/27/2010

Copyright IMA 2010 8

Sell signal here

Buy signal here

Long-legged, high crossor dragonfly Doji = Buy

Long-legged, lower cross or gravestone Doji = Sell

The longer the shadows (tails) the stronger the signal

9/27/2010

(a=>2xc)

Shooting Star

= Sella

c

Bearish Harami( sell )

BearishEngulfing

( Sell )

Spinning Top

= Buy

(a and b >c)

a

b

c

(a=>2xc)

Invertedhammer

= Buy

a

cBullish

Engulfing( Buy )

BullishHarami( Buy )

Simple Candlestick Patterns Summary

Spinning Top

= Sell

(a and b >c)

a

b

c

Hammer= Buy

c

a

(a=>2xc)

c Hanging Man

a (a=>2xc)

=sell