Steve Nison

Steve Nison, President Nison Research International, Inc. (NRI), was the first who opened the Japanese method of technical analysis known as candlestick charts, for the West. He — an internationally recognized authority in this area, revolutionized technical analysis in the U.S. and Europe, using these methods. He is the author of two popular books: «Candlestick» and «In the face of Japanese candlesticks. He consults worldwide, including the Federal Reserve and the World Bank. In NRI, Mr. Neeson specializes in Internet-seminars and consulting services organizations.
Detection of early signals of turning with the help of Japanese candlesticks

The wise man is not one string to his bow. (Japanese proverb)

Analysis charts candlestick chart has this name because its lines resemble candles. Used by many generations of people in East Asia. Such schedules have been run long before the column histograms or «tic-tac-toe», but were virtually unknown in the Western world, before I put them into use in 1990. Now this technique is used in plotting the international level many traders, investors and prominent financial institutions.

Technique Japanese candlesticks little understanding

Anyone from the Chartists, the beginner. Prior made wise professional can easily use the candle chart.

Candlestick charts provide an earlier indication of turning the market

Graphs of candles can give signals a reversal in a few trading sessions, which is considerably less than the weeks often required for the formation of a reversal signal on the histogram. Thus, a U-turn confirmed using the candle chart, will often outstrip the traditional indicators. This will help you enter and exit the market at a better time.

Signals candlestick charts provide a unique understanding of the market.

Candles not only show the direction of motion, as do the histogram, but, unlike them, show the forces which support this movement.

Toolkit Japanese candles enriches the West graphical analysis.

Candlestick charts use the same data as the histogram — opening, closing, maximum and minimum.

Strategy candlestick charts are a tool, not the system and therefore, best used in conjunction with the trading techniques, to which you are most accustomed to.

Constructing Japanese Candles

Толстая часть свечи, называемая «телом» (real body), есть расстояние между ценой открытия и ценой закрытия сессии. Если закрытие выше цены открытия, тело свечи остается пустым (a). Если цена закрытия ниже открытия, то тело свечи становится черным ( b).

Тонкие линии выше и ниже тела свечи, называются соответственно, «верхней и нижней тенью» (upper и lower shadows). вершиной верхней тени является максимум цены сессии, низом нижней тени является минимум цены в эту же сессию.

Candle, which has no body, instead of which it has horizontal lines. These candles are called «Dodge» Dodge show that the closing price and the opening session were equal (or almost equal), and means that the market has found the balance of supply and demand. The emergence of Dodge in a trending market may mean that the market lost its momentum.

Ignition technique is suitable for any time interval.

Size and color of the body are a powerful advantage of candlestick charts, as it contains a lot of information about who dominates the market — the bulls or bears.

— A long white candle shows that the bulls dominated.

-long black candle indicates the advantage of bears.

-small body candles (white or black) indicates that the bulls and bears «pull the rope» at each other, ie the market trend, may have lost momentum.

With this in mind, you can use some candles for scaling the current market balance of supply and demand.

Using separate candles

Dodge

The Japanese say that the Dodge, especially after a very high white candle shows that the market is «tired» or overbought.

Due to the fact that Dodge is quite easy to detect some analysts can use it as a signal for immediate purchase (with the trend upwards) or sell (with the falling trend). However, Dodge indicate that the market is in transition. Dodge alters bullish trend in the more neutral direction, but does not mean that immediately turn into the fall. Chances that Dodge predicts a U-turn, increases if:

— Dodge confirms other technical tips (eg the market is near the level of resistance or support level of around 50% correction, etc.)

market is overbought or oversold.

However, these observations hold true for most other candle patterns. Because the tools candlestick charts for the most part, an indicator of a reversal, the market to which these tools are applied, should be sensitive to the correction, as investors seek to increase the chances to catch a turn, even if temporary.

DJIA, since the end of June 1999, a series of long white candles, made a great rise to the level of 10 550. This indicated that the bulls in full control of the market. The indicated situation is completely changed with the advent of a single candle — swept Dodge. Before his appearance, white candles showed strong, tight market, and Dodge pointed out that the rise began to wrap.

Mount Dodge becomes resistance, and this resistance was punctured in the day on July 17, but as the bulls did not have enough strength to hold the market above the resistance, the level remained valid. Closing above this resistance would be bullish breakout. Figuratively speaking, if the market is «tired» Generate dodge, it needs to «freshen up» close above the resistance level.
Here we may note a key feature of candlestick charts — they generate signals that are not available in the Western technical approach. For example, a column chart shows the same opening and closing prices, it makes no prediction signals. While such a situation candle chart may indicate a possible deviation of the initial trend.

Candlestick charts can be used at any time interval, including the small intra-segments.

Each candle represents a 5-minute period (opening and closing the maximum-minimum). The two tall white candles represent the strong rally of December 30. The warning flag appeared together with swept Dodge, who testified that the index reached its recent peak in 3750, where he met a sufficient demand for udovlevoreniya proposal.

Here you can see another use of Dodge. If Dodge comes after a long candle, you can use vertex shading candles and Dodge as a resistance level. Note that as the zone of 3745 (maxim of white candles, pre-Dodge) becomes a drag.

SHADOWS

Although the body is an important part of the candle (the Japanese say that the body of the candle is «the essence of price movement»). It is also possible to extract meaningful information from the length and position of its shadow.

Example. If the relatively high white candle had no shadow, it could be seen as a positive indicator. However, consideration of this candle completely, including the shadows, gives us a different view of the market power because of the long upper shadow indicates. As the lift was slightly suppressed. That is a long upper shadow indicates that during the session, the market rose in the day to a maximum, but to close, the bulls were unable to maintain this height.

Usually, two adjacent black-ing candles, will be a negative signal, however, the lower shadow candle at both shows that the bears did not have enough power to keep the market at the bottom of the closure. Additionally, for both the candles, the minima are equal, which is yet another warning about bear sentiment in this market.

«Hammers» and «falling stars»

Some candles have a shadow on one side only. And this shadow can be very long. Examples of such one-shadow candles are «hammers» (hammers) and «shooting stars» (shooting stars).

«Hammer»

If the candle «hammer» appears on the lowering trend, it is a signal of a potential reversal top.

Signs of «hammer» include

— Small body candles (white or black) on the edge of the trading range;

— A long lower shadow at least two to three times more. What is the size of the body;

-small or absence of the shadow;

-appearance during the price reduction, as it signals a turn upward.

The outlines of the bull hammer give visual confirmation. His long lower shadow indicates that sales of the market played out and the closure of the session, he returned to the top. This suggests that the market rejected lower levels.

Ideal «hammer» with a long lower shadow, the lack of closure on the top and the peak of the day. This long lower shadow is a positive indicator, because clearly shows that demand outstrips supply.

However, from the perspective of trade, the longer the lower shadow, the farther you are from buying at a minimum. And in terms of risk / return, then the purchase after the formation of «hammer» (at the closing session) may be unsuitable transaction.

For example, Wal-Mart Stores (WMT) has formed a «hammer» with a long lower shadow almost $ 5. That would mean the risk is almost 5 dollars if you bought at the closing. Must await the correction, not beyond the size of the lower shadow, (if such a correction takes place), before opening a long position. This will reduce the risk of the transaction, because you are buying some of the potential level of support. In this example, the paper fell on the day after the formation of the «hammer», but hold onto the support in the area of minimum «hammer». If closure occurred below the minimum «hammer» downward trend to continue.

Another valuable aspect of candlestick charts, which one analyst called «negative selection». This identification of those securities that do not touch or buy or sell, that it is useful, as well as preservation of capital may be as important as its accumulation.

In the example on the chart, 24 August, Dodge, following the long white candle, presaged a trend reversal. This reversal has found its bottom, drawing a «hammer», which is to support (area closure) over the next few days. October 15 a large black candle reflected the strong bearish momentum. Because of this large black candle, the purchase could be very risky, but the «hammer» pointed to the support, which was located near the paper. So I would not sell this rally, despite a long black candle, showing thus a negative selection. You can see how well it worked «hammer» as a support, as well as paper jumped to the next session.

Shooting Star

Candle with a long upper shadow, small body (white or black) and small or no lower shadow. Potentially, a bearish sign, if there is at higher prices. long upper shadow «shooting star» shows quite aggressive bears. in a position utyanut price from the top of the session and close near the minimum.

Most of the candlestick signals are reversal, they work better in times overbought or oversold market. (RSI as an indicator of overbought and oversold levels.)

RSI indicator adds extra value coinciding with the candle. Remember — the candlestick charts complement the Western tools of technical analysis, but not replace them.

Models of absorption. (Engulfing pattern)

Models represent the formation of the absorption of two candles.

Bull absorption model — appears on a lowering trend, when the white body candle black body absorbs the other candles.

Bearish acquisitions — appears on a rising trend, the black body absorbs white body candle

Commercial equipment based on models of absorption, is to use the smaller of the two minima of the bovine model as the level of support. And for the bear’s model — used by the larger of the two peaks, as the resistance.

Shares Dell Computer Corp. Formed bovine model of absorption in early August 1999. This model has set the support level of about $ 37,5. Dodge in mid-October, spoke of this support. More significant was the high volume of Dodge. High volume shows that it was a significant assumption, but a small body (ie Dodge) visually demonstrates that the entire sentence has been absorbed, almost equal to the aggressive demand.

Bearish absorption. Moment for sale (in terms of relationship risk / return) could not be the most attractive. More conservative strategy would have preferred to wait for the rebound (which might not happen) and use the top of the bear’s model as the level of resistance. This level was maintained over the next two attempts at the index to rise above 8200 (the second attempt the level was breached in the day. But it is not closed above it). Closure of the above bearish market model of the absorption (or below the bull’s model) is regarded as a breakthrough. And this leads to an important aspect of graphic candlestick patterns — the recognized candle light does not mean security of trade in this moment of time. Need to evaluate the risk / return this transaction.
«Windows»

«Window» in Japanese candles means the same thing as the gap in the Western technical analysis. «The growing window» appears when yesterday’s maximum below today’s minimum. That is, there is a vacuum between yesterday’s and today’s price. «Shooting window» appears when the minimum is higher than the yesterday’s session of the maximum today. «Windows» to visually provide information about the market — they point to a unilateral mood.

«The growing window» is considered as a bull model, «falling window» — as a bear. In order to trade with their help, you must use them as support ( «growing window») or resistance ( «drop-box»). In Japan there is a saying about «windows»: «the reaction will reach the» window «. This means that somewhere inside the «growing window» will be support for the correction. And when «falling window», inside it will be resistance to the rebound.

Signals for purchase

«Windows» at 1. 2. 3 «window» 1 is the usual «growing window», which becomes support. «Window» was punctured, however, the closure of the candles, so the piercing is seen as testing support. «Windows» 2,3, were not simply «windows», but also gepami, slipped earlier line of resistance. In the Western technical analysis, they are known as «intruding gap» because the market breaks the resistance level in one fell swoop. In the classic Western graphical analysis of such a price gap is seen as bullish. Adding to it the possibility of candles, more precisely using the «growing window» as support, we can conclude that the points 2 and 3 (both — intruding gap) are signals for purchase.

Support may be within the «growing window». A small «window» provides less space (narrow zone) for the support or resistance. Large «window» is the difficulty in determining the location of these zones because all the «window» is a potential area of support and resistance.

Intraday chart. whose support zone extends na30 points — from the top «window» (about 3360) to the bottom «window» (in the 3330). Support must exist somewhere within these 30 items. Later in the session on 17 December, a series of candles with long lower shadows that led to the conclusion that the support was 3340. This support was confirmed the next day with a hammer. An important level of support in the «growing window» is its bottom, but in this case, support was higher than the bottom of the «window».
Candles and the ratio of risk / return profile

Company Nison Research International, Inc. (www.candlecliarts.com) uses a unique approach to trade, which is called The Trading Triad ® (Trademark Triad). This approach combines three analytical techniques: candles, Western analysis and preservation of capital.

The usefulness of combining candles with Western technology has already been mentioned, and Fig. 52 demonstrates the importance of the third branch of Commerce Triad ® — preservation of capital. Should you buy when you see a bull model of absorption

Before deciding, consider the risks and potential revenue of this transaction. Risk (ie, stop) in a bovine model of absorption is equal to the minimum model. In our example, the minimum is around $ 24, and where the potential target? Your answer, of course, depends on technical and fundamental perspectives of the action, in your analysis. However, in this example, there is one remarkable thing is the potential zone of resistance in a small «window» in the region of $ 25.5, just before the bull model absorption. Thus, with $ 25.5 as the first resistance, we can estimate the ratio of risk and income in this transaction. That is, if you buy at the end of a bull model absorption ($ 25.25), it is close to the zone of resistance. Thus, this market is not conducive to a long position, in spite of the bull model of absorption. The moral of this example — before they enter into a transaction, always consider the balance of risk and profit from it.

Study candlestick patterns

Fig. shows clearly formed «molotok», which can, in general, taken as a potential reversal signal. But, as the Japanese say, the overall technical picture is much more important than a single candle or a model.

With this in mind, notice what happened in the day «hammer». Appeared «falling window» — a bearish signal. The potential strength of this bull hammer, therefore, would have supported closing above this window.

After the «hammer» the market continued its fall, (which is not surprising, given the bearish impulses «window»). Can you find some hook, indicating the loss of market bearish momentum in this case? Hook —

| The long lower shadow of the day «hammer» and two days after it. Their appearance proves that the bears could not keep the market at the lower levels of the trading session. Although these signals are not bullish, they reduce the bears’ efforts to reduce the levels. Turn signal appears as a bull’s model of absorption in the middle of December.

Japanese proverb: «The Power of strained bow depends on the choice of time to drain the stringer.» Sync «descent string» depends on many factors, not mentioned here. There are times when a candle signal should be ignored. Everything comes with experience. Nison Research International analyzes and assesses visual candlestick signals, coupled with a multitude of other factors, including the ratio of «risk-return» of a potential trade, the ratio of candle patterns and current market conditions, as well as market action after the transaction. This integrated approach is recommended to use Japanese candlesticks, and perhaps they will help improve your trading.

Автор: Трейдер

Личный блог профессионального трейдера на фондовой бирже США (NYSE, NASDAQ, AMEX ) Дмитрия Гаврилова. Начал свою карьеру на NYSE (Нью-Йоркская фондовая биржа) в 2008 года в проп компании . С 2009 года стал старшим трейдером крупнейшего пропа в России и начал обучать трейдеров компании. С 2011 года был трейдеров компании GT Capital Group при поддержке SMB Capital (США).