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
