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patterns
www.tradingourway.com
Kermit Prather
kermitp@tradingourway.com
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 onlyCopyright 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 gurus
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
Bullish Candle
Sometimes referred to as a White
Candle
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
Copyright 2007, TradingOurWay,
Prepared by Kermit Prather
Long-legged
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
Copyright 2007, TradingOurWay,
Prepared by Kermit
Prather
Note:
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 selloff after open but the bulls
rallied and won the battle
suggest more buying to
come
Requires confirmation
Copyright 2007, TradingOurWay,
Prepared by Kermit Prather
Bullish Kicker
Bullish Reversal 53% of the time
How to Identify it
The first candles open and
the second candles 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
suggested
Copyright 2007, or
TradingOurWay,
Prepared by Kermit
Prather
The
first day is a Black
Stockfetcher.com Bullish
Scans
Bullish Engulfing
Bullish Morning Doji Star
Hammer
Bullish Three White Soldiers
Bullish Kicking
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 candles
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
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
Copyright 2007, Note:
TradingOurWay,
Prepared by Kermit The
Prather second
candle can be
Evening Star
Evening Star
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 selloff after open and suggest
more selling to come
Requires confirmation
Bearish Kicker
Bearish Reversal 54% of the time
How to Identify it
The first candles open and
the second candles 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
Copyright 2007, TradingOurWay,
Prepared by Kermit
Prather
or suggested
Stockfetcher.com Bearish
Scans
Bearish Engulfing
Bearish Evening Doji Star
Hanging Man
Bearish Three Black Crows
Bearish Kicking
Tom Bulkowskis
www.thepatternsite.com
Candlesticks Statistics
cont.
Candlesticks Statistics
cont.
Candlesticks Statistics
cont.
How to enhance
probabilities
Visually observe the chart for proper
trend
Up-trend Moving Averages align topdown 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
Relative Strength
Comparison to its index
Use stocks that have made an
extended move
Copyright 2007, TradingOurWay,
Prepared by Kermit Prather
Title
Seminars
Stephen Bigalow none better
David Elliott @
www.wallstreetteachers.com
Kermit Prather @
www.tradingourway.com