THE CANDLESTICK TRADING BIBLE By Yang Maier! 1 THE CANDLESTICK TRADING BIBLE Content Introduction 4 Overview 6 History of Candlesticks 8 What is a Candlestick 11 Candlestick Patterns 14 The Engulfing Bar Candlestick 16 The Doji Candlestick Pattern 20 The Dragon Fly Doji Pattern 22 The Gravestone Doji Pattern 25 The Morning Star 28 The Evening Star Candlestick Pattern 31 The Hammer Candlestick Pattern 34 The Shooting Star Candlestick Pattern 37 The Harami Pattern 40 The Tweezers Tops and Bottoms 43 Candlestick Patterns Exercise 47 The Market Structure 51 How to Trade Trending Markets 54 Support and Resistance Levels 58 How to Draw Trendlines 61 The Ranging Market 63 Time Frames and Top Down Analysis 70 Trading Strategies and Tactics 79 The Pin Bar Candlestick Pattern Strategies 81 2 THE CANDLESTICK TRADING BIBLE Trading the Pin Bar Candle With The Trend 88 Trading Tactics 92 Trading Pin Bars with Confluence 96 Pin Bar Trades Examples 100 Trading Pin Bars in Range Bounds Markets 103 The Engulfing Bar Candlestick Pattern 109 How to Trade the Engulfing Bar Price Action Signal 112 Trading the Engulfing Bar with Moving Averages 117 How to Trade the Engulfing Bar with Fibonacci Retracements 120 Trading the Engulfing Bar with Trendlines 122 Trading the Engulfing Bar in Sideways Markets 125 The Engulfing Pattern with Supply and Demand Zones 130 Money Management Trading Rules 133 The Inside Bar Candlestick Pattern 137 The Psychology Behind the Inside Bar Pattern Formation 140 How to Trade Inside Bars with Support and Resistance 143 Tips on Trading the Inside Bar Price Action Setup 146 Trading the False Breakout of The Inside Bar Pattern 148 Inside bar false breakouts trading examples 151 Trading Inside Bar False Breakout with Fibonacci Retracements 154 Trades Examples 158 Money Management Strategies 162 Conclusion 167 3 THE CANDLESTICK TRADING BIBLE Introduction The Candlestick trading bible is one of the most powerful trading systems in history. It was invented by Homma Munehisa.The father of candlestick chart patterns. This trader is considered to be the most successful trader in history, he was known as the God of markets in his days, his discovery made him more than $10 billion in today’s dollar. I have spent 10 years compiling, testing, organizing, and consistently updating this method to create my own new version, which is considered to be the easiest and most profitable trading system.
The Candlestick trading bible is the trading method that is going to finally take your trading to where it should be, consistent, profitable, easy and requiring very little time and effort. This trading system is based on Japanese candlestick patterns in combination with technical analysis. All what you have to do is to spend as much time as you can to master the method that i’am going to share with you and use it to trade any financial market. Learning Japanese candlestick is like learning a new language.
Imagine you got a book which is written in a foreign language, you look at the pages but you get nothing from what is written. The same thing when it comes to financial markets. If you don’t know how to read Japanese candlesticks, you will never be able to trade the market. Japanese candlesticks are the language of financial markets, if you get the skill of reading charts, you will understand what the market is telling you, and you will be able to make the right decision in the right time.
4 THE CANDLESTICK TRADING BIBLE The easy to follow strategies detailed in this work will provide you with profit making techniques that can be quickly learned. More importantly, learning the principals of market psychology underlying the candlestick methodology will change your overall trading psych forever. The Candlestick trading bible has already proven itself. Fortunes have been made using the Japanese candlestick strategies.
I congratulate you on taking the first step in your trading education, you are on the right path to become a better trader. However, this is actually just the beginning of your trading career, after finishing this eBook, the real work begins. Don’t read this eBook very fast, this is not a novel, you should take your time to understand all the concepts i discussed, take your notes, and go back from time to time to review the strategies i shared with you. Remember, this is an educational work that will teach you professional methods on how to make money trading financial markets.
If you got the skills that i shared with you here, you will change completely your life and the life of people around you. 5 THE CANDLESTICK TRADING BIBLE Overview The eBook is divided into the following sections: 1-Candlesticks Anatomy Just as humans, candlesticks have different body sizes, and when it comes to trading, it’s important to check out the bodies of candlesticks and understand the psychology behind it. that’s what you will learn in this section. 2-Candlestick patterns Candlestick patterns are an integral part of technical analysis, candlestick patterns emerge because human actions and reactions are patterned and constantly repeated.
In this section you will learn how to recognize the most important candlestick patterns, the psychology behind it’s formation, and what do they indicate when they form in the market. 3-The Market structure In this section, you will learn how to identify trending markets, ranging markets, and choppy markets. You will learn how these markets move and how to trade them professionally. You will also learn how to draw support and resistance, and trendlines.
4-Time frames and top down analysis Multiple time frame analysis is very important for you as a price action trader, in this section you will learn how to analyze the market using the top down analysis approach. 5-Trading strategies and tactics In this section you will learn how trade the market using four price action trading strategies: -The pin bar strategy 6 THE CANDLESTICK TRADING BIBLE -The engulfing bar strategy -The inside bar strategy -The inside bar false breakout strategy -Trades examples I highly recommend you to master the previous sections before jumping to this section, because if you don’t master the basics, you will not be able to use these strategies as effective as it would be. In this section you will learn how to identify high probability setups in the market, and how to use these candlestick patterns in trending markets and ranging markets to maximize your profits. 6-Money management In this section, you will learn how to create a money management and risk control plan that will allow you to protect your trading capital and become consistently profitable.
7 THE CANDLESTICK TRADING BIBLE History of candlesticks Candlesticks have been around a lot longer than anything similar in the Western world. The Japanese were looking at charts as far back as the 17th century, whereas the earliest known charts in the US appeared in the late 19th century. Rice trading had been established in Japan in 1654, with gold, silver and rape seed oil following soon after. Rice markets dominated Japan at this time and the commodity became, it seems, more important than hard currency.
Munehisa Homma (aka Sokyu Honma), a Japanese rice trader born in the early 1700s, is widely credited as being one of the early exponents of tracking price action. He understood basic supply and demand dynamics, but also identified the fact that emotion played a part in the setting of price. He wanted to track the emotion of the market players, and this work became the basis of candlestick analysis. He was extremely well respected, to the point of being promoted to Samurai status.
The Japanese did an extremely good job of keeping candlesticks quiet from the Western world, right up until the 1980s, when suddenly there was a large cross-pollination of banks and financial institutions around the world. This is when Westerners suddenly got wind of these mystical charts. Obviously, this was also about the time that charting in general suddenly became a lot easier, due to the widespread use of the PC. In the late 1980s several Western analysts became interested in candlesticks.
In the UK Michael Feeny, who was then head of TA in 8 THE CANDLESTICK TRADING BIBLE London for Sumitomo, began using candlesticks in his daily work, and started introducing the ideas to London professionals. In the December 1989 edition of Futures magazine Steve Nison, who was a technical analyst at Merrill Lynch in New York, produced a paper that showed a series of candlestick reversal patterns and explained their predictive powers. He went on to write a book on the subject, and a fine book it is too. Thank you Messrs Feeny and Nison.
Since then candlesticks have gained in popularity by the year, and these days they seem to be the standard template that most analysts work from. Why candlesticks are important to your trading analysis? -Candlesticks are important to you trading analysis because, it is considered as a visual representation of what is going on in the market. By looking at a candlestick, we can get valuable information about the open, high, low and the close of price, which will give us an idea about the price movement. -Candlesticks are flexible, they can be used alone or in combination with technical analysis tools such as the moving averages, and momentum oscillators, they can be used also with methods such the Dow Theory or the Eliot wave theory.
I personally use candlesticks with support and resistance, trend lines, and other technical tools that you will discover in the next chapters. -The human behavior in relation to money is always dominated by fear; greed, and hope, candlestick analysis will help us understand these changing psychological factors by showing us how buyers and sellers interact with each other’s. -Candlesticks provide more valuable information than bar charts, using them is a win-win situation, because you can get all the trading signals 9 THE CANDLESTICK TRADING BIBLE that bar chart generate with the added clarity and additional signals generated by candlesticks. -Candlesticks are used by most professional traders, banks, and hedge funds, these guys trade millions of dollars every day, they can move the market whenever they want.
They can take your money easily if you don’t understand the game. Even if you can trade one hundred thousand dollars trading account, you can’t move the market; you can’t control what is going in the market. Using candlestick patterns will help you understand what the big boys are doing, and will show you when to enter, when to exit, and when to stay away from the market. 10 THE CANDLESTICK TRADING BIBLE What is a candlestick? Japanese candlesticks are formed using the open, high, low and close of the chosen time frame.
-If the close is above the open, we can say that the candlestick is bullish which means that the market is rising in this period of time. Bullish candlesticks are always displayed as white candlestick. The most trading platform use white color to refer to bullish candlesticks. But the color doesn’t matter, you can use whatever color you want.
The most important is the open price and the close price. -If the close is below the open, we can say that the candlestick is bearish which indicates that the market is falling in this session. Bearish candles are always displayed as black candlesticks. But this is not a rule.
11 THE CANDLESTICK TRADING BIBLE You can find different colors used to differentiate between bullish and bearish candlesticks. -The filled part of the candlestick is called the real body. -The thin lines poking above and below the body are called shadows. -The top of the upper shadow is the high -The bottom of the lower shadow is the low.