Steve Nison's Candle Charting Essentials and Beyond: Volume 1 of The Nison Educational Series

Steve Nison’s Candle Charting Essentials and Beyond
Volume 1 of the Nison Educational Series
The Framework &

Real Bodies and
Shadows
Founder and President: Candlecharts.com
www.candlecharts.com 1
high Shadow
close open
Real
Body
open close
low
Real Bodies / Shadows

2
Close
Open
1
Reading the market Psychology
Bullish Engulfing
patterns as support
Bear Stearns Collapse
Helping you
overcoming
your trading
challenges
Trading Challenges:
• Entering trades too late
• Knowing when to exit
• Preserving trading capital
• Quickly recognizing the candle signals
• Paralysis by analysis
• Quickly recognizing candle signals
• Correctly using candlesticks
When to pull trigger
When to ignore
• Lack of confidence pulling the trigger
6
2
Helping you
overcoming
your trading
challenges
• Easy to Understand
• Early Reversals
• “Safety First”
• East + West
• All markets
• All Time Frames
• Accelerates Analysis
3
Candlestick Western
Charting Charting
Techniques Tools
Trade Management
Seize trading
opportunities before
they become
apparent to others
 Information is
Power! Learn how to
avoid losing trades
 Pinpoint turning
signals with razor
sharp accuracy
The Result:
ROCK SOLID CONFIDENCE 11
What we learned:
 The Popularity of Candles

 The Anatomy of the Candle Line
 Candles and market psychology
 History of candles
 Benefits of Candles
 Candles are a tool – not a trading
system
 Importance of Education
12
4
Candlestick Western
Charting Charting
Techniques Tools
Trade Management
13
Candlestick Charts
• Early reversals
• “Safety First” Trading
• Quickly read the
market’s message
14
The Framework:
Analyzing Real Bodies
and Shadows
15
www.candlecharts.com
5
The longer the real

body the stronger
the momentum.
The relative size

and position of the
shadow displays
the extent of price
rejection.
“The Real Body is the Essence of the Price Movement”
Who’s in control?
6
Basic Criteria:
Small real body - black or white
Market Implication:
Immediately preceding trend
losing momentum.
Support or Resistance:
Not used
Who’s in control?
The cost of not using candles
Higher closes, highs and lows
What is one of the best ways to make money??
7
Basic Criteria:
• Market in up or down trend
• Open and close prices are the same
(or nearly the same)
Market Implication:
Market at a point of indecision
Highest high of doji and prior
candle for resistance. Not used as
support
Saved by the light of the candles!
Those poor
traders who
got fooled into
buying here.
24
8
Be cautious of new highs made with doji
Doji as Warning
Weekly Weakly
26
Doji Hints Rally Stalling
9
Doji Confirms resistance
Candles can be used in all time frames
“Market is
tired”
Use the highest high of

those two sessions (top
of upper shadow) as
resistance
10
Doji as Resistance
Reading the Market’s Message Quickly!
Warning!
Doji as resistance
11
Doji as Resistance
35
Small Real Bodies (spinning tops)
3
2
1 3
1
Who’s in control? Who’s in control?
12
Shadows
Lower closes, lower highs

and lower lows, but what
are shadows hinting?
Upper and Lower Shadows
Area of Supply
Area of Demand
Basic Criteria:
• Market in up or down trend
• Very long upper and lower shadow/
small real body towards the middle
of session’s range
Market Implication:
Market “confused”
Not used
13
Doji = caution
“Market is
Tired”
New low with high wave means caution
42
14
Candles help us read the markets message
What do the series of bullish shadows tell

us about supply/demand near 63.50?
Is it any surprise what happened a few
weeks later at that level?
Reading the Market’s Message
What we learned:
 Candles give 2x information

 Spinning Tops
 Doji – warning and resistance
 Importance of Shadows
 Single candles and market psychology
45
15
Essentials of Single
Candle Patterns

Reversal Signals
• Where the current

trend slows or
reverses after the
reversal pattern.
• Most candle signals

are potential
reversals.
Single Candle Lines:

The Bull Signals
48
16
Basic Criteria
• Market in a downtrend
• Small real body (either color) at, or
near, top of range.
• Lower shadow at least 2x height real
body
Market Implication
“A chance to buy at the bottom “
Support or Resistance
Low of hammer as support
49
Psychology – Strong demand
Using Candles across the Spectrum
17
Using Candles across the Spectrum
Intra day chart
Hammers
Education = Confidence = $uccess
Doji as exit
at $169.30
Result:
almost $3
per share in
less than 10
minutes!
Hammer as buy at $166.50
Hammer and trend
18
55
hammer’s lower shadow as Support
Hammer as Support
Hammer
19
Hammer as Support
Chart courtesy of Genesis FT
Why Protective Stops
Dragonfly Doji
Which three prices of the

session are on the high?
What happened during

the session and by
session’s end?
20
Dragonfly
Basic Criteria:
Same shape as Hammer but market
in downtrend
Market Implication:
In theory, potential bottom reversal
Not used as support
62
Inverted Hammer with confirmation
63
21
Single Candle Lines:

The Bear Signals
64
Basic Criteria:
• Market in up trend
• Small real body (black or white) at,
or near, bottom of session
• Upper shadow at least twice height
of the real body
Market Implication:
Potential top reversal
High of signal as resistance
65
Shooting Star “signals trouble overhead”
22
Education = Confidence = $uccess
Shooting star
as exit
at $168.12
Hammer as buy at $166.92
What is
wrong with
this so called
“shooting
star?”
Hint: look at upper shadow
68
“A crack has entered the market”
23
Shooting Stars as Resistance
Shooting Stars
Gravestone Doji
Which three prices of

the session are on the
low?
What happened during

the session and by
session’s end?
24
Gravestone
Gravestone
Gravestone Doji
25
Shooting star
Hammer
76
“If it appears from below,

buy. If it appears from
above then sell.”
Basic Criteria
Same shape as Hammer but market
in uptrend
Market Implication
In theory, potential top reversal
Not used as resistance
78
26
There must be bearish confirmation for

the hanging man. This means waiting for
an open– or even better – a close under
the bottom of the hanging man’s real
body.
Hanging Man
Hanging Man
confirmation
27
Using Candles in a “Box” Range
Who has more control here? Who has more control here?
Box range – which way?
Box range – which way?
28
Hammer
Using the insights of single candle lines

 
 

Using Single Candle Lines
29
Who’s in charge with the red arrows?
Who’s in charge with the green arrows?
Reading Market Psychology
What we learned:
 Most candles are reversals

 High wave candles
 One sided shadow candles: bull and bear
 Less emphasis on hanging man and inverted
hammer
 Box ranges and single candle lines
 Single candle lines to read the market’s message
90
30
Essentials of Multiple
Candle Lines

Double Candle Lines:

The Bull Signals
92
Basic Criteria
• Market in down trend
• White real body wraps around prior
session black real body
Market Implication
Bottom reversal
Support
The lowest low of the two sessions
of the pattern
93
31
Classic Bull Engulf
94
Shadows for Insights
Lower closes, but

what are shadows
hinting?
Bullish Engulfing Pattern
96
32
How many black candles did

this wrap around?
97
Anything
hinting bears
losing force?
98
open
open
close
99
33
100
Series of Bullish Engulfing Patterns
Shooting stars
101
Bullish Engulfing Pattern as Support
102
34
Bull Engulf as Support
Bullish Engulfing
Patterns
103
Basic Criteria
• Opens below prior low (or close)
• White candle closes more than 50%
into prior black real body
Market Implication
Bottom reversal
Support
The lowest low of the two
candlestick lines
104
Piercing Pattern
105
35
Piercing Pattern
Not Piercing Patterns
106
Early clues of shifting supply/demand
107
1 2 3
On–neck In–neck Thrusting Piercing

close= close= close above Pattern
prior low prior close prior low
(small white (small white
candle) candle)
Patterns 1,2 and 3 are viewed as small, reactionary rallies where the bulls counter drive
is weak. “Selling chase begins” under any of these patterns for momentum traders. 108
36
Basic Criteria
• First candle is an unusually long
black real body
• Second relatively small real body
(either color) within prior real body
Market Implication
Prior trend is “losing its breath”
Support
Not used
109
Bull Harami
Not harami
110
Bull Harami
111
37
Bull Harami
112
Double Candle Lines:

The Bear Signals
113
Basic Criteria
• Black real body wraps around prior
session opposite color real body
Market Implication
Top Reversal
Resistance
The highest high of the two sessions
of the pattern
114
38
Bearish Engulfing Pattern
115
Bearish Engulfing pattern as resistance
116
Candles: Support and Resistance
117
39
Candles: Support and Resistance
118
Western Outside Reversals
Top
outside
reversal
Bottom
outside
reversal
119
Engulfing Patterns and Outside reversals
Top
outside
reversal
120
40
Engulfing Patterns and Outside Reversals
121
Engulfing pattern and trends
stops!
122
Basic Criteria
• Opens above prior high (or close)
• Black candle closes deeply into
prior long white candle
Market Implication
Top reversal
The highest high of the two lines
that make up the pattern
123
41
Dark Cloud Cover
124
Dark Cloud Cover as Resistance- FX
125
Dark Cloud Cover- Futures
Chart courtesy of Genesis FT
126
42
Dark Cloud Cover - Stock
127
Dark Cloud Cover as Resistance - Intraday
128
Basic Criteria
• First candle is an unusually long
white real body
• Second relatively small real body
(either color) within prior real body
Market Implication
Bears losing momentum
Not used
129
43
Bear harami
130
Bear Harami
131
Bull and Bear Harami
132
44
Triple Candle Lines:

The Bull Signals
133
Criteria
• Market in downtrend
• First candle is long black
• Second candle small real body that
doesn’t (or slightly) overlaps first real
body
• Third candle is white real body that
gets deeply into first real body
Market Implication
Bulls now in control
white or black Support

Low of three candles
134
Morning Star as Support
135
45
Morning Stars
136
137
Moring Star as Support
138
46
Morning Star
Variation
139
140
Triple Candle Lines:

The Bear Signals
141
47
Criteria
white or black
• Market in uptrend
• First candle is long white
• Second candle small real body that
doesn’t (or slightly) overlaps first real
body
• Third candle black real body that gets
deeply into first real body
Market Implication
Bears are now in control
Resistance
Highest high of three candle lines
142
Evening Star
143
144
48
Evening Star
145
Evening Star
146
Evening star
147
49
Evening Star and Flexibility
148
Evening Star as Resistance
149
Evening Star Variation
150
50
Reading the Market’s Message Quickly and Accurately
On this 1 minute chart

look at the candle
signals sent by RIMM
at 129.80/.90
151
Reading the Market’s Message Quickly and Accurately
152
153
51
Reading the Market’s Psychology
154
Criteria
• Market in a downtrend
• Three relatively long white candles
• Last two open within, or over, prior
white real body
• Each candle closes at, or near, its high
Market Implication
Bottom reversal
Not used as support
Three Soldiers
52
Criteria
• Market in uptrend
• Three long black candles
• Open of last two within, or below, prior
black real bodies
• Each candle closes at, or near, its low
Market Implication
Top reversal
Not used as resistance
Three Black Crows
What we learned:
 Bullish and Bearish Engulfing

Patterns
 Brief description difference with
candles in FX
 Piercing Pattern
 Simplifying Candle Analysis
 Dark Cloud Cover
 Bull and Bear Harami
 Reading the market’s message
with dual candle patterns
 Morning and Evening Stars
 Being flexible in chart readings
 Soldiers and Black Crows
159
53
The trend before the signal continues after the signal
 Three Methods
 Windows
160
Rising and Falling Three Methods
Rising Three Falling Three
161
Rising Three Methods
162
54
Falling Three Methods
163
Gap Lower =
Falling Window
Gap Higher =
Rising Window
164
A rising window is support
Support
Zone
Most important
support level
55
Rising Window
166
Rising Windows
167
Broken Windows
Once the window is broken

it is no longer potential support
168
56
Candles in Context
Shooting
Star, but…
169
Candles in Context
170
How education SAVES you money
Bearish engulfing
pattern, but you must
not sell here!
171
57
Rising Window
Rising Window Hammer
172
A falling window is resistance
Most important
resistance level
Resistance
Zone
Falling Window
174
58
Breaking Falling window’s Resistance
175
Falling Window
176
Falling window
177
59
Small Windows
2 cents
178
Breakaway Gap
When the market gaps above resistance – or below support
179
Breakaway Gap
180
60
Breakaway gap
181
Safety first Trading
Strong candles
182
Fry Pan Bottom Dumpling Top
61
Fry pan bottom
Fry Pan Bottom
185
Dumpling top
186
62
Upside gapping tasuki
Down gap parallel

white lines
downward gapping tasuki
Up gap parallel
white lines
187
What we learned:
 Continuation candles
 Rising and falling three
methods
 Window essentials
 Large vs. small windows
 Windows and rounding
tops/bottoms
 Simplifying candle analysis
with windows
188
How NOT to use candlesticks
Oh my goodness! The
market rallied after the
shooting star!
189
63

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Steve Nison’s Candle Charting Essentials and Beyond

Volume 1 of the Nison Educational Series

The Framework &

Real Bodies / Shadows

Reading the market Psychology

ROCK SOLID CONFIDENCE 11

 The Popularity of Candles

The longer the real

The relative size

“The Real Body is the Essence of the Price Movement”

The cost of not using candles

Higher closes, highs and lows

What is one of the best ways to make money??

Saved by the light of the candles!

Be cautious of new highs made with doji

Doji Hints Rally Stalling

Doji Confirms resistance

Candles can be used in all time frames

Use the highest high of

Reading the Market’s Message Quickly!

Small Real Bodies (spinning tops)

Who’s in control? Who’s in control?

Lower closes, lower highs

Upper and Lower Shadows

New low with high wave means caution

Candles help us read the markets message

What do the series of bullish shadows tell

Reading the Market’s Message

 Candles give 2x information

Founder and President: Candlecharts.com

• Where the current

• Most candle signals

Single Candle Lines:

Psychology – Strong demand

Using Candles across the Spectrum

Using Candles across the Spectrum

Intra day chart

Education = Confidence = $uccess

Hammer as buy at $166.50

Hammer and trend

hammer’s lower shadow as Support

Chart courtesy of Genesis FT

Why Protective Stops

Which three prices of the

What happened during

Inverted Hammer with confirmation

Single Candle Lines:

Shooting Star “signals trouble overhead”

Education = Confidence = $uccess

Hammer as buy at $166.92

“A crack has entered the market”

Shooting Stars as Resistance

Which three prices of

What happened during

“If it appears from below,

There must be bearish confirmation for

Using Candles in a “Box” Range

Box range – which way?

Box range – which way?

Reading the Market’s Message

Using the insights of single candle lines

Using Single Candle Lines

Reading the Market’s Message