Key Candlestick Strategies for Profitable FX Trades … 4 Frontline FX: Key Candlestick Strategies...

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Frontline FX: Key Candlestick Strategies for Profitable FX Trades

Western indicators and Trade Management Essentials and Beyond for FX


With

Steve Nison, CMTPresident: Candlecharts.com

Western Indicators and Trade Management Essentials and Beyond for FX




sleeping




Deep Question 1

Why does a psychic hotline ask for your credit card number? Shouldn’t they already know it?




1. What bearish signal are these?2. Which are more likely a top reversal and why

3)What patterns are these? 4) Which one would you be more confident of a rally and why?

FX Chart Challenge

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Candlestick Charting

Techniques

Candlesticks +Western Indicators

Candlesticks + Trade Management





East + West Confirmation

Where a candlesignal confirms aWestern technical

signal




Foundation of East + West for FX:

Candles and Trend lines


Candles and Trend lines




Angled and Horizontal Trend lines

Candlestick confirmation of trend lines

Change Polarity Crack/Snap Falling Off the Roof





Trend Lines





East + West = Success





Trend Lines





Using candles to enter vs. exit

Doji

Hammer





East + West = Higher Confidence





THINK THE £ HAD TROUBLE NEAR 1.7040?

If I had only seen this!





Change of Polarity

Congratulations – you bought at support!

Congratulations?you bought at

support?




www.nisonforexacademy.com© Steve Nison’s Candlecharts.com





Change of Polarity

SupportSupport

Resistance

Resistance





Change of Polarity

Support zonebecomes …

Resistance

Chart courtesy of Genesis FT





East and West = Increased Confidence

Doji

Prior support becomes new resistance





Change of Polarity





Candles in context

Hammer, but ..





Candles in Context

Is the market at support?Are there any candle reversal signals?





Change of Polarity





Bear Change of Polarity





Bullish Change of Polarity





Snap

Crack

Target

StopBuy





Crack and Snap

target






Snap and Crack





Sell

Target

Stop





Falling Off the Roof




What signals were there at 1‐4?

12 3

4

FX Chart Challenge





FX Chart Challenge

Would you buy on this hammer? Why or why not?If not, when would you buy?





Module 2






Candlesticks and Bollinger Bands


Candlesticks and Bollinger Bands





Bollinger Bands

•Developed by John Bollinger

•Two trading bands are placed around a

moving average (typically a 20-day moving

average)

•Bands are placed (typically) 2 standard

deviations above and below moving average

•Touch of upper band: overbought

•Touch of lower band: oversold





East and ……





East and West (Bollinger Bands)





Bollinger Bands





East and West = Higher Confidence

Who’s in charge here?

Who’s in charge here?

How about now?





Bollinger Bands





What this knowledge can do





Reversion to the Mean





BB – All Time Frames (Weekly)





BB – All Time Frames (Daily)





BB – All Time Frames (15 Minute)





BB – The Chart - little Volatility





BB – The Chart - High Volatility





BB Squeeze





BB’s for Targets





BB’s – Riding The Band





Shooting Star Bearish engulfing pattern

Both patterns confirmed upper Bollinger Band

Dual Bearish Candle Signs & Divergence






Candlesticks and Oscillators


Candlesticks and Oscillators




Oscillators Oscillators

Objective

Separate from price

Best in lateral markets

Includes stochastics, MACD,

RSI, price oscillator, etc.

Objective

Separate from price

Best in lateral markets

Includes stochastics, MACD,

RSI, price oscillator, etc.




ApplicationsApplications

Momentum: force of trend

Overbought/Oversold:

Momentum: force of trend

Overbought/Oversold:

Divergence

too far too fast?




Positive Divergence Negative Divergence

Price

Oscillator

2

1 2

1

Oscillator

Price

12

1 2

Divergence




• Compares advances to declines

• Most common 9 and 14 period

• Uses : Divergence, Extremes (70% and 30%), Trend lines

• Failure Swings

Relative Strength Index (RSI)




Relative Strength Index

Formula: = 100 – (100/1+RS)

Where RS = average of N day’s up closesaverage of N day’s down closes

Example: If total up points (close to close) over 14 days was $28 and total down points for 14 days was $14:Average up = 28/14=$2 and Average down 14/14=$1.

So, RS= 2/1=2 and RSI = 100 – (100/1+2)=100-33.33 = 66.67%





Hammer and positive divergence

East & West





RSI





Candles in Context of Overbought/Oversold

At which doji is the market more vulnerable?





Candles and Oscillators





Convergence




Concept – closes cluster to highs

Most common – 9 and 14 period

Two lines - %K and %D

Stochastics




a) %K – close compared to price range

b)%D – 3 period average of %K

(a) and (b) - Fast Stochastics

3 period average of (a) and (b) = Slow Stochastics

Stochastics




StochasticsFormula for %K:

today’s close-lowest close in N periodshighest high in N periods-lowest low in N periods

100 *

Example: for 14 day %K, today’s close is 41, if highest high was 46 and lowest low was 41, for %K we have:%K = 41-38/46-38 *100= 37.5%

This means today’s close was 37.5% relative to the entire range of last 14 sessions.




a) %K – close compared to price range

b)%D – 3 period average of %K

(a) and (b) = Fast Stochastics

Stochastics

Slow Stochastics = The %D in Fast Stochastics becomes %K in Slow Stochastics, and %D in slow is a 3 period ma of Fast %D.




Faster %Kline crosses % D line

Overboughtand Oversold

Using Stochastics

Bullish and BearishDivergence

Stochastics





East and West





Stochastic





Scenario 1 – Take a short position on the close of the bearish engulfing pattern at 1.3421

Scenario 2 – Take a short position on the close just two after the Stochastics crossover is clear at 1.3419

Result: The hesitation waiting for the crossover makes a big difference on a 10 minute chart eating into your profits

Nison Candlestick strategies for greater profits




MACD line crosses Signal line

MACD Line – spread of two exponential moving averages

Signal Line – Exponential moving average of MACD line

Moving Average Convergence/Divergence

(MACD)




MACD lines Crosses Signal line

Overboughtand Oversold

Using the MACD

Bullish and BearishDivergence

Moving Average Convergence/Divergence

(MACD)





MACD





East and West = Higher Confidence





MACD





Candles and early reversals

doji





Scenario 1 – Short 1.2803 after the Bearish engulfing pattern

Scenario 2 – Short after the MACD moving average crossover at 1.2729

Result: An extra 74 pips of profit!

Nison Candlestick strategies for greater profits




Short term from longer term m.a.

Overbought/oversold, divergence

Dual Moving Averagesa.k.a Price Oscillator




Price OscillatorFormula:

short term moving average – long term moving average

Example: 10 day moving average = $23 30 day moving average = $31

Price oscillator = $23-$31= -8

If 10 and 30 day moving averages are the same Price Oscillator = 0





Price Oscillator

Close compared to 5 day MA






Candlesticks and Retracements


Candlesticks and Retracements




Fibonacci Retracements

(B)

(A)

50%

38.2%

61.8%

$100

$200

($150)

($162)

($138)





Fib. Retracements with Candles






Fib. Retracements

HammerChart courtesy of Genesis FT

Bull Engulf near 62%





Candles and Fibs

What are the three candle reversal signals?





50% retracement

East + West





Fib Retracements





Fib Retracements

Held

Failed so next support is

Failed so next support is





Fib Retracements

Failed so next target is






Candlesticks and Moving Averages


Candlesticks and Moving Averages





East + West Confirmation




Simple Moving Average

Formula: Add price (usually close) for N periods/ N periods

Example: 20 day moving average of close: add total of last 20 day’s closing prices and divide by 20.




Example of 5 day m.a.Date Closing Price Last 5 days/5= 5 day m.a.

Sept. 24 $20Sept. 25 $23Sept. 26 $21Sept. 27 $21Sept. 28 $22 Sept. 24-28

107/5=$21.40Sept. 29 $29 Sept.25-29

116/5=$23.20Sept. 30 $32 Sept. 26-30

125/5=$25




Moving Averages

Support / ResistanceTrend Indicator

price

Moving average





Moving Averages with Candle Support





Moving Average Support





Moving Averages





Moving average resistance





East + West for increased confidence

Candles and trend lines

Change of Polarity

Crack and Snap

Falling off the roof

Candles and Bollinger Bands

Candles with Oscillators

Candles with Fib

Candles with Moving Averages





•Module 3




WheneverStevetravelstoEuropebuytheUSDollar!




Steve in SpainSteve in Ireland




Waiting for Steve at Dublin Airport




Candlestick Charting

Techniques

Candlesticks +Western Indicators

Candlesticks + Trade Management




Forex Trading Success

The D.I.S.C.I.P.L.I.N.E.

System

Your Blueprint for Forex Trading Success




Don't ever forget risk- rewardIf…Then systemStops: Always use Candles in ContextImportance of TrendPace trades to market environmentLet go of emotions Indicators: The more the betterNever trade without an eye to newsExamine how market acts at support/resistance





Scenario 1 Scenario 2

Now let’s look at these in context!

Which is a better buy?





Same pattern: but how different the strategy!

Scenario 1

Scenario 2

Now let’s look at these in context!

Enter

Risk

Target

Risk

Enter

Target




Steve’s Most Important Trading Rule




Don't ever forget risk- reward




Acandlesignal– evenifitconfirmsotherindicators– isnotenoughofareasonforatrade.Youmustalwaysconsiderrisk/reward





Identifying candle patterns has not been a problem for me, but learning how to use them to enter and exit the market and to avoid certain entry signals because of a poor risk/reward was probably the greatest benefit … For instance, on 6/13/07 I noticed a hammer on the daily chart of the eur/usd pair. I entered the following day at 1.3282 with a stop at 1.3249. ‐‐Max O.

YOU HAVE A CANDLE SIGNAL – NOW WHAT ?





Is this a good trade candidate?

With education you just saved yourself from a over a 100 pip lose!





Is this a good R/R trade?




www.candlecharts.com

Risk/Reward

Why I went long:

1) Bullish engulfing at support

2) Other spinning tops confirming support

3) Trend line breakout of price

Was this a good trade that just didn't work out or did I make a mistake in judgment that I can't see?

Thank you,Gary B

Why I went long:

1) Bullish engulfing at support

2) Other spinning tops confirming support

3) Trend line breakout of price

Was this a good trade that just didn't work out or did I make a mistake in judgment that I can't see?

Thank you,Gary B





Candles in Context

Prior resistance converts to new support

What are 2 reasons not to short on this shooting star?





Hammer confirms support/but what about r/r?






Hammer and risk/reward

If you buy on the hammer’s close ask “What is my stop and what is my target”? Only if good risk/reward is a trade warranted

Targets obtained





Candles in Context

Chart courtesy of Genesis FTMorning starbut ???





Candles in Context

Why not sell at this doji?






How money management helps save money

Bullish Engulf Pattern but what about profit potential?






FX Chart Challenge- what would do here?






FX Chart Challenge

1) What candle signal and western signals are here 2) Would you do the trade based on the candle signal?

Why or why not?3) Would you do the trade based on the western

signal? Why or why not?




If..Then system




TheIf…ThenRules:• If themarketdoesnotactasforecastedthen exittheposition

• Initiateapositionwhenthemarketjustifiesyourpotentialtrade(i.e.If themarketbreaksaboveresistance,then buy.





Steve Nison’s Candlecharts.com Highlights





Don’t Stay Around

Hammer and Bull Engulf

Target

What are you doing hanging around! You’re wasting precious resources.





What is the #1 mistake made by FX traders?




The answer is:




How can we correct this?




By Using Protective Stops!




“I KNEW WE SHOULD HAVE CHECKED NISON'S TRADING TRIAD SUCCESS SYSTEM FIRST!”“I knew we should have set protective stops”




Stops: Always use




The race is not always to the swiftest, but to those who keep running.





Protective Stops





Why Use Protective Stops

Out





Stops





STOPS TO PRESERVE CAPITAL





Importance of stops





Importance of Protective Stops

Gravestone doji





Importance of stops





Stops

Where is the stop?

1 of 2





And what happened after 2 of 2

What if it went to here? Would you still want to be short?





Setting stops using risk/reward

Buy @ 1.205Target=1.246Profit potential=39 pips


What should our intraday stop be if we want a 2 to 1 reward/risk?

A‐ 20 pips or 1.185





Setting Stops w/o waiting for close

Shooting star confirms resistance

Target

Shooting star close = 121.92Target = 121.64Potential reward 28 pips

For 2:1 reward risk = risk 14 pipsShorted 121.92 + 14 pips =Intraday stop 122.06





• Module 4




Candles in Context





Candles in Context


Morning starbut ???





Candles in Context – Moving Averages





Candles in Context

Prior resistance converts to new support

What are 2 reasons not to short on this shooting star?





How NOT to use candlesticks

Oh my goodness! The market rallied after the shooting star!




Importance of Trend





If you incorrectly shorted here thinking it was a bearish engulfing pattern. You could have lost hundreds of pips

The Importance of Correct Knowledge





Candles and Trend




Pace trades to market environment





Market Chameleon:As market environment changes we adapt our market outlook and stance

Nison Trading Principle





Non Emotional Trading






Adapting to the Market





Being a Market Chameleon 1 of 3

Target

Stop

Short





TargetAnything happening to change your outlook?






Adapting to the market

Initial target





Being Flexible

Closed underbull engulf support , but…





Adapting to the Market 1 of 4

What is this pattern?

What is potential 1st support?





1) What is potential 1st support?2) Any bull candle signals?






How about here?

potential target







potential target





Speed is the Essence of Successful Trading

Resistance zone




Let go of emotions





Non Emotional Trading





Anchoring to a position






Long Lower (Bullish) Shadows

Although this market is descending, the long lower shadows lessens some of the negative outlook




Indicators: The more the better




The Multiplier Effect

Where a Nison candle signal confirms another indicator





If a candle signal does not confirm another signal then use candle signal to offset a trade





A candle signal confirming another signal is a necessary condition (but not sufficient) for a new trade





The more the better






Confluence





Candle Confirmation

Is the market at resistance? Are there any signs bulls’ losing force?

Is the market at resistance? Are there any signs bulls’ losing force?

doji




Never trade without knowing about news




Stay Away from the Trade




Examine how market acts at support or resistance




What are the best times of the trading session to trading based on support/resistance?





Reversals





London / Tokyo: 3:00 am — 4:00am

New York and London: 8:00 am — 12:00 noon

Sydney / Tokyo: 7:00 pm — 2:00 am




Yes-See if there is

of Support or Resistance

Is the candle signal showing a diminution of

force at support or resistance area?





Question 1‐ Is the market at support or resistance?

Question 2‐ Are there any reversal candles?

Question 1‐ Is the market at support or resistance?

Question 2‐ Are there any reversal candles?

Two simple questionsTwo simple questions

Candlestick Confirmation

1





Scenario 1

Scenario 2

Candlestick Confirmation





Using candlestick confirmation

Is the market at resistance?

Are there any reversal signals?

1 of 3





Is the market at resistance?

Are there any reversal signals?

2 of 3Using candlestick confirmation





3 of 3Using candlestick confirmation





Nison Candles for Entry and Exits

What pattern is this?

At resistance‐ but any bear signals yet?

How about now?





Candle Confirmation

Support zone

At support,What is the candlesignal showing?






Candle Confirmation





Candlestick confirmation





Reading the Market’s Message with the Light of the Candles





How Education Saves You Big $$$

Major resistance 2.00‐2.01





Long term resistance zone





1

2

3 5

6

7

FX Chart Challenge –Bringing it all together

4


A‐What candle signal is at 1 and what would you do if flat? If long?B‐What two patterns are completed at 2?C‐What signal is at 3?D‐What pattern is at 4 and what would the target be?E‐What pattern is at 5 and would you buy on that pattern? Why or why not?F‐What pattern is at 6 and would you buy on that pattern? Why or why not?G‐ At 7 with the market at support would you buy? Why or why not?





The Rules of DISCIPLINE trading

Risk/Reward

If. Then trading concept

Vital importance of stops

Candles in context of overall market

Adapting to the market

Multiplier Effect

News Building confidence to whether

support/resistance will hold




Learning is the gate-not the house.You first have to get through the gate to get to the house.

Miyamoto MusashiFamous 17th Century Samurai





Frontline Forex Intensive

360° Candlestick Analysis for FX™

Setting up and using a trading journal

Strict vs. basic candlestick definitions

White/black real body progression in order of strength

Price confirmation

Momentum trading

The blended candle line

Steve’s favorite Western indicator and how to use it correctly

Letting your profits run with trailing stops

Bringing it all together with your 6 Step Trading Checklist

Special Bonus session: Using Intraday candle charts for day and swing trading

Steve’s “Blast Off” and Paul’s “Bouncing Ball” secret trading strategies

Key Candlestick Strategies for Profitable FX Trades … 4 Frontline FX: Key Candlestick Strategies...

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Transcript of Key Candlestick Strategies for Profitable FX Trades … 4 Frontline FX: Key Candlestick Strategies...