Moving Average and Stocastic

Basic setup – 15 Minute Charts with 3 EMA & 6 EMA plotted on price and Stochastic with 8,4,3 setup.

Basic Rules –

1. Avoid Trading signals in first & last 30 minutes
2. Risk Reward Ratio is 1:1
3. Decide loss per trade before entering into trade and accordingly 
adjust the quantities. ( I am betting Rs 1000 per trade)

Buy Signal –

1. When Stochastic is trading below 50-55 range and 3 EMA is 
crossing over 6 EMA, go long above high of the candle in which 
signal is generated with stop loss placed below days low or near 
any pivot point. 
2. When 3 EMA is already trading above 6 EMA but stochastic is in sell 
mode, do not go long & wait for stochastic buy signal, if signal is 
generated, go long above high of the candle in which signal is 
generated.
3. Please have patience and let the candle to complete, no trade is 
being done by market order, let every trade be stop loss to buy 
above certain point. 
4. Here we are trading with risk reward of 1:1, hence whatever stop 
loss you are placing must be equal to the target. Hence keep sell 
order as and when you entered in to the trade. For eg. If we are 
buying at 100 and stop loss is 98.50 then our target must be 101.50

Exit Rules – 

1. Exit on Achieving of Target
2. Exit by Triggering of stop loss
3. Exit if you are long and there is a negative crossover of Moving 
averages (3 EMA < 6 EMA). Stop loss will be revised below low of 
such candle in which downward crossover is seen. 
4. If you are long, avoid all stochastic sell signals thereafter, only 
focus on EMA crossover. Hold positions till target achieves or SL 
hits or SL needs to be revised. 






Sell Signal –

1. When Stochastic is trading above 45-50 range and 3 EMA is 
crossing under 6 EMA, go short below low of the candle in which 
signal is generated with stop loss placed below days high or near 
any pivot point. 
2. When 3 EMA is already trading below 6 EMA but stochastic is in buy 
mode, do not go short & wait for stochastic sell signal, if signal is 
generated, go short below low of the candle in which signal is 
generated.
3. Please have patience and let the candle to complete, no trade is 
being done by market order, let every trade be stop loss to sell 
below certain point. 
4. Here we are trading with risk reward of 1:1, hence whatever stop 
loss you are placing must be equal to the target. Hence keep buy 
order as and when you entered in to the trade. For eg. If we are 
selling at 100 and stop loss is 101.50 then your target must be 
98.50. 

Exit Rules – 

2. Exit on Achieving of Target
3. Exit by Triggering of stop loss
4. Exit if you are short and there is a positive crossover of Moving 
averages (3 EMA > 6 EMA). Stop loss will be revised above high of 
such candle in which upward crossover is seen. 
5. If you are short, avoid all stochastic buy signals thereafter, only 
focus on EMA crossover. Hold positions till target achieves or SL 
hits or SL needs to be revised. 

Some Back testing Facts – 

1. I personally do not have any automatic (algorithm based) back testing facility as I am using software which does not have back testing options, hence back testing is done manually, hence may contain some errors.
2. I have back tested on many stocks, including Nifty futures, but this system best works with stocks with high liquidity and small daily range. I prefer UNITECH, SUZLON, RNRL and SATYAM for this system to trade.
3. I have attached back testing I have done on Unitech for past one month. Results are good.



Small Request – 

1. This system was originally developed for Forex markets, but subsequently modified for the Equity market with changing in default parameters. 
2. Since I am trading using this system for quite a small period of time, I would request veteran members who have enough data, software and algorithm to back test my strategy.
3. I request everyone to understand logic behind the system before entering in to the trade. This system is only for intraday movement based on certain criteria and position must be closed out EOD, do not carry forward based on intraday signals.

3 White Soldiers (Weekly) Candlestick Play Instructions

Step 1 - Pull up a Weekly chart of the stock after the market closes for the week (Friday after close).

Step 2- Look for THREE WHITE SOLDIERS against MINOR PRICE RESISTANCE, and/or against the declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the Weekly chart. Place the stock on your watch list for the upcoming week.

Step 3 - Allow the stock to trade one full day. Pull up a Daily chart of the stock after the stock has formed the first daily candlestick of the week (Monday after close).

Step 4 - Look for a BEARISH HARAMI candlestick against MINOR PRICE RESISTANCE, and/or a declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the Daily chart.

Step 5 - Sell short only if the stock breaks 1/8th below the low of the previous HARAMI candlestick. If the stock does not break the previous day's low, DO NOT ENTER THE TRADE.

Step 6 - Mark off the 50% retracement line. This will be the halfway point between the line of resistance where the stock began it's decline, and the line of support where the stock begain it last major rally.

Step 7 - After entry, place an initial protective stop 1/8th above the high price of the previous day's candlestick. Cover the stock immediately if the stock breaks above this price.

Step 8 - On each new day, adjust the trailing protective stop to 1/8th above the previous day's candlestick's high price. Continue to use a trailing stop as long as the stock remains above the 50% retracement line.

Step 9 - After the stock has broken below the 50% retracement line, look for a reversal candlestick. This will most likely be a bullish candlestick which closes near it's high price of the day. Cover the stock for profit either before the market close, or at the market open the next day.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

3 Black Crows (Weekly) Candlestick Play Instructions

Step 1 - Pull up a Weekly chart of the stock after the market close for the week (Friday after close).

Step 2- Look for a THREE BLACK CROWS resting on MINOR PRICE SUPPORT, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA) on the Weekly chart. Place the stock on your watch list for the upcoming week.

Step 3 - Allow the stock to trade one full day. Pull up a Daily chart of the stock after the stock has formed the first daily candlestick of the week (Monday after close).

Step 4 - Look for a BULLISH HARAMI candlestick resting on MINOR PRICE SUPPORT, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA) on the Daily chart.

Step 5 - Enter the stock only if it breaks 1/8th above the high of the previous HARAMI candlestick. If the stock does not break the previous day's high, DO NOT ENTER THE TRADE.

Step 6 - Mark off the 50% retracement line. This will be the halfway point between the line of support where the stock began it's rally, and the line of resistance where the stock made it's last major pull-back.

Step 7 - After entry, place an initial protective stop 1/8th below the low price of the previous day's candlestick. Sell the stock immediately if the stock breaks below this price.

Step 8 - On each new day, adjust the trailing protective stop to 1/8th below the previous day's candlestick's low price. Continue to use a trailing stop as long as the stock remains below the 50% retracement line.

Step 9 - After the stock has broken above the 50% retracement line, look for a reversal candlestick. This will most likely be a bearish candlestick which closes near it's low price of the day. Sell the stock for profit either before the market close, or at the market open the next day.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Bearish Harami (Weekly) Candlestick Play Instructions

Step 1 - Pull up a Weekly chart of the stock.

Step 2- Look for a BEARISH HARAMI against MINOR PRICE RESISTANCE, and/or a declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the Weekly chart.

Step 3 - Pull up a Daily chart of the stock. Note that the Harami pattern formed on the Weekly chart is made up of 5 individual daily candlesticks.

Step 4 - Look for consolidation of the last 3 or 4 daily candlesticks at the low price of the week. This consolidation line represents an area where the stock takes a rest before resuming it's downtrend. The objective is to enter the stock just before the next big downward move.

Step 5 - Enter the stock only if it breaks 1/8th below the area of consolidation line. This will often correspond to the low price of the week. If the stock does not break through the area of consolidation, DO NOT ENTER THE TRADE.

Step 6 - Mark off the 50% retracement line. This will be the halfway point between the line of resistance where the stock began it's decline, and the line of resistance where the stock began it's last major rally.

Step 7 - After entry, place an initial protective stop 1/8th above the high price of the previous day's candlestick. Cover the stock immediately if the stock breaks above this price.

Step 8 - On each new day, adjust the trailing protective stop to 1/8th above the previous day's candlestick's high price. Continue to use a trailing stop as long as the stock remains above the 50% retracement line.

Step 9 - After the stock has broken below the 50% retracement line, look for a reversal candlestick. This will most likely be a bullish candlestick which closes near it's high price of the day. Cover the stock for profit either before the market close, or at the market open the next day.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Bullish Harami (Weekly) Candlestick Play Instructions

Step 1 - Pull up a Weekly chart of the stock.

Step 2- Look for a BULLISH HARAMI resting on MINOR PRICE SUPPORT, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA) on the Weekly chart.

Step 3 - Pull up a Daily chart of the stock. Note that the Harami pattern formed on the Weekly chart is made up of 5 individual daily candlesticks.

Step 4 - Look for consolidation of the last 3 or 4 daily candlesticks at the high price of the week. This consolidation line represents an area where the stock takes a rest before resuming it's uptrend. The objective is to enter the stock just before the next big upward move.

Step 5 - Enter the stock only if it breaks 1/8th above the area of consolidation line. This will often correspond to the high price of the week. If the stock does not break through the area of consolidation, DO NOT ENTER THE TRADE.

Step 6 - Mark off the 50% retracement line. This will be the halfway point between the line of support where the stock began it's rally, and the line of resistance where the stock made it's last major pull-back.

Step 7 - After entry, place an initial protective stop 1/8th below the low price of the previous day's candlestick. Sell the stock immediately if the stock breaks below this price.

Step 8 - On each new day, adjust the trailing protective stop to 1/8th below the previous day's candlestick's low price. Continue to use a trailing stop as long as the stock remains below the 50% retracement line.

Step 9 - After the stock has broken above the 50% retracement line, look for a reversal candlestick. This will most likely be a bearish candlestick which closes near it's low price of the day. Sell the stock for profit either before the market close, or at the market open the next day.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Bullish Thrusting Line Candlestick Play Instructions

Step 1 - Look for a BULLISH THRUSTING LINE resting on MINOR PRICE SUPPORT, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA) on the daily chart.

Step 2 - Pull up a 15 min. chart of the stock.

Step 3 - Note the high price of the previous day's daily THRUSTING LINE candlestick. Your entry point is 1/8th above this price.

Step 4 - On the following day, allow the stock to trade for 5 minutes before entering. Enter the stock only if it breaks above the entry criteria (1/8th above previous day's high) and only after it has traded for 5 minutes. If the stock does not break above the entry point, do not enter.

Step 5 - Observe the previous day's candlesticks on a 15 min chart. Find an internal line of support that is formed on the 15 min. chart. This will usually be an intra-day area where the stock moves down to and then rallies multiple times during the day. Place the initial protective stop 1/8 below the area of intraday support. Exit the stock for a small loss immediately if the stock breaks below this price.

Step 6 - Monitor the stock as it continues to rally upward. Look for areas of support (either minor price support or base price support) on the 15 minute chart, and re-adjust your protective stop price upward as the stock continues to rally. This will protect your profits, and/or minimize your losses if the stock should turn against you.

Step 7 - Monitor the stock on a 15 min. charts as it climbs upward, and stay in as long as the protective stop is not violated. Allow the stock to achieve 1 point or greater profit, and then look for signs of weakness. A reversal candlestick pattern on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of resistance and weakens, sell half of your position. This may occur on the same day as entry, or on the following day, depending on the strength of the stock. Maintain the latest protective stop price for the remaining half of your position.

Step 8 - Allow stock to continue it's rally. After the stock has rallied further, again look for an area of resistance where the stock begins to weaken and reverse. This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart. Sell the remainder of the position for profit.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Long Green Candlestick Play Instructions

Step 1 - Look for a LONG GREEN CANDLESTICK against MINOR PRICE RESISTANCE and also against a declining MAJOR MOVING AVERAGE (10 MA, 20 MA or 50 MA).

Step 2 - Pull up a 5 minute chart of the stock.

Step 3 - Note the opening price of the stock. If the stock gaps up or down more than 5/8th, DO NOT enter the trade. If the stock opens within 5/8th of the previous day's close, proceed to Step 4.

Step 4 - Wait for the stock to trade for 5 minutes. After 5 minutes, note the low of the first 5 minute candlestick.

Step 5 - Sell short the stock if it trades 1/8th below the low of the first 5 minute candlestick. If the stock does not trade lower than the low of the first 5 minute candlestick, DO NOT enter the trade.

Step 6 - Pull up a 15 minute chart of the stock.

Step 7 - After shorting the stock, place an initial protective stop 1/8th above the high price of the day.

Step 8 - Monitor the stock during the next 15 min. candlestick.

Step 9 - Adjust the protective stop to 1/8th above the high price of the previous 15 min. candlestick. Stay in the trade as long as the stock trades below this price.

Step 10 - Monitor the stock during the next 15 min. candlestick.

Step 11 - Adjust the protective stop to 1/8th above the high price of the previous 15 min candlestick. Stay in the trade as long as the stock trades below this price.

Step 12 - Continue to monitor the stock during each new 15 min. candlestick, and adjust your protective stop to 1/8th above each previous 15 min. candlestick's high.

Step 13 - Cover the stock for profit when it finally trades 1/8 above the high price of a previous 15 min. candlestick.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Long Red Candlestick Play Instructions

Step 1 - Look for a LONG RED CANDLESTICK resting on MINOR PRICE SUPPORT and also a rising MAJOR MOVING AVERAGE (10 MA, 20 MA or 50 MA).

Step 2 - Pull up a 5 minute chart of the stock.

Step 3 - Note the opening price of the stock. If the stock gaps up or down more than 5/8th, DO NOT enter the trade. If the stock opens within 5/8th of the previous day's close, proceed to Step 4.

Step 4 - Wait for the stock to trade for 5 minutes. After 5 minutes, note the high of the first 5 minute candlestick.

Step 5 - Enter the stock if it trades 1/8th above the high of the first 5 minute candlestick. If the stock does not trade 1/8th higher than the high of the first 5 minute candlestick, DO NOT enter the trade.

Step 6 - Pull up a 15 minute chart of the stock.

Step 7 - After entering the stock, place an initial protective stop 1/8th below the low price of the day.

Step 8 - Monitor the stock during the next 15 min. candlestick.

Step 9 - Adjust the protective stop to 1/8th below the low price of the previous 15 min. candlestick. Stay in the trade as long as the stock trades above this price.

Step 10 - Monitor the stock during the next 15 min. candlestick.

Step 11 - Adjust the protective stop to 1/8th below the low price of the previous 15 min candlestick. Stay in the trade as long as the stock trades above this price.

Step 12 - Continue to monitor the stock during each new 15 min. candlestick, and adjust your protective stop to 1/8th below each previous 15 min. candlestick's low.

Step 13 - Exit the stock for profit when it finally trades 1/8th below the low price of a previous 15 min. candlestick.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

3 Soldiers Candlestick Play Instructions

Step 1 - Look for 3 WHITE SOLDIERS against Minor Price Resistance, and/or a declining Major Moving Average (10 MA, 20 MA, or 50 MA). Ideally you want to find a series of 3 green candlesticks; however, 2 green candlesticks can also work well.

Step 2 - Pull up a 15 min. chart of the stock.

Step 3 - Monitor the stock's trading during the last 30 minutes before the close, and enter only if the stock is closing weak near it's low price of the day. You will reduce the risk of the by entering only if the range of the day (high price minus low play price) is narrow. This way, when you set your protective stop at the day's high, you will only take a small loss if the stock should reverse.

Step 4 - Observe the daily chart after the market has closed. The stock has now formed a BEARISH HARAMI on the daily chart, but you were able to spot the setup on the previous day and enter before the rest of the herd! On the next day, observe where the stock opens. If the stock opens relatively near to the opening price (say within 5/8th), place the initial protective stop 1/8th above the high of the previous day's candlestick. Exit the stock immediately if the stock breaks above this price. If the stock gaps down, proceed to Step 6. If the stock gaps up, proceed to Step 8.

Step 5 - Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price to 1/8th above these levels of resistance. This will protect your profits, and/or minimize your losses if the stock should turn against you.

Step 6 - If the stock closes weak on the previous day, there is a good chance that the play will be spotted by other traders (note that it has now formed a BEARISH HARAMI on the daily chart), and result in a morning price gap downward. If the stock gaps down by over 5/8 point, cover half of the position immediately after the open to lock in your profit. Place a protective stop 1/8th above the high of the first 15 min. candlestick for the remainder of your position.

Step 7 - Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base resistance) on the 15 minute chart, and re-adjust your protective stop price to above these levels of resistance. This will protect your profits, and/or minimize your losses.

Step 8 - It is also possible for the stock to gap up on the following day due to overall market strength. If the stock gaps up and opens 5/8th higher than the previous day's close, DO NOT PANIC AND COVER RIGHT AWAY. In most cases, the stock will sell off after a gap up, and the high price of the day will occur in the first 5 minutes of trading. Let the stock trade for 5 minutes and place a protective stop 1/8th above the high of the first 5 minute candlestick. Cover the stock immediately if it breaks this protective stop.

Step 9 - Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price to 1/8th above these levels of resistance. This will protect your profits, and/or minimize your losses.

Step 10 - Monitor the stock as it declines downward, and stay in as long as the protective stop is not violated. After the stock has achieved 1 point profit or greater, look for signs of strength. A bullish candlestick on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of support and strength, cover half of your position. This may occur on the same day as entry, or on the following day, depending on the weakness of the stock. Maintain the latest protective stop price for the remaining half of your position.

Step 11 - Allow the stock to continue it's decline. After the stock has declined further, again look for an area of support where the stock begins to strengthen and reverse. This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart. Cover the remainder of the position for profit.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

3 Black Crows Candlestick Play Instructions

Step 1 - Look for 3 BLACK CROWS resting on Minor Price Support, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA). Ideally you want to find a series of 3 red candlesticks; however, 2 red candlesticks can also work well.

Step 2 - Pull up a 15 min. chart of the stock.

Step 3 - Monitor the stock's trading during the last 30 minutes before the close, and enter only if the stock is closing strong near it's high price of the day. You will reduce your risk by entering only if the range of the day (high price minus low play price) is narrow. This way, when you set your protective stop at the day's low, you will only take a small loss if the stock should reverse.

Step 4 - Observe the daily chart after the market has closed. The stock has now formed a BULLISH HARAMI on the daily chart, but you were able to spot the setup on the previous day and enter before the rest of the herd! On the next day, observe where the stock opens. If the stock opens relatively near to the opening price (say within 5/8th), place the initial protective stop 1/8th below the low of the previous day's candlestick. Exit the stock immediately if the stock breaks below this price. If the stock gaps up, proceed to Step 6. If the stock gaps down, proceed to Step 8.

Step 5 - Monitor the stock as it continues to rally upward. Look for areas of support (either minor price support or base price support) on the 15 minute chart, and re-adjust your protective stop price to 1/8th under these levels of support. This will protect your profits, and/or minimize your losses if the stock should turn against you.

Step 6 - If the stock closes strong on the previous day, there is a good chance that the play will be spotted by other traders (note how a BULLISH HARAMI is formed on the daily chart), and result in a morning price gap upward. If the stock gaps up by over 5/8 point, sell half of the position immediately after the open to lock in your profit. Place a protective stop 1/8th under the first 15 min. candlestick for the remainder of your position.

Step 7 - Monitor the stock as it continues to rally upward. Look for areas of support (either minor price support or base support) on the 15 minute chart, and re-adjust your protective stop price to under these levels of support. This will protect your profits, and/or minimize your losses.

Step 8 - It is also possible for the stock to gap down on the following day due to overall market weakness. If the stock gaps down and opens 5/8th lower than the previous day's close, DO NOT PANIC AND SELL RIGHT AWAY. In most cases, the stock will rally after a gap down, and the low price of the day will occur in the first 5 minutes of trading. Let the stock trade for 5 minutes and place a protective stop 1/8th below the low of the first 5 minute candlestick. Sell the stock immediately if it breaks this protective stop.

Step 9 - Monitor the stock as it continues to rally upward. Look for areas of support (either minor price support or base price support) on the 15 minute chart, and re-adjust your protective stop price to 1/8th under these levels of support. This will protect your profits, and/or minimize your losses.

Step 10 - Monitor the stock as it climbs upward, and stay in as long as the protective stop is not violated. After the stock has achieved 1 point profit or greater, look for signs of weakness. A bearish candlestick on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of resistance and weakens, sell half of your position. This may occur on the same day as entry, or on the following day, depending on the strength of the stock. Maintain the latest protective stop price for the remaining half of your position.

Step 11 - Allow the stock to continue it's rally. After the stock has rallied further, again look for an area of resistance where the stock begins to weaken and reverse. This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart. Sell the remainder of the position for profit.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Bearish Harami Candlestick Play Instructions

Step 1 - Look for a BEARISH HARAMI against MINOR PRICE RESISTANCE, and/or against a declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the daily chart.

Step 2 - Pull up a 15 min. chart of the stock.

Step 3 - Note the low price of the previous day's daily HARAMI candlestick. Your entry point is 1/8th below this price.

Step 4 - On the following day, allow the stock to trade for 5 minutes before entering. Sell short the stock only if it breaks below the entry criteria (1/8th below the previous day's low) and only after it has traded for 5 minutes. If the stock does not break below the entry point, do not enter.

Step 5 - Place the initial protective stop 1/8th above the high of the previous day's HARAMI candlestick. Cover the stock for a small loss immediately if the stock breaks above this price.

Step 6 - Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price downward as the stock continues to decline. This will protect your profits, and/or minimize your losses if the stock should turn against you.

Step 7 - Monitor the stock on a 15 min. chart as it declines downward, and stay in as long as the protective stop is not violated. Allow the stock to achieve 1 point or greater profit, and then look for signs of strength. A reversal candlestick pattern on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of support and strength, cover half of your position. This may occur on the same day of entry, or on the following day, depending on the weakness of the stock. Maintain the latest protective stop price for the remaining half of your position.

Step 8 - Allow stock to continue it's decline. After the stock has declined further, again look for an area of support where the stock begins to strengthen and reverse. This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart. Cover the remainder of the position for profit.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Bullish Harami Candlestick Play Instructions

Step 1 - Look for a BULLISH HARAMI resting on MINOR PRICE SUPPORT, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA) on the daily chart.

Step 2 - Pull up a 15 min. chart of the stock.

Step 3 - Note the high price of the previous day's daily HARAMI candlestick. Your entry point is 1/8th above this price.

Step 4 - On the following day, allow the stock to trade for 5 minutes before entering. Enter the stock only if it breaks above the entry criteria (1/8th above previous day's high) and only after it has traded for 5 minutes. If the stock does not break above the entry point, do not enter.

Step 5 - Place the initial protective stop 1/8 below the low of the previous day's HARMAI candlestick. Exit the stock for a small loss immediately if the stock breaks below this price.

Step 6 - Monitor the stock as it continues to rally upward. Look for areas of support (either minor price support or base price support) on the 15 minute chart, and re-adjust your protective stop price upward as the stock continues to rally. This will protect your profits, and/or minimize your losses if the stock should turn against you.

Step 7 - Monitor the stock on a 15 min. charts as it climbs upward, and stay in as long as the protective stop is not violated. Allow the stock to achieve 1 point or greater profit, and then look for signs of weakness. A reversal candlestick pattern on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of resistance and weakens, sell half of your position. This may occur on the same day as entry, or on the following day, depending on the strength of the stock. Maintain the latest protective stop price for the remaining half of your position.

Step 8 - Allow stock to continue it's rally. After the stock has rallied further, again look for an area of resistance where the stock begins to weaken and reverse. This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart. Sell the remainder of the position for profit.

© Copyright 2003 Candlestickshop.com 
Sunset Capital Management Ann Arbor, Michigan

Candlestick Line Time Frames

One of the beautiful attributes of the candlestick line is that the same analysis can be applied to multiple time frames.

The time frame of a candlestick line is the time duration between the candlestick's opening price and closing price.

For example, a daily candlestick chart would consist of candlestick lines with opening prices corresponding with the day's opening price, and closing prices corresponding with the day's closing price (Figure 25).

A 5-minute candlestick chart would have candlestick lines with time duration of 5 minutes between each candlestick's opening price and closing price.

Most good computer charting software allows easy conversion from one time frame to the next.

As we will see in latter examples, utilizing several different time frames in viewing a stocks candlesticks pattern is a very effective way to read the underlying sentiments behind a stocks movement.

Figure 25

Dissecting a Candlestick

Changing time frames when viewing candlestick patterns is useful tool when looking for patterns leading up to good trading opportunities.

For example, consider the Bullish Harami Pattern that is manifested on the Daily time frame chart (Figure 26).

The same stock plotted on a 15 min time frame chart shows that the stock is actually setting up for a Bullish Reversal Consolidation pattern.

Using the Daily chart and the 15 min chart together make it easier to find possible trade opportunities.

For example, the trader can scan for Harami setups on the Daily chart, and then pull up a 15 min chart to confirm the stock is experiencing a consolidation pattern preparing for a break out.

Figure 26

Figure 27

Increasing The Odds

As we learned in the last section, the best trading opportunities present themselves just after a breakthrough in price consolidation.

Not every consolidation pattern; however, is tradable.
There are additional patterns, which significantly increase the odds of the trade following through in the desired direction.

The tools, which we present, are 1) support/resistance 2) trends, 3) moving averages.

Support and Resistance

Support and resistance are general price areas that have halted the movement of stock in the past.

Support lines are horizontal lines that correspond with an area where stock previously bounced.

Resistance lines are horizontal lines corresponding with an area where stock resisted moving through.

Support and resistance lines are used to help access how much the stock price will remove before it is halted.

There are two main types of support and resistance; 1) Major price support/resistance, and 2) Minor price support/resistance

Major Price Support/Resistance

Major Price Support is an artificial horizontal line representing an area where a stocks downward movement was halted to give way to a new upward movement (Figure 16).

Therefore, the price level is supporting the price of the stock.

Similarly, Major Price Resistance is an artificial horizontal line representing an area where a stocks u ward movement was halted to give way to a new downward
movement.

Therefore, the price level is resisting the price of the stock.

When considering a stock as a trading opportunity it is important to note the location of the nearest support and resistance levels.

Stocks near areas of support make for better buy opportunities and stocks near areas of resistance make for better short opportunities.

In the same way, the trader should be more cautious about shorting stock above areas of support, and buying stock near areas of resistance.

Figure 16

Minor Price Support/Resistance

Minor Price Support is an artificial horizontal line representing an area, which previously served as price resistance, but has now transformed to price support (
Figure 17).

Likewise, Minor Price Resistance is an artificial horizontal line representing an area, which previously served as price support, and has now transformed to price resistance (Figure 18).

When considering a stock as a trading opportunity it is important to note the location of the nearest support and resistance levels.

Stocks near areas of support make for better buy opportunities and stocks near areas of resistance make for better short opportunities.

In the same way, the trader should be more cautious about shorting stock above areas of support, and buying stock near areas of resistance.

For an in-depth analysis of how minor support & resistance works, see the free "Educational Section" of our main website at http://www.candlestickshop.com/free

Figure 17

Figure 18

Trends

Every stock is in one of three states: 1) Up Trend, 2) Down Trend, and 3) Sideways Trend (Figure 20).

An Up Trend is defined by a series of higher highs and higher lows.

A Down Trend is defined by a series of lower highs followed by lower lows.

A Sideways Trend is defined by a series of relatively equal highs and lows.

Figure 20

Even the strongest stocks will need a period of rest through a pullback in price or a period of marking time with little to no price movement.

A strong stock will often pull back in price as short to medium term traders take their profits off the table, and in the process, increase selling pressure, which will temporarily push the stock lower.

A strong stock, after rest will often resume its rally after these slight pullbacks.

The trader has better odds in his favor by playing the stock in the direction of the trend.

For example, stocks in and up trend can be bought, and stocks in a downtrend can be shorted (Figures 21& 22).

A stock in a sideways pattern can be either bought our shorted if the stock ison strong price support or resistance.

In otherwise, the trader should enter long positions only on up trending stocks that have pulled back for rest ready to resume the rally.

Likewise, the trader should enter short positions on down trending stocks that have pulled back for rest ready to resume the decline.

Figure 21

Figure 22

Moving Averages

The most basic form of moving average, and the one we recommend to all our traders is called the simple moving average.

The simple moving average is the average of closing prices for all price points used.

For example, the simple 10 moving average would be defined as follows:

10MA = (P1 + P2 + P3 + P4 + P5 + P6 + P7 + P8 + P9 + P10) / 10

Where P1 = most recent price, P2 = second most recent price and so on

The term "moving" is used because, as the newest data point is added to the moving average, the oldest data point is dropped.

As a result, the average is always moving as the newest data is added. Moving averages can be used as support and resistance levels.

Stocks tend to rebound off of moving averages much in the same way that they rebound off major and minor support and resistance lines.

A moving average can be plotted using any period; however, the periods that seem to provide the strongest support and resistance for short term trading are the
10MA, 20MA, 50 MA, 100MA and 200MA.

Figure 23

Figure 24