The Art & Science of

Active Trend Trading

Candlesticks—Discoveries

Probability of Success

July 20, 2016

U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures

and Options trading has large potential rewards, but also large potential risk. You must be aware

of the risks and be willing to accept them in order to invest in the futures and options markets.

Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to

Buy/Sell futures or options. No representation is being made that any account will or is likely to

achieve profits or losses similar to those discussed in this training. The past performance of any

trading system or methodology is not necessarily indicative of future results.

CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN

LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT

REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE

RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN

MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN

GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF

HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY

TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

All Materials presented are for training purposes only . Traders should paper trade any new method

prior to risk of personal capital.

All Materials Copyrighted ATTS 2007-2016

Disclaimer

Candlestick History

Charting method originating In Japan between the 18th century & late 1800’s

Potentially used by Japanese Rice Traders

Introduced to Western Traders by Steve Nison in the 1990’s

Knowledge base and trading importance expanded by Steve Bigalow

Probability Studies By Thomas Bulkowski

What’s the Difference?

Bar Chart vs Candlesticks

Open

OpenClose

Close

Bullish Bearish

Low

High

Primary & Best Candlestick Signals

There are many, many Candlestick Patterns but these represent the Primary & Best, but do they

Indecisive

Doji's/Spinning Tops - Yes but are not trading triggers, 50-50

Bullish Bearish

Hammer Shooting Star

Engulfing Patterns -- Minor Lows ** Engulfing Patterns

Piercing Line Dark Cloud

** Morning Star Evening Star

Harami 50-50 Chance Harami 50-50 Chance

Inverted Hammer- Actually Bearish Hanging Man – Actually Bullish

Wicks, Size and Color Order

Golden Rule of Candlesticks

Candlesticks and patterns require four criteria for

proper interpretation:

1. A Completed Line (Must wait for the time period to finish!)

2. Location, Location, Location

3. Color

4. Shape & Size

Revised Candlestick Basics

Candles and Technical Analysis go together

Powerful Tools – Only partially understood by most traders

When do candlestick patterns work best? Within established Trends

Size and Color Matters

Wicks Matter

Gaps are amazing

Bearish Candles outperform Bullish Candles

Focus on Patterns with 65% or better probabilities of success

Patterns tend to be valid for 5-10 days

2 & 3 Day Patterns have higher probability of success

Presentation Material by: Active Trend Traders

- Above the stomach – Like a Morning Star Reversal 67%- Belt hold bearish and bullish – 67% - 71%- Deliberation – Bullish Continuation 77%- Doji star, bearish – To Be Bullish close to 70%

- Engulfing, bearish – To Be Bearish 79%- Last engulfing bottom and top – Bearish at the Bottom- Three outside up and down – Bearish at tops 69%, Bullish

75% at bottom- Two black gapping candles – Bearish Continuation 68%- Rising and falling windows – Rising Bullish 75%; Falling

Bearish 67%

- Bulkowski, Thomas N.. Encyclopedia of Candlestick Charts (Wiley Trading) (Kindle Locations 1295-1304). Wiley. Kindle Edition.

Highest Probability Patterns

- Bearish Reversals work best in a prevailing Downtrend on Pullups

- Bullish Reversals work best in a prevailing Uptrend on Pullbacks

Other Considerations

- Highest Probability Trades take place reactions during a Trend

- Other Highest Probability Trades take place at the bottom/top of consolidation

- Wicks

- Size & Color

- Gaps

Other Considerations

- Wicks: Long Shadows and Tails tell exactly where buyers or sellers are coming in to the trade

Other Considerations

Location LocationLocation Location

Location

- Size & Color: Larger candles are move predictive than Small Candles- Color change from Red to big Green candle- Color Change from Green to big Red Candle

Other Considerations

Big Red Followed by Green

Green Followed by Big Red

Big Red Followed by Green

Big Red Followed by Green

Green Followed by Big Red Green Followed by

Big Red

Bullish Gaps

Swing High

Only occurs after a downtrend. Can

follow sell off gap down.

Very Powerful Signal

Next day opens up with a gap

Expected move back to swing high,

trend lines or moving averages

Gap up

Copywrite ATTS 2007-2016

Gap — Bullish

13%+ Gain from Signal to High in 4 Weeks

Bullish Gap

Clue: Stochastics Oversold

What are the Clues?How Many Are Needed?

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Bearish Gaps

Swing Low

Only occurs after a uptrend. Can

follow exhaustion gap up.

Very Powerful Signal

Next day opens down with a gap

Expected move back to swing Low,

trend lines or moving averagesGap Down

Copywrite ATTS 2007-2016

Gap — Bearish

-19%+ Gain from Signal to 100 day SMA in 26 days

Bearish Gap

Clue: Stochastics Divergence

What are the Clues?How Many Are Needed?

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Morning Star—Two Day Pattern

Hammer Support

Swing High Only occurs after a downtrend.

Body inside previous days candle

2nd up day closes at least ½ way up

candle from 2 days prior

Expected move back to swing high,

trend lines or moving averages

Copywrite ATTS 2007-2016

Morning Star

11%+ Gain from Signal to High in 2 Weeks13%+ Gain from Second Signal in 2 Weeks

Morning Star

What are the Clues?How many do we need?Does the Morning Star

really matter?

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Bullish Engulfing—Two Day Pattern

Only occurs after a downtrend. Completely

engulfs the previous days body.

Expected move back to swing high, trend lines

or moving averages

Support

Swing High

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Bullish Engulfing

Bullish Engulfing

Clue: Divergent Stochastics

12.8%+ Gain from Signal to High in 6 weeks

What are the Clues?

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Bearish Engulfing

Resistance

Only occurs after a Uptrend. Completely

engulfs the previous days body.

Expected move back to Swing Low, trend

lines or moving averages

Swing Low

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Bearish Engulfing

Bearish Engulfing

Clue: Divergent Stochastics

12.8%+ Gain from Signal to High in 6 weeks

What are the Clues?

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Piercing Line

Support

Only occurs after a downtrend. Must

open below and close more than ½

way up preceding candle.

Expected move back to swing high,

trend lines or moving averages

Swing High

Copywrite ATTS 2007-2016

Piercing Line

70%+ Move from Signal to High in 2 Months

Piercing Line

Clue: Oversold Stochastics

What are the Clues?

Copywrite ATTS 2007-2016

Dark Cloud

ResistanceOnly occurs after a uptrend. Must

open above and close more than ½

way down preceding candle.

Expected move back to swing low,

trend lines or moving averages

Swing Low

Copywrite ATTS 2007-2016

Dark Cloud

-9% Drop from Signal to Low in 2 days

Dark Cloud

Clue: Weak Stochastics

What are the Clues?

Copywrite ATTS 2007-2016