Profitable Candlestick patterns www.tradingourway.com Kermit Prather kermitp@tradingourway.com Copyright 2007, TradingOurWay, Prepared by Kermit Prather

Financial Seminar at Sea CRUISE to the Panama Canal on CARNIVAL LIBERTY Set sail April 12, 2008 for 8 glorious days! 8-Day Western Caribbean  Ports of Call Include: Port Everglades, Costa Maya, Puerto Limon, Colon Inside Stateroom - $687 p/p    Oceanview Stateroom - $807 p/p  Balcony Stateroom - $1057 p/p  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

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

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Bearish Candle Sometimes referred to as a Black Candle Copyright 2007, TradingOurWay, Prepared by Kermit Prather

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Bullish Candle Sometimes referred to as a White Candle Copyright 2007, TradingOurWay, Prepared by Kermit Prather

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

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

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

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Morning Star - good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Morning Star - bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

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

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

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

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Bullish Kicker - good Copyright 2007, TradingOurWay, Prepared by Kermit Prather

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

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

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

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Evening Star Copyright 2007, TradingOurWay, Prepared by Kermit Prather

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Evening Star Copyright 2007, TradingOurWay, Prepared by Kermit Prather

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

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

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

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

Copyright 2007, TradingOurWay, Prepared by Kermit Prather Bearish Kicker - Bad Copyright 2007, TradingOurWay, Prepared by Kermit Prather

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

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

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 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 The Visual Investor       Mark Douglas The Disciplined Trader: Developing Winning Attitudes       Martin Pring Introduction to Technical Analysis Breaking the Black Box       Steve Achelis Technical Analysis from A to Z       Thomas Bulkowski Chart Patterns J. Welles Wilder New Concepts in Technical Trading Systems – Most reference book in all TA Copyright 2007, TradingOurWay, Prepared by Kermit Prather

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

Financial Seminar at Sea CRUISE to the Panama Canal on CARNIVAL LIBERTY Set sail April 12, 2008 for 8 glorious days! 8-Day Western Caribbean  Ports of Call Include: Port Everglades, Costa Maya, Puerto Limon, Colon Inside Stateroom - $687 p/p    Oceanview Stateroom - $807 p/p  Balcony Stateroom - $1057 p/p  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