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8/12/2019 2 Advanced Candlestick Techniques and Analysis
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Transition Among Phases
1
32
1
2 3
B
A
CFlags1
2
3
B
A
CFlags 1
2
3
1
2 3
Breakdown
Patterns
Breakout
Patterns
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Rely on confirmation of price action for most potent setups
Look for Topping / Bottoming tails that protrude from the surrounding bars (“really stick
out”
The Candlestick /Bar-by-Bar setups are executed using confluence:
Moving Averages
Support and/or resistance levels
Swing pivot levels and/or floor pivots
Fibonacci levels (retracements of the prior move)
Prior setups and/or “failed” setups
Gaps
Opening Range Highs and Lows
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Volume is the second most important characteristic of price action for most potent setups
We want to focus on volume in the context of heavier activity and lighter activity.
Heavier activity indicates volume increasing in relationship to the price action move
Lighter activity indicates diminishing or declining volume in relationship to the price actionmove
The primary focus of volume is to confirm the direction moves of price action, reversal
chart patterns and continuation patterns
Congruency of volume and price action supports or refutes the move in buyers or sellers
Look for linear and non-linear relationships in volume to provide an additional indication of
the setup.
For example, a breakout of sideways consolidation, range-bound or congestion price action should be in parallel with
the directional move
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Two schools of thought:
Volume precedes price action – meaning that when volume dries up, price action rolls
over
Volume supports price action – meaning that volume shows up after significant
reversals in price action or momentum changes
We don’t care…which one is right or wrong!
We simply use volume as a compliment and “weight-of-evidence”
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Increasing Volume andAnalysis
1
32
1
2 3
B
A
C1
2
3
B
A
C1
2
3
1
2 3
Decreasing Volume andAnalysis
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1Morning Session
Aggressive
2Mid-Day Session
Moderate
3Afternoon Session
Diligent
Daily Swing Strategies
(i.e., Bull/Bear Traps)
Higher HighsLower Lows
Higher HighsLower Lows
Higher HighsLower Lows
Opening Range Breakouts Opening Range Breakouts Opening Range Breakouts
2-Bar Reversals3-Bar Reversals
…
2-Bar Reversals3-Bar Reversals
…
2-Bar Reversals3-Bar Reversals
…
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0
Pre Market Session
Extremely
Aggressive
1
Morning Session
Aggressive
2
Mid-Day Session
Moderate
3
Afternoon Session
Diligent
Friday-Monday
Breakout/Breakdown
Prior Day Highs & Lows
Daily Swing
Strategies
(i.e., Bull/BearTraps)
Higher Highs
Lower Lows
Higher Highs
Lower Lows
Higher Highs
Lower Lows
Higher Highs
Lower Lows
Opening RangeBreakouts
Opening RangeBreakouts
Opening RangeBreakouts
2-Bar Reversals
3-Bar Reversals
…
2-Bar Reversals
3-Bar Reversals
…
2-Bar Reversals
3-Bar Reversals
…
2-Bar Reversals
3-Bar Reversals
…
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Bullish
Engulfing
Bearish
Engulfing
Bullish
Piercing
Bearish
Piercing
3 Bar
Reversal
3 Bar
Reversal
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Bullish
Engulfing
Bearish
Engulfing
Bullish
Piercing
Bearish
Piercing
3 Bar
Reversal
3 Bar
Reversal
Volume
Volume Volume
Volume
Volume
Volume
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4)
3 Bar
Opening Ranges(aggressive)
2)
3)
1)
Time-based
Opening Ranges
1/2 Bar
Opening Ranges(most aggressive)
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Intraday
3 Bar High3 Bar High
2B/3B
Reversal
2B/3B Reversal &
crosses back into OR
2B/3B
Reversal
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1. Price action is trading inside the 3 Bar
Range
2. Look for 2/3 bar reversal inside
“tight range” 3. Look for lower highs in down trends
inside “tight range”
4. Look for higher lows in up trends
inside “tight range”
5. Consider entry after 1st wide-range
bar break outside of the 3-bar range
Identify Market Cycle…
Ignore gaps at open in price action
Consider aggressive short entries
when price action breaks below 3 Bar
low & below 20 MA
Consider conservative short entries
when price action breaks below 3 Bar
low & not below 20 MA
Consider aggressive long entry
when price action breaks above 3 Bar
high & above 20 MA
Consider conservative long entries
when price action breaks above 3 Bar
high & not above 20 MA
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Ideal trading
situation
ENTRY
LONG Entry
•Up trend
•Higher Highs & Higher Lows
PriceAction
2B/3B Reversal
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Bullish
Engulfing
Bearish
Engulfing
Bullish
Piercing Bearish
Piercing
1st
Bar
1st Bar
1st Bar
1st Bar
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Ideal trading
situation
ENTRY
LONG Entry
•Up trend
•Higher Highs & Higher Lows
PriceAction
Higher
Opening Ranges
Stop loss
Entry
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Identify Market Cycle on 1 time frame higher
Price action establishes the 1st bar
Consider entry after price action breaks outside of the 1st bar range
Ignore gaps at open in price action Consider aggressive short entries
when price action breaks below 1st Bar low & below 20 MA
Consider conservative short entries (counter trend trade)
when price action breaks below 1st Bar low & not below 20 MA
Consider aggressive long entry
when price action breaks above 1st Bar high & above 20 MA
Consider conservative long entries (counter trend trade)
when price action breaks above 1st Bar high & not above 20 MA
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Reference for Candlestick Basics and Analysis
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Minor support area
Major support areas
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Topping Tail Bottoming Tail
Narrow Range Bar Wide Range Bar
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Bullish
Engulfing
Bearish
Engulfing
Bullish
Piercing Bearish
Piercing
50%
50%
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Bullish
Reversal
Bearish
Reversal
Variations apply to last two candlesticks
for each pattern
Variation bars
Variation bars
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