Profitable candlestick trading: pinpointing market opportunities to maximize profits Stephen W. Bigalow Over 30 years of investment experience. The updated edition to one of the most popular books on technical analysis. Japanese candlestick charting and analysis is one of the most profitable yet. Copyright @ by Stephen W. Bigalow Published by The Candlestick Forum LLC . As expressed in the “Profitable Candlestick Trading” book, a signal is the .
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PROFITABLE CANDLESTICK. TRADING. Pinpointing Market Opportunities to. Maximize Profits. Second Edition. Stephen W. Bigalow. John Wiley & Sons, Inc. Day Trading With Canlestick and Moving Averages - Stephen Bigalow - Free download as PDF File .pdf), Text File .txt) or (pdf). Uploaded by. Peter Davies. Candlestick Entry Exit Strategies. Uploaded by Profitable Candlestick Patterns. Profitable Candlestick Trading: Pinpointing Market Opportunities to Maximize Profits [Stephen W. Bigalow] on abliteseku.cf *FREE* shipping on qualifying offers.
The success ratio of candlestick signals now is heing further improved. Through many years of statistical research, it has heen shown that applying important moving averages to price trends has revealed some important results. This research has altered the application of the moving averages. The common use of moving averages has heen huying and selling positions when specific moving averages cross over each other, such as when the 10day crosses the day, or the day moves through the day, etc.
A more profitahle application has heen developed using moving averages. There are many moving averages that technical analysts consider important, ranging from the three-day simple moving average to the 1,day simple moving average. However, the 50day and the day provide the most reliable signals. The application of them is different than how most traders approach them, though. These periods reveal numerous candlestick signals while ttie stochastics are in the oversold or overbought conditions.
These moving averages reveal impressive results that indicate that trends bounce off the 50day and day moving average with considerably more regularity than any of the other moving averages. When statistical analysis discloses a pattem that exhibits consistent regularity, it is usually a function of repeated human nature. As seen with stochastics, Elliott waves, Fibonacci numbers and trendlines, etc.
Otherwise, these technical systems would not have ever heen identified. Candlestick signals work very effectively if they generate a download signal while stochastics are in the oversold area. The effectiveness becomes more enhanced when the moving averages are added to the analysis.
For the swing trader, the signals in comhination with the moving averages create highly accurate trades lasting three to 15 trading days. Eor the longer-term investor, the analysis can he applied to the indexes. Common sense portfolio strategies can be put in place by evaluating the direction of the market indexes and then scanning for the signals in individual sectors or stocks that correlate with the index trends.
The moving averages provide the support and resistance levels while the candlestick signals confirm what is happening to investor sentiment at those levels see "Finding confirmation," above. A major advantage of combining candlestick signal confirmation with moving averages is intraday trading. When fast www.
An inordinate numher of successful trades can he executed every day when all the parameters align. Point A illustrates a bullish engulfing signal followed three minutes later hy a piercing signal, occurring in the oversold area of the stochastics, and at the minute moving average. Point B demonstrates a bullish engulfing signal as the price pulls hack to the m i n u t e moving average. Point C reveals a spinning top followed by a hullish engulfing signal, again bouncing up from the minute moving average.
Having this visual trading format allows the day-trader, whether trading futures or commodities, to pinpoint the high prohability turns in an intraday trend. The best investment strategy is to download a stock that has bottomed and the downloading is becoming more prevalent. Tall order? Not really, when you can visually see the download 5 signs. The probabilities are much greater in finding stocks that are just starting to make an up move.
It is better to download a stock where fresh downloading is recently coming into the stock and getting in on strength. Participating with other downloaders at least indicates that there are other downloaders, logical. As backward as that philosophy appears in the real world, the Candlestick signals get investors close to that concept.
Profitable Candlestick Trading
If this is the only statement that you remember about Candlestick analysis, you will easily comprehend the ramifications behind the signals. That is the formation that becomes visually evident to the Candlestick investor. Simply stated, the signal is showing the evidence of downloaders coming into a stock, reversing the previous downtrend.
Those signals, 10 major signals and approximately 40 secondary signals and continuation patterns, can be identified by the Candlestick trader. As discussed earlier, the signals each provide a positive percentage of profitable trades, and bad trades.
The best test for determining placing a position from that signal is based upon one simple question. On the open of the next day, are the downloaders still there? This may appear to be elementary, but it is the basis for getting into the position in the first place. The Candlestick signal represents a change of direction.
The magnitude of the presence of downloaders has an important factor on how strong that reversal will be. Figure 1, Pinnacle Entertainment opens near the previous close.
This clearly indicates that the downloaders have not backed away. Witnessing the price advance from the opening trades reveals that downloaders are stepping in without hesitation. download immediately. You have all the parameters evaluated. The probabilities are in your favor. There should be no reason not to get into the position.
The open, by remaining in the area of where the downloaders closed the price the day before, indicates that there was not a change of heart overnight.
Consider the action of the price the day before. It had a big up day. As the close was getting near, the shorts may have realized that selling was not coming into this stock. They may have covered, pushing the price up further on the close. Profit taking or sellers still wanting to get out of the stock could lower the price on the open. The next morning, prices opening slightly lower and immediately heading higher indicates that the downloaders have not disappeared.
As soon as the first few minutes of trading transpire after the open, an investor should be able to ascertain how the stock and markets are performing. Note in Figure 3, Meritage Corp.
A gap at the bottom of a downtrend and after a reversal signal is one of the best signs of downloading strength possible. One should be committing funds immediately.
The gap up at a beginning of a trend bodes very well for an extended rally. Whether the indexes are opening up weak or strong, a gap up in a stock requires immediate attention. There is downloading going on in this stock that is not concerned about the status of the markets. Try to get into the stock as fast as possible. The advantage of being able to view the bid and ask prices prior to the open is that it prepares you for your entry strategy.
Seeing a stock price being bid up before the open, and knowing what a gap up indicates after a Candlestick signal, allows you to place a market order on the open. Use that downloading force to your advantage. Get in as early as possible. Again, the probabilities are in your favor and this time the gap is adding to the force of the move. A gap reveals extensive downloading, get in as fast as possible Sometimes you are going to see a gap up, you get in and then watch the price head back the other way.
The download signal was the reason to download. The downloaders were still around to gap prices up. If profit taking occurs after that, no big deal, the downloaders are still around. Wait a day or two and the signal should confirm itself. A substantial gap up may require watching to see if there is any immediate profit taking. This position might be better entered by downloading half the position on the open, and the second half after observing the price move.
In some substantial gap ups, the opening price might be the high for that day, creating a black candle.
The fact that it had many downloaders and some immediate profit taking still reveals that there was a strong change in sentiment. Note in Figure 4, Meridian Gold Inc. This shows great downloading influence.
The next day gaps up. This could be the beginning of a very strong rally. This has all the makings of a strong run up. There would be no reason not to get into the position. However, once the position was filled, the profit taking set in. Is this time to worry? Remember what the Bullish Engulfing pattern told you. The downloaders were coming into this stock with great force for some reason. It would seem very unusual that the next day they would all of a sudden disappear.
The underlining factor remains that the downloaders have come into this position with vigor. Sit comfortably for a day or two to see what happens after the 10 profit taking disappears. In this case, the strong download signal was the prelude to more downloading. Figure 4, Meridian Gold Inc. Figure 5, The Exploration Co.
A Bullish Engulfing pattern is the first signal. The gap up and the strong downloading afterwards is more evidence.
Profitable candlestick trading : pinpointing market opportunities to maximize profits
There would be no reason for not getting into the position on the next show of strength. Once you have gotten into the position, the price rolls back. It could be profit taking, or the rest of the market starting to get weak. Your peace of mind is still in the strong download signals.
As in this illustration, it took a few days for the trend to start back up. During those few days, note that the sellers could not knock the prices down. It may have tested some nerves, but after 3 or 4 days, the bulls starting gaining confidence the sellers did not have enough strength to push the price back down. This led to the continuation of the upward trend. It took a few extra days, but that is reality. Some positions look great when you get in, but will lag for a few days.
But if the message of the signals is correct, the trend will be continuing. Sometimes that will take patience but the probabilities will be in your favor. The signal in itself reveals that downloaders have moved into the stock.
Will that downloading continue?
That is what can be easily identified the next morning. Establishing an initial position requires a small amount of research. What is the direction of the indexes? What is the direction of the sector index most related to that particular stock? How are the other stocks doing, the ones closely associated to the stock you are ready to download?
Some investment gurus recommend not trading in the first thirty minutes of trading. The volatility is too great during that time. Most traders know that the best opportunities are produced in the first and last hour of trading each day. The pent-up research of the night before, since the close of the previous day, is implemented during the opening hour of the next day.
This is the time to take advantage of Candlestick signals. A new dynamic is put into force during the first hour of trading. All the investment decision-making processes are put into action with download and sell orders in the opening hour. The inordinate volume is crossed and matched in market conditions. Once this volume is consumed by the joining of download volume and sell volume, the price will begin moving in the direction of the remaining order balances.
This inordinate volume makes the first hour more volatile than the other trading hours during the trading day. It also impacts the direction and the magnitude of the move. If it is consistent with the other factors of a strong or weak open, the trade can either be executed or withheld until the proper factors are evident. The other factors are simple indicators of what the market direction should be once the market opens.
Each morning the futures can be observed in many places. If a position is ready to be implemented, it would not be prudent to place the trade on the long side if the futures were illustrating heavy selling on the open. The signals need continuing confirmation that the downloaders are still around. Dramatic selling pressure on the futures before the markets open is an indication that the downloaders may not want to fight the selling pressure that morning. The direction of the index may be projected by observing the formations that appeared prior to the next open.
If it is expected to be in an upward direction that day, then the futures should be confirming that sentiment in their activity before the open. If the direction of the market is projected to go higher, a small pullback of the futures should be tolerable. Having software that shows pre-market bid and ask prices provides a clear indication of what is happening in the demand for that stock as it gets near opening time.
That will be the most important illustration of how the downloaders and sellers are lining up on the open. That does not mean it is the final indication. Sometimes a downloader or seller will commit their download or sell order immediately after the market opens, not wanting to show their hand too early.
If the level of the bid and ask does not produce any concrete decisions, investigate how some of the same type of companies are acting on the pre-open. The first thirty minutes after the market opens will swing around a bit. Your general analysis should have reduced some of the potential possibilities of what might happen the next day.
Logically, you would not be looking to download long if there was overwhelming evidence that the indexes were going lower. That is probably why you picked out the potential long trade in the first place, because you thought the next day had better bullish probabilities. download on a strong open. The stock you are trying to download had a bullish signal the prior day.
There are four combinations that can occur on the open: 1. The pre-market indication on the stock price is that it is opening higher than the close of the night before.
The downloaders have 14 not disappeared. This is the scenario that best fits with your analysis.
In this case, there is no reason why you would not want to get into the position as quickly as possible. download at the market on the open. Analyze the situation. There may be some traders taking some quick profits off the table, moving the price slightly down on the open.
If this scenario happens, watch how the price acts during the early minutes of trading. Anticipate that the lower open was just some quick profit taking. As soon as you notice downloading coming in, fill out the rest of the position. Or if you want to be more conservative, try this strategy.
The signal from the previous day is the overriding factor; the downloaders are still around. But the indexes are not acting well.
The downloaders of the stock are witnessing the weaker market indexes also. In this case, watch what the stock price is doing. If it appears that the downloaders are coming into the stock despite the lower market in general, then the downloading force is not regarding the market conditions, they want the stock.
download it. Lay back for awhile, and see what the markets are going to do for the day. A safe approach under these conditions would be to put a download stop at the open price. Again, the rationale being that if the price came up through the open price, the downloaders were back in control. The worst scenario in the grid is a weak open on the indexes and the stock opening lower. Not too much of a decision here.
In this situation, if the markets and the stock price start coming back up before the end of the day, the downloaders should be back. The primary element that should go into every entry decision is simple. Is there evidence of downloading present, continuing the trend as indicated by the reversal signal? Being able to recognize which trends are going to get stronger download participation will increase your portfolio returns impressively.
The signal has indicated the trend has reversed.
It may be a slow reversal, or it may be a power move. The signal revealed a new trend was probable. The same practice can be applied to the same 15 charts to become acquainted with the formations seen during the first day or two after the signal.
Learning to recognize how a strong uptrend acts in the early stages of its development once again puts the probabilities in your favor. The signals are going to reveal plenty of downloading opportunities. How to evaluate the follow through of the signals will allow you to filter the best of those opportunities.
There will be many entry points that fit the perfect downloading conditions, yet fade just after you fill your position. Depends on how the rest of the day finishes. Will every trade you get into work the way the signals indicate?
Definitely not! But go back to the basics. You are looking for the best possible place for your money to make the best returns with minimized risk. A good evaluation of the entry also has the element of limiting the losses.
If a trade is placed, and the basis of being in the trade disappears immediately, i. The gains have an opportunity to run when the download signal is not negated. The losses get trimmed immediately if the signal fizzles. A good rule of thumb for protecting a newly established position is: If the close of the entry day, the day after the formation of the download signal, is more than one-half way down the body of the previous day, close the position.
Statistically this represents that the sellers still have the upper hand. However, keep in mind that a download signal did form at the bottom of the trend. Despite having to exit the trade at a small loss, be prepared to see new downloading evidence soon.
If so, re-establish the position. The download signal occurred for some reason. Due to the fact that Candlestick signals are not created by numeric thresholds, a numeric stop is not valid.
A trend created by the force of the downloaders over the sellers has nothing to do with a percentage move. It is purely based on the directional sentiment of investors. Analyze what the trend is doing. The most important area is at the reversal point. Is it a reversal or just a jig in the trend? That is where the analysis and monitoring are most important. A download signal requires follow through. The weight of a sustained downtrend needs strong change of sentiment to reverse its course.
There may be a more opportune time to get into a position if a pullback occurs.
The current low may hold. This is true whether you are a short-term trader or a long-term holder. Figure 6, Hovnanian Enterprises Inc. All the parameters say to download this stock. A Hammer is followed by a Bullish 17 Engulfing pattern. The stochastics have turned up, volume is picking up. But the next day the price opens much lower than what would indicate downloaders were still active. What is the best way to enter this position? Are the sellers taking back control for some reason?
Maybe the indexes opened much lower. In keeping with the practice of downloading a stock that is going up, the best entry strategy would be to put a download stop at the close of the previous day. If the downloaders are still participating, it would be evident if they moved the price from the lower open back up through the close of the previous day.
downloading the stock at a slightly higher price is a small premium to pay for knowing that you are getting in when the downloaders are around. This formation would indicate that the downloading had stopped. You are not in a position where the sellers may be taking control again. If your download stop does get executed, you know that the downloaders are still in control.
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A Hammer, followed by a Bullish Engulfing pattern, all indicators say download, but the price opens weak, what to do? In the example of Hovnanian Enterprises Inc, the downloaders did come into the stock, executed the stop, and continued to show strength. This made for a good trade. If market conditions are weaker or profit taking comes into a stock, it can create a different evaluation after the close. Figure 7, Movie Gallery Inc.
In this case, the price opened lower, 18 came up during the day and executed the download stop. That could lead to a few days of consolidation. However, it is still early in the uptrend. Stochastics are heading up. Fortunately the downloading continues the next day and moves prices to the positive. As seen in the chart, the Morning Star formation was the bottom reversal point for a strong uptrend. This could slow down the trend. One of the most common chart patterns is the Doji after a big up day.
In an example such as Figure 8, Scansoft Inc. All of a sudden a Bullish Engulfing pattern emerges. The downloaders are stepping in. They have overwhelmed the sellers to the point of reversing the trend. The following day, after the big up surge, there will still be sellers taking advantage of being able to get out at a higher price than just a couple of days ago.
This continued selling is met with the downloaders coming in. It is not unusual to see a Doji day after a big up day. However, when the sellers see that the downloading is now sopping up all the selling, they get concerned and step out of the way. The following day should see higher prices.How foolish we would look after selling out of a position, then it made a major move up without us being in it! As you learn more about the signals, you will become acquainted with where the real signals occur.
The book Details the most valuable aspect of technical analysis-reversal patterns-as well as reversal signals, including the Doji, the Hammer, the Hanging Man, Engulfing Patterns, and Dark Cloud Cover Explains continuation patterns and explores how they can help with the decision-making process during various trading periods Reveals how to find trading situations that have the maximum potential for profitability, the highest probability of success, and the least amount of risk Learn how to quickly search, view, and profit with candlestick formations with Profitable Candlestick Trading.
The earlier you witness dark bodies, the greater the probability the trend is experiencing new selling. Options are trading vehicles that require the most exact timing possible. The abilities of computers have been able to greatly enhance the performance ai' successful investment methods. If the probabilities were not always good to stay in the position, the prudent strategy was to be out. The book Details the most valuable aspect of technical analysis-reversal patterns-as well as reversal signals, including the Doji, the Hammer, the Hanging Man, Engulfing Patterns, and Dark Cloud Cover Explains continuation patterns and explores how they can help with the decision-making process during various trading periods Reveals how to find trading situations that have the maximum potential for profitability, the highest probability of success, and the least amount of risk Learn how to quickly search, view, and profit with candlestick formations with Profitable Candlestick Trading.
Despite having to exit the trade at a small loss, be prepared to see new downloading evidence soon.
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