succesfull trader handbook

8/16/2019 Succesfull Trader Handbook

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addler – Trading for Profits, LLC hitandruncandlesticks.com Copyright © 20161/17/2016hts Reserved. May not be duplicated or distributed without permission

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http://www.hitandruncandlesticks.com/http://www.hitandruncandlesticks.com/


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Rick Saddler – Trading for Profits, LLC hitandruncandlesticks.comCopyright © 2016 REV 01/17/2016 All Rights Reserved. May not be duplicated or distributed without permission

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TABLE OF CONTENTS

Page

Introduction 3

W PATTERN 5

Appendix 1- Train the Eye Exercise 13

Appendix 2 - Candlestick Patterns and Signals 16

Appendix 3 - Candlestick Patterns and Signals

Confirmation 18



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INTRODUCTION

Trading stocks is one of the most rewarding careers of my life. The path to my successfultrading was not without pitfalls and disappointments. Along the way, I learned to

persevere and pay attention to my mistakes and take action to fix them. I started to earn profits consistently when I developed a disciplined approach to my trading. This includeddesigning trade plans for every trade and making changes to my trading approach basedon my notes and observations about my habits and practices.

Before I could design a trade plan, it was imperative that I develop the skill to recognize price patterns that produced the highest probability of success. A big part of this processis that I spent many weeks if not months flipping through thousands of stock chartsmaking note of patterns and how price behaved around these patterns. After studyingthese patterns and choosing the ones with the highest probability of success, I focused on

being able to quickly recognize these patterns. Once I thoroughly studied the patterns, I

then developed a trade plan for each of them.

This book provides a framework for the W pattern. The framework will help you torecognize the pattern and give you a trade plan for each pattern so that you can buildconfidence in trading them.

When starting out with new trading strategies it is best to stick with a basic approach.Once you have mastered the basics, then you can feel free to modify your approach basedon your experiences. There is no one way of trading. Period! We all have to start with aframework and a basis to develop a disciplined trading approach and then build fromthere. That is what this book provides.

I am excited to share the fruits of my labor and provide you with a solid framework totrading the W pattern.

If you have questions on material in this book or need help with your trading, please feelfree to contact me at [email protected] . If you are looking for asupportive community of active successful traders consider joining my online stock trading room. You can sign up for a 2 week trial to see if it is right for you. Go towww.hitandruncandlesticks.com for more information.

Best Wishes on Your Road to Success,

Rick Saddler www.hitandruncandlesticks.com

http://www.hitandruncandlesticks.com/mailto:[email protected]://www.hitandruncandlesticks.com/http://www.hitandruncandlesticks.com/http://www.hitandruncandlesticks.com/mailto:[email protected]


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TERMS AND CONDITIONS

By purchasing training products and/or follow-up training, or receiving complimentaryeducational products and services, from Rick Saddler, hitandruncandlesticks.com or Trading for Profits, LLC, you understand and acknowledge the following terms and

conditions:The content provided in these training materials is for your use only. Neither printed or downloaded versions, nor any follow-up instruction or materials, are to be copied, shared,sold or distributed to any other individual or entity without written permission from Rick Saddler. You acknowledge that you are not an agent of, or acting on behalf of, anyseminar or other company that provides competitive training or products.All content in these training materials, and any related materials provided with themtoday or in the future, is for educational and illustrative purposes only and does notconstitute either investment advice or buy/sell recommendations. The author, Rick Saddler, is not a stockbroker, broker dealer or investment adviser. He makes norecommendation either to purchase or sell any particular stock, bond, option, equity or

security of any kind. No content, examples, or information provided shall be construed asa recommendation, solicitation, prediction or advice for your own actions in, and dealingswith, the stock market.Trading in the stock market involves a high degree of risk and you may incur financiallosses if you engage in such activity. These training courses and commentary weredesigned and intended to assist recipients in increasing their knowledge of the stock market and applying the techniques and strategies learned. Users are advised to apply

prudent risk and money management techniques in order to protect their capital.Any or all strategies may be subject to change as needed with market conditions. Thedynamic of the markets often requires that traders change their methods and systems over time. Therefore, what the author is utilizing currently may differ in the future as market

conditions change and/or as the author tests new systems and learns new, more effectivemethods. Past performance is not indicative of future results.These materials represent the author’s knowledge and interpretation of the stock marketand trading methods and techniques at the time they were developed or revised. Some of the content of these materials is subjective in nature. There is no guarantee that thesestrategies, techniques, systems or trading plans will suit your trading personality, butrather are intended to serve as a model.Reference above to “products and services” includes, but is not limited to: private trainingor coaching; phone or web-based instruction; down loadable or printed eBooks; formsand trading tools; audio/video products. The above terms, conditions and waiver of claims are provided and acknowledged at the time of registration for complimentary

products, or the purchase of products and services, either in person or at one of thefollowing web sites: www.ricksaddler.com, www.hitandruncandlesticks.com.

http://www.hitandruncandlesticks.com/http://www.ricksaddler.com/http://www.hitandruncandlesticks.com/http://www.hitandruncandlesticks.com/http://www.hitandruncandlesticks.com/http://www.ricksaddler.com/


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APPENDIX 1

Train the Eye Exercise


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CHAPTER 5 - W PATTERNS

The W Pattern is usually a bullish reversal pattern. This means that price is in adowntrend prior to the W Pattern. The W Pattern forms when buyers and sellers negotiate

price so price moves up and down and price stops moving lower. Price then breaks out of

the zigzag pattern called the W and an uptrend begins. The W Pattern is not consideredcomplete until price breaks out of the W.

W Patterns Visual

There are three common types of W Patterns as shown in Example 5-1

1. Left and Right side of the W have approximately the same lows. This is a strong WPattern in that sellers took price down to a low forming the Left side of the W and sellerstook price down a second time to form the Right side of the W. The fact that sellers couldnot break the Left side lows indicates that buying pressure is building.2. Left side of W has a higher low than the Right side of the W. This is the weakest W

pattern in that sellers took price down to a low forming the Left side of the W and sellerstook price down a second time breaking the lows established by the Left side of the W



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before forming the Right side of the W. Buyers are not strong enough to hold the lowsestablished by the Left side. With this W pattern a pullback from the top of the W is morelikely than with the Ws in 1 and 3.

3. Left side of the W has a lower low than the Right side of the W. This is the

strongest W pattern in that sellers took price down to a low forming the Left side of the Wand sellers took price down a second time but could not bring price down to the lows of the Left side of the W. A higher low forms the Right side of the W. The fact that sellerscould not break the Left side lows and the fact that a higher low is formed indicatesstrong buying pressure.

Four Phases to the W Pattern

There are four phases to the W Pattern.

1. Downtrend - Price is in a definable downtrend. The longer the downtrend, the more

powerful the W pattern and the higher the profit potential.2. Left Side of W - The Left side of the W forms when price finds support and rallies.3. Right Side of W - The Right side of the W forms when price drops from a resistancearea after forming the Left side of the W, falls to a support area and then rallies back tothe resistance level.4. Breakout - The W Pattern is not complete until price breaks and closes above theresistance level

W Patterns on a Chart

Example 5-2 ACI on the next page shows a W Pattern on a daily stock chart. The four

phases are displayed on the chart.



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Example 5-2 - Arch Coal, Inc. (ACI)

1. Downtrend - ACI is in a downtrend from the beginning of July 2015 until the beginning of August 2015.2. Left Side of W - Price finds support around $1 where price forms a bullish piercingcandlestick formation and rallies to a resistance level around $2.13.3. Right Side of W - Price tests the resistance level and forms a bearish engulfing

candlestick formation and falls to find support around $1.25. Notice that the Right side of the W is higher than the Left side of the W. This is the strongest W pattern.4. Breakout - Price rallies off of the $1.25 support level, it forms a bullish morningstar candlestick formation and then rallies to the resistance level. Price breaks and closesabove the “Resistance Level”. The W Pattern is now complete.

Trading the W Pattern

The trade plan for every W pattern is the same. The key is to wait until the W Pattern iscomplete before entering a trade. Watching the “Resistance Level” for a breakout is thetrigger for entering a trade.

In terms of Entry, Stop Loss and Exit here is a trade plan.

Entry - Enter a partial or full position on Day 1 on a close above the “Resistance Level”.The alternative entry is to enter a full position on Day 2 if price opens above the close of Day 1.

Stop Loss - Place a hard stop below the “Resistance Level”. Consider placing a hard



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stop below the candlestick that touched the “Resistance Level” for the first time.

Exit - Exit the trade when you see candlestick sell signals near a resistance area. For theresistance area look at price action during the downtrend and draw resistance lines or

boxes at pivot points or price levels where price sold off. To do this look for places where

price consolidated and then broke down. Consolidation patterns are flags, pennants and boxes. Another exit can be when the trade produces a profit of a certain dollar amount or percentage.

The Trade Plan for ACI

Example 5-3 - Arch Coal, Inc. (ACI)

1. Entry - Enter a partial or full position on “Day 1” near the close (price entry around$2.20-$2.28) Notice that price gaps above the Resistance Level and forms a hammer candlestick. This is a bullish signal. Another entry is to enter a full position on “Day 2” at

the open (price entry around $2.60-$2.80) since price opened higher than the close on“Day 1”. If a partial position was entered on “ Day 1”, consider adding to the position on“Day 2”.

2. Stop Loss - Enter a hard stop below the “Resistance Level”. In this case, the hardstop is below the close of the first candlestick to touch the “Resistance Level” (Stop pricearound $1.66). Each trader needs to evaluate the amount of risk at this stop level. If thereis more risk than the trader can handle, move on to another trade or raise the stop price to



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a level that meets the trader’s tolerance for risk. Consider raising the stop on “Day 2” to protect capital. A place to raise the stop could be just below the close of the “Day 1”candlestick which is also below the “Resistance Line”. This stop level should beconsidered if the trade is entered on “Day 2”.

3. Exit - Exit the trade when candlestick sell signals appear around a resistance area.Some common candlestick sell signals are bearish engulf, shooting star and evening star.Refer to the Appendix at the end of this eBook for examples of bearish candlestick

patterns. In this trade, there were no bearish candlestick sell signals as price approached“Resistance Areas 1 and 2”. We all know that price does not go up forever so in this casea trader considers exiting the trade at a certain dollar amount or percentage gain in profits.Taking profits around the $4 level produces a profit of around 35% - 45% depending onthe entry price. Remember you can always enter the trade again using a different tradestrategy.

W Patterns that Fail

As with any pattern, there are times when the W Pattern fails. This means that pricecomes close to the Resistance Level and does not break up through it or breaks upthrough the Resistance Level and then moves back down through it and the downtrendresumes. If traders follow the rules for entry and have hard stops, they avoid entering alosing trade or limit losses. Example 5-4 shows a failed W Pattern.

See Example 5-4 on the next page.



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Example 5-4 - Arch Coal, Inc (ACI) W Pattern Failure

For ACI in Example 5-4, it looks like a W Pattern is forming but price fails to breakoutabove the “Resistance Level”. Traders who waited for the breakout before starting a long

entry, stayed out of a losing trade. You can see why it is so important to follow the trade plan for this pattern.

When trading the second W Pattern on the long side, where the Right side of the W islower than the Left side, be aware that price has the highest probability to pull back.Since the Right side is lower than the Left side, price has to travel a longer distance to getto the Resistance Level than with the other two patterns and sellers may be waiting at theResistance Level to take profits. If you follow the rules outlined in the trade plan for this

pattern, you protect yourself from a losing trade or limit your losses.

Another way to look at the second W Pattern is to trade it as a failed W pattern. This

means that instead of waiting for a breakout above the “Resistance Level”, traders waitfor a breakdown below the “Support Level” to enter a short trade. The rules for this tradeare the same as for the M Pattern.

Looking at ACI again, Example 5-5 below shows a “Short Entry Box” just below theSupport Level. The Short Entry Box outlines a price area where traders can enter a shorttrade. The hard stop for this trade would be somewhere above the “Support Level”.



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Example 5-5 - Arch Coal, Inc (ACI) Failed W Pattern - Short Entry

The W Pattern as Part of another Pattern

The W Pattern can be part of another price pattern. It is often a part of the Inverse Headand Shoulders Pattern. The rules for entering the trade are the same in that you wait for the breakout to confirm the pattern is complete. A W Pattern can fail to breakout if it is

part of another price pattern. Watching for the breakout before entering the trade isvery important.

Summary

The W Pattern is usually a bullish reversal pattern.

There are three types of W Patterns

1. Left and Right side of the W have approximately the same lows.2. Left side of W has a higher low than the Right side of the W.3. Left side of the W has a lower low than the Right side of the W.

There are four phases to the W Pattern.



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1. Downtrend - Price is in a definable downtrend. The longer the downtrend, themore powerful the W pattern and the higher the profit potential.

2. Left Side of W - The Left side of the W forms when price finds supportand rallies.

3. Right Side of W - The Right side of the W forms when price drops

from a resistance area after forming the Left side of the W, falls to a supportarea and then rallies back to the resistance level.

4. Breakout - The W Pattern is not complete until price breaks and closes above theresistance level

A W Pattern trade plan is

Entry - Enter a partial or full position on Day 1 on a close above the “ResistanceLevel”. The alternative entry is to enter a full position on Day 2 if price opens abovethe close of Day 1.

Stop Loss - Place a hard stop below the “Resistance Level”. Consider placing a hardstop below the candlestick that touched the “Resistance Level” for the first time.

Exit - Exit the trade when you see candlestick sell signals near a resistance area. For the resistance area look at price action during the downtrend and draw resistancelines or boxes at pivot points or price levels where price sold off. To do this look for

places where price consolidated and then broke down. Consolidation patterns areflags, pennants and boxes. Another exit can be when the trade produces a profit of acertain dollar amount or percentage.



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This exercise is to help you recognize the pattern when you see it. Focus on the boxedin area to see the pattern. As part of your own exercise, draw a box around patterns thatyou see when flipping through charts. Keep a file of these charts for later study.



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APPENDIX 2

Bullish Candlestick Signals and Patterns


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Doji Spinning Top

Dragonfly Doji

Kicker Morning Star

Belt-hold Hammer Piercing Candle

Doji Sandwich Harami Tweezer Bottom

Engulf



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APPENDIX 2

Bearish Candlestick Signals and Patterns


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Gravestone Doji Engulf Kicker

Belt-hold Evening Star Shooting Star

Dark Cloud Cover Hangman Tweezer Top

Doji Sandwich Harami



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APPENDIX 3

Bullish and Bearish Candlestick Signals and Patterns


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Remember that candlestick patterns and signals need confirmation before taking action.This means that if you see a bullish candlestick signal or pattern, look for bullish priceaction the next day. This bullish price action can be a higher open or close the next day. If you see a bearish candlestick signal or pattern, look for bearish price action the next day.

This bearish price action can be a lower open or close the next day.

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