HighProbabilityProfitable

CandlestickPatterns
IliaBermous

24November2010

Content

1.ShortIntroduction
2.KeyReversalPatterns:BullishEngulfing
3.BullishKickingPattern
4.Examplesofnotionalprofitabletradesandtheiranalysis
5.Conclusions
 ShortIntroduction
Humanpsychology=>alwaystoberight
Canwefindcandlestickpatternswithhighprobability
profitabletradesbasedon
o Strongreversal(todaywewillconsiderforlongtradesonly)
o Increaseintradingvolumes
o etc.=>othercharacteristicswillbeanalysedthroughexamplesof
recentnotionalprofitabletrades)

NOTE:onlycandlesticksandtradingvolumesareused
tomaketradingdecisionstoenterstocks

Candlestickbasics
 KeyReversalPatterns
T.N.BulkowskiEncyclopediaofchartPatterns

BullishEngulfing

Downtrend=>Openbelowlastclose&closeaboveprevioushigh

Downtrendreversal(Engulfing,Bullish)
Patterncharacteristics
Abullishengulfingpatternisatwocandlebottom
reversalpatternthatsignalstheendofadowntrend.

Itmayreverseintoanuptrendorchangetoasideways
trend,ineithercaseitsignalsatrendchange.
Thispatternoccurswhenthereisadowntrend
underwayandshouldappearwhenabottomhasbeen
reached.
 Patterncharacteristics(cont#2)
Bonuses
1.ifvolumeisheavy(abovetheaverage)onsecondcandle
2.iffirstcandlerealbodyissmallincomparisontothe
secondcandlerealbody
3.ifsecondcandleengulfsmorethanonecandle
4.ifsecondcandleHigh/LowengulfsfirstcandlesHigh/Low

Statisticsonthepatternperformancefrom
T.N.BulkowskiEncyclopediaofcandlestickcharts,p.317
325

Bullmarket:bullishreversal63%ofthetime(ranking22)
Bearmarket:bullishreversal62%ofthetime(ranking25)
Frequency:12thoutof103
Thebestperformingengulfingcandlesappearinabearmarket
Example#1

Example#2
 BullishKickingPattern
Type: Reversal
Relevance: Bullish
Prior Trend: N/A
Reliability: High
Confirmation: Needed
No. of candles: 2

RecognitionCriteria
Directionisnotimportant.
Thepatternbeginswithatallblackcandle
Thenextdaypricegapshigherandopensatthe
lowandclosesatthehigh
Thebothcandlesdonothaveanyshadowsorthey
haveonlyverysmallshadows
Confirmationofthereversalonthethirdday
shouldbesought.Thisconfirmationmaybeinthe
formofawhitecandlestick,alargegapupora
highercloseonthethirdday.
 BehaviourandRank
T.N.BulkowskiEncyclopediaofcandlestickcharts,p.452

Bullmarket:Bullishreversal53%ofthetime(rank44)

Bearmarket:Bullishreversal50%ofthetime(rank48)

Frequency:100thoutof103

Overallperformanceovertime:96thoutof103

Maingoalsofmypresentation
Basedonareversalsignalmyideawastofind
candlestickpatternsetupswithhighprobability
profitabletrades
Duringpreparationformypresentationinmid
AugustbegOctober201023caseswithareversal
signalwerefound,someofthemwillbediscussedin
todayspresentation
o In21cases(outof23)profitbetween10%100%was
achievablewithinfromseveraldaystoseveralweeks
 Maingoalsofmypresentation(cont
#2)

Basedontheprovidedexamplestomakeconclusions
onwhatarethemaincharacteristicsofthe
consideredsetups
Lookingattheillustratedcandlepatternsto
memorisethepatternsetupstobeusedinyour
futuretrading

BullChartsScanCriteria
 Notionaltrade#1

Patterncharacteristics
Notfilledgapupafterablackcandle
~1.5weeksnarrowconsolidationonsmalltrading
volumesbeforethemove
Significantvolumeincreaseduringthemoveup
Relativelyshortcandlebodyonthemoveup
Moveupiswithin~10%fromtheconsolidation
range
o Dilemma:isitbettertouseatightstopandbiggersize,or
awiderstopandsmallersize?
 NotionalTrade#2

Patterncharacteristics
Gapupafterablackcandle
Severalweeksofanarrowconsolidationonsmall
volumesbeforethemoveup
Significantvolumeincreaseinthegappedup
candle
Moveupwithin~10%
 NotionalTrade#3

Patterncharacteristics
Gapupafterablackcandle
2weeksconsolidationformingadescending
triangleformation
Tradingvolumewasnotspectacularbutthemove
upwasconfirmedbythenextrisingcandlewitha
significantvolumeincrease
 NotionalTrade#4

Patterncharacteristics
Gapupafterablackcandle
~4weeksofanarrowconsolidationonsmall
volumesbeforethemoveup
Significantvolumeincreaseinthegappedup
candle
Moveupiswitharelativelyshortwhitebodyand
shortshadows
 Notionaltrade#5

Patternscharacteristics
Gapupattheopeningafterablackcandle
Forcheapstocks(price<10c)allow1015%difference
betweenthepurchasedpriceandsupportlevel
Blackcandlesprecedingthemoveuphaverelativelysmall
bodies
Over3weeknarrowconsolidationonsmalltrading
volumesinthefirstcase
Patternrepetitioninasecondcase
 NotionalTrade#6

Patterncharacteristics
Gapupafterablackcandle
~1weekconsolidationbeforethemoveup
Significantvolumeincreaseinthegappedup
candle
Moveupiswitharelativelyshortwhitebodyand
shortshadows
 Notionaltrade#7

PatternCharacteristics
Gapupattheopening
~3weeksnarrowconsolidationbeforethemoveup
Usuallypayattentiontoannouncementsrelateddirectoron
marketpurchaseswithatleast$300K$500Kformiddlecap
stocks
Myscanhavingcriteriaofgappingupwithavolumeincrease
incomparisonwiththepreviousdaymissedthiscase(the
actualvolumedifferencewas~10%)
Withanegativesentimentonthemarketon15Octoberthe
tradecouldbemadebyusingaCommSecbuygainsetupat
$1.90+withastopsetat$1.78$1.80
 Notionaltrade#8

PatternCharacteristics
Gapupattheopening,notfilledwithadojiformationon
relativelyshortshadows
o Thisstockwaspickedupusingmytradingvolumeincreasescan

1monthnarrowconsolidationbeforethemoveup
Breakinglocaldowntrend(Ilikethiskindofdescending
triangleformationswithatleast34dailycandles)
Significanttradingvolumeincrease
Buynextdaywithastoplossat6465c=>havingstoploss
closetothepurchaseprice=>gain/lossratioisrelativelylarge
forthisscenariowithpropermoneymanagement
VolumeIncreaseScan

Notionaltrade#9
 PatternCharacteristics
Thefirst2gapsareofmyfavouritewithsmallbodies,gaps
ontheopeningandbreakingdescendingtriangleformations
12weekconsolidationwithdecreasingtradingvolumes
beforethemoveup
Significanttradingvolumeincreaseinthegappingupcandle
witharelativelysmallbodyandshadows
Gapsarefollowedallthewayintradingthisstock
ThegreenformationsaretradablesetupswithDarrylMoley
strategy

Notionaltrade#10
 PatternCharacteristics
Gapupattheopening
~2weeksnarrowconsolidationbeforethemoveup
Significantvolumeincrease
Dojicandle(nobody)inthemoveup
Pricemoveis<10%fromthesupportlevel

Conclusions
1. Patternrecognition:blackcandle(day1)followedbywhite
candle(day2)withagapbetweenopeningpriceonday2and
closingpriceonday1
Gapcanbewithwhite,blackordojicandle;onday2
Preferabletohavearelativelysmallbodyandnotlongshadows
bonus:blackcandlewitharelativelysmallbodyandshort
shadowsisfollowedbytheopeningpricehigherthanthe
openingpricedaybefore
 Conclusions(cont#2)
2.Patternappearance:
a)atleastafter12weekconsolidationonrelativelysmall
volumesor
b)descendingtrianglecandlestickformationwithatleast34
candlesinitwithdecreasingtradingvolumes
3.Tradingvolumesonabreak:atleast23timeshigherin
comparisonwiththeaveragetradingvolumesduringthe
consolidationstage
4.Pricemoveonday2shouldbeunder1015%fromthe
supportlevel,otherwiseneedtowaitforsomeconsolidation
fortheentry.

Conclusions(cont#3)
5.Alwaysworthwhiletocheckwhetherthestockhashadsimilar
patternsinthenearestpastduringthemoveup
 Books
1. SteveNisonJapaneseCandlestickChartingTechniques

2.LouiseBedfordSecretofCandlestickCharting
3.LouiseBedfordTradingSecrets
4.StanWeinstein'sSecretsForProfitinginBullandBearMarkets
5.MarcelLinkHighProbabilityTrading
6.T.N.BulkowskiEncyclopediaofcandlestickcharts