Investor Education Conference 2020: Buying and Selling Behavior with Candlestick Patterns

Welcome back, folks It’s that time again to transition to your breakout sessions Again, you’re going to have three choices You’re going to stay right here for the Candlestick Passion session And if you’re interested in either of the other two breakouts, you can find those by going to the sessions tab on the virtual conference platform and selecting the session of your choice And don’t worry, all of our sessions are going to be archived on our YouTube channel also So you can catch the ones you didn’t attend today later on Right here, right now, we’re going to talk about charting, and specifically, candlestick passions Coach Ben Watson is coming in live from our studio in Draper Good morning, Ben How are you? I’m great, Lorraine How are you? This is great day today! It is a great day, and it’s great to have you here So what are you going to focus on today for our viewers at home? Well hopefully, I’m going to brighten the light of the markets with an explanation of candlestick patterns Maybe people can light a candle in the darkness, learn a little bit more about this common charting tool That sounds awesome, Ben, or should I say it sounds enlightening Get it, candles, enlightening? OK, that’s why I’m not a comedian I’m going to hand it over to you, Ben All right, thanks Lorraine And thanks to all of you for being here and expressing a desire to light a candle in the darkness and learn a little bit more about, not only technical analysis, but the daily battle between the bulls and the bears because that’s really what candlesticks help us to understand And again, as Lorraine said, my name is Ben Watson and I’m an education coach here at TD Ameritrade I’ve been here since 2005 And you see me on a regular basis on the TD Ameritrade network brought to us by our media affiliate TD Ameritrade Media Productions As the chart master, where I talk about candlesticks, I talk about technical analysis, and all things charting So let’s jump into our topic today We’re going to talk about understanding candlestick patterns and formations, how they form, and how we can use them to help us to make informed decisions to increase the success of our trading So our focus today is really going to be those three areas First of all, candlestick formation, why and how those candlesticks come together and become a candlestick pattern? Those candlestick patterns, the common ones that we might see out there in the stocks and financial instruments that we’re looking at, on the thinkorswim desktop software platform or elsewhere, and how we can use some candlestick guidelines to help inform our trading decisions So let’s take a step back, if you will, and come with me back into the mists of time We’re going to go back to the Japanese rice markets in the 1700s And in those Japanese rice markets, Japanese rice merchants used a form of notation to determine rice market prices And the way that they notated that information was to understand the daily price movement, where the market opened for the day, where the market closed for the day, what the high price was and what the low price was And what they realized was, as they made those notations, patterns emerged and patterns repeated So those Japanese rice markets led us to an understanding of the daily tug of war, the daily battle between buyers and sellers So now let’s fast forward to the US markets in the early ’90s as computerized charting starts to become popular and more and more investors are beginning to look at price information on some form of electronic screen Now, many investors we’re used to seeing line charts or bar charts that display similar information, whether it’s closing prices or highs, lows, opens, and closes, but they weren’t familiar with seeing all of the information all at the same time So several people brought the wisdom and light from those Japanese rice markets forward into Western charting and enlightened this with candlestick patterns So they give us, again as I mentioned, that visual display of open, close, high, and low prices for the day So let’s dig a little deeper into this discussion Let’s talk about the components of our candlestick So some of you might be familiar with This is one of the popular choices for displaying information on your screen,

whether you’re using the thinkorswim platform or some other form of charting package And it’s becoming more and more popular Now, I will say this before we dig into this topic It is not the only way to look at price information over time It is one way that can help us to shed some light on what’s happening Sorry for the bad pun But as we start to look at this, there are some enhancements to candlesticks as well So this is no longer not necessarily the “be-all end-all” of charting There are always different ways to look at information, but there are some basics that exist, whether we’re talking about candlesticks, bar charts, or other forms of charting We need to know where the market opened for the day We need to know where the market closed And we need to know where the high price is and where the low price is for the day And so those are the components of our candlestick patterns The body of the candle, this big middle section of the candle, that represents the range between the opening price and the closing price And those shadows or wicks or highs and lows, those are the highs for the day and the lows for the day Now the high, obviously, is always going to be at the top and the low is always going to be at the bottom But what changes place, depending on whether there was upward movement over the course of the day or downward movement, is where the open and close relate to one another So as we look at this, this body, again, shows us that range between the open and the close, the relationship between those two And that body can be small That body can be relatively large That body can be actually nonexistent if the market opened and closed at the same price And that size gives us more information We’ll talk more about that here in just a few minutes The vertical lines coming out of the top of the candle or out of the bottom of the candle represent the movement to the high for the day and to the low for the day And again, as I said, always the high is going to be at the top and the low is going to be at the bottom That seems to make sense, and it seems to be intuitive for most people That’s always going to be the case Now, what’s not always going to be the case, we’re not always going to have a shadow on the top or on the bottom Sometimes the candle closes at the high or sometimes the candle closes at the low And you may not see those shadows top and bottom So those don’t always exist, but highs and lows are always going to be there Now, when you look at your chart– and we’ll go out to the thinkorswim platform here in just a minute and we’ll look at this live– but when you look at your chart, generally, when you have candlesticks, you are going to have two alternating colors, just of different colors, different contrasts so that you can see the difference between a candle that is moving up and a candle that is moving down And it doesn’t matter what color it is you choose Your favorite sports teams colors if you want to And there are lots of ways that you can change the appearance of the candles on your chart In most cases, what you’re going to see are those Western conventions– that price movement to the upside or positive price movement is denoted with green candles, green numbers And downward movement or negative price movement is denoted by red candles or red numbers So white, green, or sometimes we refer to as a clear body, shows very simply a higher close than the open So an upward moving candle, a candle where the price opened low and closed high, shows exactly that It’s going to be, in this case, by default, green or white or clear The open is going to be at the bottom of the body and the close is going to be at the top of the body, representing that open and close relationship with upward price movement Now, you’re still going to have a high and you’re still going to have a low So you may have shadows top and bottom The high is always going to be on top The low is always going to be on the bottom But in this case, when we have an upward moving candle– and we’re going to refer to this as a bullish candle– the open is at the bottom and the close is at the top of the body of the candle The price is moving from bottom to top It’s moving in an upward direction

Now, you could make this whatever color you want, but by default, typically that’s going to be green or white or clear according to Western charting conventions Now on the other side, a downward moving candle, a candle that moves in negative price movement– meaning it opens high and it closes low– that’s going to be a black or a red candle indicating that downward movement And the only real difference here is that the price of the stock opens high and closes low for whatever period that candle is covering So if this is a one day candle– in this particular case in this example, the price opened at the top of the body and it closed at the bottom of the body, that’s a Downward moving candle, or in other words, a bearish candle And you notice that the high and the low, those are still in the same place The high is always going to be on top, and the low is always going to be down at the bottom So let’s talk a little bit about some of the candlestick patterns that we see that occurred and learn a little bit of the psychology that happens Now that we know how those candlesticks are constructed, and we know what those candlestick components are– remember, high, low, open and close, or open and close depending on the direction of price movement– now that know that, now we can start to see what these candles mean So we’re beginning to see the light a little bit here with our candlestick patterns Size of candles matter If we think about it, if there are lots of buyers and price moves quickly, we’ve all seen days like that As a matter of fact, recently we’ve seen lots of days where price has moved quickly, and in some cases, days where prices moved up very quickly in a lot of different instruments, those can be very strong bullish days or bullish periods And big candles can represent heavy buying as long as it’s a white or green candle or a candle where the open was lower than the close So if we have a candle that has a large body, where the open is low and the close is higher, and it makes a big move over the course of the day relative to other candles, that’s a pretty good indication that that is a heavy buying or a strongly bullish day On the other hand, a small candle, a candle where the body is fairly narrow or fairly small, a small difference between the open and the close represents less buying pressure It’s not quite as bullish The bulls weren’t able to push the price as high And often times, on small candle days, you’re going to see shadows or wicks on the top and maybe on the bottom of the candle because the bulls may try to push and the bears bring the price back down a little bit Because remember, the body of the candle is represented by the open and the close The high and the low determine where those shadows are So a small candle represents less buying pressure And sometimes, you might see those small candles as an indication of equilibrium, if you will– balance between buying and selling pressures, or the possibility of reversal between bullish and bearish And remember that large and small, in this case, those are relative terms When we talk about large candles, if you have a variety of other smaller candles, even a slightly larger candle can be considered to be higher buying pressure or more heavily bought or more bullish than other candles So large and small, those are relative terms relative to other candles in the chart and in price movement So if bullish candles that are large represent heavy buying, and bullish candles that are small represent less buying pressure, then it would make sense that large black or red candles indicate heavy selling pressure, that that price movement to the downside results in a big candle where the open was high and the close was low And a candle where it’s relatively small,

the body is relatively small but the open is still higher than the close, represents not a lot of selling pressure for that day– less selling pressure than the larger candles that you might see around it So again remember, size matters and it’s relative to the other candles that you see in your chart Some stocks or financial instruments may, because of the nature of their volatility, see much bigger candles over a period of time than other instruments over the same period of time And it’s just a relationship of the number of buyers and sellers and how volatile those prices are for that particular instrument So heavy buying pressure, big white candle Not so much buying pressure, small white candle Heavy selling pressure, big black or red candle Small selling pressure, small black or red candle And again, those are relative terms relative to other candles within your chart So let’s talk a little bit about some of the common candlestick patterns that occur on the charts that we see on a fairly regular basis Now, the important thing to remember in evaluating candlestick patterns is that they can tell us something of the psychology of the buyers and sellers that are involved in creating that candle So as we take a look at these patterns, remember we’re going to take into account not only what the candlestick is doing, but we’re also going to take into account what the trend direction is coming into the candlestick pattern, and whether or not the candlestick pattern is occurring at or near a level of support or a level of resistance So let’s talk about some of these bullish candlestick patterns Some of the more frequent candlestick patterns that you’ll see that are bullish are the dragonfly doji or the hammer candle pattern Oftentimes, those patterns will occur at a level or near a level of support following a downtrend Prices moving down, the sellers are pushing and selling And eventually, they get to a point where price begins to turn around and start moving in the opposite direction Now oftentimes, in this type of candle, either a dragonfly doji or a hammer doji, that creates a scenario where there is a long shadow or wick to the downside So the low is quite a bit lower than the body of the candle and a relatively small body on the candle And that can be an indication that the sellers have now exhausted themselves in that push to the downside And the buyers are now able to step back in and push the price up off of those lows to close either higher than the open or maybe even lower than the open We can have a hammer candle that is either red or green And as long as it occurs at or near that level of support, following a downtrend, we’re going to call that candle a hammer or a hammer-like candle And that can be an indication of a potential reversal Another very similar candle pattern to that is the inverted hammer also occurring at or near a level of support And if you take the hammer candle and you just flip it on its head, that hammer candle would be an inverted hammer And it can also be an indication of a reversal, where the buyers and sellers came to that level of support, the buyers started to push back up, the sellers became exhausted, and it represents a change in control from sellers to buyers And now you might see a move to the upside Some of the other common candlestick patterns that we see that are bullish are smaller candles following a bigger candle We call them a Harami candle, a Japanese word that simply means small body inside big body So we have a big candle representing buying or selling pressure the previous day, and we have a small candle that fits within the body

of the previous day’s candle, suggesting that that buying and selling pressure has mitigated somewhat, and there might be the potential for a reversal, especially when this candle comes at the bottom of a downtrend it is near or at a level of support A piercing line candle is relatively similar And it can be an indication that prices move down, but the buyers have stepped in And they’ve stepped in, and you see some pretty heavy buying pressure, as a matter of fact, pushing back up through the middle portion of the previous day’s candle And a bullish engulfing candle is a candle that is larger than the previous day’s candle, again engulfing that buying or selling pressure that existed the previous day Now, on the bearish side of the scenario, the names are just a little bit different We just turn them over And remember that when we look at these bearish candles, things like tombstone dojis and shooting stars and hanging man candles, these are candles that exist at the top of uptrends that are perhaps running into or are near levels of resistance Their price movement is moving in an upward direction, and they can indicate a potential for a reversal in the opposite direction So the equivalent of a piercing line that is bullish on the bearish side is what we call a dark cloud cover candle, where there is the very ominous expectation that price might continue to move to the downside That’s one of the great things about candles, is they have these very poetic names and they can be interesting to hear– although the names are less important than what the candle actually does A bearish engulfing candle is exactly that It is a big candle that moves to the downside, engulfing or incorporating the range of the candle of the previous day So remember, I mentioned when we were talking about that piercing line candle, the bullish candle, or the dark cloud cover candle, that the price action moved up through the midpoint of the previous day’s candle or down through the midpoint of the previous day’s candle, in the case of a dark cloud cover Well, candles and candle patterns in and of themselves can create or indicate levels of support and resistance So let’s talk about those And then we’ll look at some of these patterns as they exist out there on the thinkorswim platform in the real world So the middle of the candle can be a level of support or resistance Some technicians will call that S1 or R1, support 1 or resistance 1, just simply a way to denote the middle portion of that candle The body of the candle, whether it’s the bottom of the body or the top of the body, that can be also a level of support or resistance, as can be the shadow or the wick of the candle Now, one of the most frequent questions that I get asked is, when I’m drawing lines of support and resistance and I’m using candlesticks, do I draw my levels of support and resistance to the bodies of the candles, to the shadows of the candles, or to the middle portions of the candles? And the answer to that is yes Draw the lines that make the most sense because candles can give us that light to indicate where that price change is happening If we remember that levels of support and resistance are simply points where price changes direction, and having a candlestick pattern to help emphasize that simply helps us to see where those levels exist So let’s go out to the thinkorswim platform and see if we can find some of these candlestick patterns out in the wild I’m taking a look right now at a stock that some of you are probably familiar with This is Apple And I didn’t pick this particular stock for any other reason other than it is familiar to a lot of investors This is not a recommendation We’re simply going to look at where we might find some of those candlestick patterns and formations that we’ve just been talking about So the first thing that sticks out to me, as I look at Apple here, is kind of right in the middle of the chart And it’s one of those hammer candles that we talked about, indicating the possibility of a reversal

So remember what I said about hammer candles They come at the bottom of a downtrend Now, that downtrend may be one or two candles long It might be a week long It might be a month long And the hammer candle oftentimes occurs at a level of support or at a level of resistance So in this particular case, I’m going to zoom in on this middle portion right into the July time frame for Apple And I happen to notice that right here on the 24th of July, there happened to be a hammer candle As a matter of fact, I’m going to highlight this hammer candle really quickly here And I’m just going to draw– let’s see if we can get that annotation tool There we go I’m going to draw a circle right around that hammer candle right there That’s a hammer candle out in the wild on Apple We see that that comes as the price of the stock is moving down Let me clear that annotation tool here really quickly It’s also right at or very near a level of support I’m just going to draw that line across there so that you can see where that level of support is So this particular hammer candle had a close that was higher than the open So it opened at the bottom of the body and it closed at the top of the body And as a matter of fact, if we hover over that candle, we can see that information in the top left hand corner of the thinkorswim platform That’s the charting package that we are using, and it occurred at or near a level of support Now, I want to do one thing here really quickly so that you can see how these candlestick patterns relate to some other forms of Western charting Now that we have this one highlighted– and let me just put an oval around that here on the chart so that you can see that There is that candlestick that we’re looking at right now, that hammer candle And I’m going to change my chart style up here at the top from candle type I’m going to change that to a line chart And so notice that we still see the closing price of the stock, and we still see that it’s near that level of support, but it doesn’t give us quite as much information That line chart is simply moving down to near that support, and then we start to see it turning around We wouldn’t have seen perhaps as much of an indication that there was the possibility of a reversal or a bounce at that level of support So now let me change the style from line to what many Western charting packages use, and that is a bar chart And we see something very similar That bar chart shows us open, close, high, and low, but it doesn’t give us quite as much information, nor is it as easy to see So let’s light the candle Let’s go to the Style Let’s choose, instead of bar, candle And now we see that candlestick here where the price of the stock finds that level of support The seller is pushed below that level of support The buyers step in and push back up And now we start to see that reversal So one of the things that I know– and as I see this candle, let me annotate the action that happened here So price was moving down The buyers stepped in and started to buy and pushed the price back up Now, was there a guarantee? No When we were sitting at that candle, we didn’t for sure that tomorrow the price was going to move higher But what we did have is an idea that this type of candle, when we see it, oftentimes accompanies a price reversal to the upside So that was our warning sign that price might move Now, my Little League baseball coach always taught me about the importance of follow through, the importance of follow through That’s no different when we’re talking about candles The way that we knew that this was, in fact, a hammer candle and doing what we expected it to do was the next day, we saw upward price movement The price started to move back up in an upward direction Now, beyond that, we have no guarantee that price is going to keep moving up So we need to be aware of the fact that the price could continue to move down or could move back against us if we were looking at taking a bullish trade here But the fact that we have this hammer or hammer-like candle at a level of support gave us the early warning sign

for that possibility of a move to the upside Let’s see if we can see a few other types of candlestick patterns right here on the chart And as a matter of fact, I’m going to zoom into another one that I see right here and I’ll just put a circle around this one That’s one of those Harami candles that we talked about, where you have a big body candle followed by a small body candle And you have that potential for a reversal So I’m going to zoom back out here on the chart just a little bit And let’s see what’s going on and see if we can’t see some of those other types of candlestick patterns that we looked at As a matter of fact, I’m going to zoom in on this time frame right here Let me get right back there Here’s one of those piercing lines, and I’ll put an oval around this one as well so that you can see it Here’s one of those piercing line candles that we talked about, where price opens lower and moves higher up through the range of the middle portion of the previous day’s candle And we see a little bit of follow through to the upside, but it doesn’t really start a new trend but it does kind of move along sideways Let’s zoom back out, see if we can see some other candles Oh, there are a couple of bearish candles here along the way that we could also see at the top of an uptrend Let me bring this back down so that you can see it Here we have– and let me grab my annotation tool just so that we can see that– upward movement in the price of the stock Here is what looks like a hammer, but it’s occurring at the top of an uptrend as the price runs into or very near to a level of resistance Now, this one has a pretty macabre name to it It’s called a hanging man candle It’s the reverse, or inverse if you will, of an inverted hammer And it has the implication of being the death of the uptrend I know, pretty macabre name, but the names don’t matter What matters are what those candle patterns tell us is happening So as we start to look at what’s going on here, when we look at any stock, now that we understand some of those basic candle patterns that exist, both bullish and bearish, we can start to get a sense of how they can help us to make decisions So as I zoom back out here– and I’ll close that annotation and we zoom back out, here is Apple sitting at a level of resistance with– whoops, that’s an oval Let me make that actually a line tool Let’s go back over here and kill my oval because I don’t want to be drawing an oval I want to draw a line We’ve got our level of resistance right about here on Apple We’ve got the price of the stock moving up into that resistance Our next expectation, given the fact that we have that hanging man candle right there, might be downward price movement This might be a short term reversal to the downside here on Apple Not a guarantee, but it can certainly give us some insight into what might happen tomorrow, Monday, when the price of the stock begins to move again So if we can start to understand where those candles are and begin with hammers, and simply go to your chart and start to identify where you see those hammer candles and inverted hammers and reversal type indications, those can be points where you can start to look for turning points in the price of the stock And sometimes, if those hammer candles or hanging man candles or inverted hammers or dragonfly dojis or tombstone dojis occur in the middle of a trend and not a level of support or resistance, they can simply be an indication of the price movement for that day and don’t necessarily imply the potential for price movement Just make sure that you relate those candlestick patterns to where you see levels of support and resistance So let’s do this Let’s go back out to the slides and let’s talk about some of the considerations that we might use for evaluating when to perhaps enter or exit a trade based on seeing these candle patterns existing So I’m just going to pop back over here to the slides for just a minute And we’ll talk about how we might put all of this information together So once we’ve identified the candlestick pattern on the chart, we might ask ourselves the question,

is the candle indicating buying or selling pressure? Who’s in charge with that candle? Is it the bulls? Is it the bears? Or is there a change in control? And is that candle indicating a continuation of the trend or a potential reversal? Is it occurring at or near a level of support or resistance? Now remember when we went back and we talked about the size of candles, those long candles, either bullish or bearish, those can be generally indications of continuation of the trend We don’t often see those big large candles occur at levels of support or resistance as reversal candles unless there’s some sort of news event that goes along with those– perhaps say, for instance, an earnings announcement as an example But small candles do tend to indicate the possibility of reversal, especially when they fall at or near those levels of support and resistance So let’s talk about trading in an upward trend And we’ll look at this as a potential consideration for informing your investing decisions When any of these candlestick patterns appear, say for instance, at a level of support, that would be a consideration for entering a bullish trade But you remember what I said? Follow through matters, at least that’s what my baseball coach said One of the things that you might consider is using a conditional order in entering trades that you trigger based on a candlestick pattern So if you see a hammer candle at a level of support, one of the considerations might be using a conditional order to enter the trade assuming that there is follow through in a bullish direction But that can be the way to light up that entry signal Now, if you enter on a hammer candle off of a level of support, one of the considerations might be when the price of the stock, like we saw on Apple, gets to a level of resistance, and we get a similar candle that would indicate a potential reversal back in the other direction, consider either exiting the trade on that follow through or use that candle as an opportunity to increase or adjust your stop order or alert so that you can take action if the price of the stock begins to move against you So this would be a simple way to approach trading in an upward direction using candles A dragonfly doji, a hammer candle, an inverted hammer at a level of support, a bullish Harami, or a piercing line, or a bullish engulfing that occurs at or near a level of support could be an indication to enter the trade as long as you have follow through And a tombstone doji, a shooting star, a hanging man, a bearish Harami, a dark cloud cover, or bearish engulfing that occurs at or near a level of resistance could be an indication that it is time to adjust your stop or exit your bullish position On the other hand, if you are a bearish trader and you are trading to the downside, think about using candles in exactly the opposite direction So entering a trade when the price of the stock is at a resistance and you get a tombstone, a shooting star, a hanging man, a bearish Harami, a dark cloud cover, or a bearish engulfing And vice versa, adjusting your stop down or exiting the bearish position if you get a dragonfly doji at support, or hammer at support, or an inverted hammer, or a bullish Harami, or a piercing line, or a bullish engulfing candle pattern at that level of support in a downtrend So let’s do this Let’s go out to the thinkorswim platform and see if we can see some opportunities to take exactly those types of trades And let’s maybe put this together here on this example that we were looking at with Apple I’m going to just simply zoom in on this time frame that we were looking at before See if we can get that to zoom here There we go We’ll zoom over here

And we very well could have used this hammer candle off of the level of support on July 24 as an opportunity to set up an entry into a bullish trade So as we start to see that potential for bullish upward movement, we get the follow through This would have been the point to put in a potential conditional order And a trader could have taken that trade on the follow through the next day as the price continued to move So going back to what we were talking about in terms of those guidelines, as the stock continues to move higher, we now have, right here, a resistance level and a tombstone doji The possibility is that the price of the stock could reverse So a trader could use that as an opportunity to set an alert And maybe that alert is broken support Let’s add an alert in here so that we can manage that alert We’ll create that alert So now, if the price of the stock were to move down below, follow through from that candle, we could exit the position Well, it didn’t really break down through that level So now it continues to move higher So we continue to watch for bearish candles Continues to move up Continues to move up And right now, we get a bearish engulfing candle up here at the top Not only did we get a bearish engulfing candle here up near this resistance level, but prior to that bearish engulfing candle, we also saw a hammer candle at the top of an uptrend, which we refer to as a hanging man candle And that would have been an opportunity to move our alert up to above that level of support– or excuse me– below that level of support Now, I’m going to move that out of the way just so that we can see it Let’s see I think we might have lost– hang on, there we go Let’s see if we’ve lost our platform really quick All right, let’s jump back here Adjusting that alert up to the upside if the price of the stock, as it did, then broke down through that support level or through that alert, that would have been a point where we could have exited the position All right, let’s go back to the slide deck and let’s talk a little bit about those conditions again as we go through this process Remember that when we’re trading in a bullish direction, we’re looking for candlestick patterns that occur at levels of support for entries And we’re looking for candlestick patterns that occur at levels of resistance for stop adjustment or exits We’re talking about and looking for the formation of a candle, how it occurs, and why it occurs We’re looking for those patterns and looking to utilize those guidelines Let’s go back to the thinkorswim platform and see if we can look for another opportunity here And see if I’ve got control back on the platform And I don’t yet Let’s see if I can bring that back here into– I think it might be my annotation tool that was kicking me out No, all right So I can’t move my platform here really quickly So let’s go back and let’s just simply, again, summarize Candlestick formations tell us the highs, lows, open and close for the day They can give us an indication and some insight into that buying and selling pressure Remember, the high is always going to be at the high and the low is always going to be at the– the high is always going to be at the top of the day and the low is always going to be at the bottom of the candle What changes are the open and close relationships Candlestick patterns that occur at or near support,

with smaller candles often are reversal candlestick patterns Large candles that occur during the course of a trend often are continuation candles and are candlestick trading guidelines I’m just going to see if we’ve got any questions here that we can take a look at along the way And I’m not seeing any questions here in the mix So with that, and because that platform is not moving for me, I just want to make sure that we have a clear understanding of those candlestick patterns Remember that they can help us to light the way to making informed decisions, but remember the follow through in our candlestick patterns We need to see that the candlestick indicates the price movement that we expect it to move So here’s how you apply what you have learned Identifies trend on the stocks in your watch list Identify those levels of support and resistance on the chart Use candle patterns for potential entries and exits, and stop and alert adjustments And practice, practice, practice using these tools in your paperMoney trading platform Now, if you want to learn more about these candlestick patterns and how to use them and about technical analysis, we have an entire range of tools that are available for you, webcasts, in-person events, virtual events, and videos that can help you to manage and learn more about candlestick patterns Let me see if I can come back here really quickly to the platform There we go Now we’re out of the alert Thank you It was off the side of the screen All right, now we’re back So before we go, and now that we’ve got some questions in the screen, one of the questions that comes up is using something like another indicator, like Average True Range for instance, to make a decision about where to place the candle or what the candle is telling us And so let’s look at that really quickly here as we look at an indicator like– let me see if I can kill that again There we go I moved that again I’m going to exit that alert so it doesn’t keep doing that for us So I’m going to go here to the flask icon or the beaker icon and we’ll bring up ATR as a study And I’ll click on Apply and OK An ATR is simply a projection of volatility over time or range over time Sometimes, what you’ll see happen is when you have candles that are large, that can be an indication there is greater volatility in the price of the stock and the stock is moving to a greater degree So if you start to see lots of big candles in the price of your stock, you might look at average true range or implied volatility and see if that has increased, and see if that is a correlation to the candles that you’re seeing on the chart So in terms of drawing levels of support and resistance, one of the questions that we get quite often, connect dots where you see price changing direction And that’s where candlesticks can help you to see where those levels are I’m going to zoom back out, but I’m going to take that ATR off here really quickly I’m going to click on Apply and OK I’m going to zoom back out here on Apple, and I’m going to look for those areas where I see price changing direction And I’m simply going to connect dots where I see those things occurring So remember that levels of support and resistance can be diagonal, they can be horizontal And I see that there’s probably a level of support right here at about the 103 mark where price changed direction a couple of times So you can use a variety of different methods for drawing levels of support and resistance And one of the questions that comes up fairly often is, what’s an appropriate time frame to use candlesticks? Because as we look at this particular chart, this is a daily chart We’re looking at one day candles here Can we look at candlesticks that are a shorter time frame

than those one day candles? And the answer is yes What this represents then, as we’ve now gone down to an intraday chart, is that each one of these candles represents one minute worth of time And you still see the same types of patterns that occur on these 1 minute candles that you see on daily candles We can also change this to a weekly chart And now, each one of these candles represents one week of time And we still see the same type of candles that exist on the weekly chart that exist on the daily chart that exist on the one minute chart So you use the time frame of candle that is most relevant to the types of trades that you typically tend to put in your portfolio If you are a short term trader or an intraday trader, you may want to use candles that display information that is faster than a one day time frame If you’re an intermediate or trend trader, a one day candle might be exactly appropriate And if you’re a longer term investor, you may also use longer term candles, like weekly candles, to help make decisions So let’s talk about follow through for just a second And let’s look at that in the context of this candle that we first identified, this hammer candle on July 24 The follow through comes not necessarily on the trend continuation, because we don’t know on any one particular day what’s going to happen And if I move this over to the hard right edge, we can see that there was a bounce up off of that support level, but we don’t know if there’s follow through So the next day, the price moves up, now we see some follow through The price is starting to move higher That would be our potential entry day, but we still don’t know what’s going to happen tomorrow because now we see a little bit of a pullback So there’s no guarantee, when we have the follow through, that the trend is going to continue But if it does, we continue to follow that trend until that trend changes So the follow through, generally in a one day candle, is going to be the next day or very close to that day’s price movement in terms of that next movement in the direction that you expect to see happen So there’s follow through Identifying support and resistance levels, again, simply drawing lines where we see price changing directions So I’m going to zoom back out again And again, this is one of those concepts that, if you go to the Education tab here on the thinkorswim platform, and you go to the Stocks section right here over on the left hand side, and you go through the stocks technical analysis course, we go through extensively talking about and identifying those levels of support and resistance Additionally, we have webcasts on a daily basis– specifically, our technically speaking webcasts that talk about the idea of using levels of support and resistance and can help you to identify those But in general terms, I’m looking for points where the price has changed direction Easy to do in retrospect, and we can project those lines out into the future to see if the price changes direction at those levels again in the future But again, no guarantee So are diagonal lines except over support and resistance? Absolutely Because one of the things that happens is if you start to see that there are a couple of points along a line where the price has changed direction, that can be an indication that that buying pressure is reducing or decreasing each time the price moves up and runs into that resistance level Candlesticks can help us to see some of that impact We might see very strong bullish candles moving into a diagonal downtrend line, such as this, and then falling pressure and then falling pressure Notice those bullish candles, those candles are getting less and less bullish each time it touches that line There’s less and less buying pressure pushing to the upside So one of the questions is, well if we’ve got a low priced stock compared to a high priced stock, are there going to be differences in the candles? So here’s Apple and let’s compare that This is about $120 a share Let’s compare that with, say for instance, Ford which is $8 a share And you can see those same types of candles appearing Remember that I said that the size of the candles is relative to the other candles within the chart So here’s Ford that’s $8 a share Let’s take a look at Tesla that is $420 a share

And you can see that those candles, still same types of candles, they tend to be maybe a little bit larger especially when the stock becomes a little bit more volatile So relating high price equities to lower priced equities is the same thing as relating small candles to large candles It is a relative comparison So let’s see if we’ve got a couple more questions here When you see a reversal at a level of support, turns out to be a fakeout Yeah, that can often times happen where you get a hammer candle at a level of support and you get a follow through and then the price reverses Yeah, there’s no guarantee about what’s going to happen tomorrow The psychology behind that is that each day is different and new information comes into the market, and the market incorporates that information So I’ll give you an example Let’s go back to Apple and take a look at that example here The price of the stock reversed off of that hammer candle and started to move to the upside And then there was an earnings announcement and the price of the stock moved significantly higher That earnings announcement could have just as easily reversed the price to the downside Each day is different, and trades based on its own digestion of the information that’s out there in the market, there’s no guarantee that the price tomorrow is going to continue in the direction that we have now So we have to be aware of that And that’s why we use things like alerts and stops and means to help to manage our risk in the trade All right, it looks like that is pretty close to the questions that we have for this section I don’t see any more that are coming through So let me pop back over here to the slides and just reiterate our application Identify the trend on the stocks that you’re watching Identify levels of support and resistance Use those candlestick patterns for those potential entries and exits And practice trading in your paperMoney platform Continue your education Watch the webcast, specifically the webcast that are on the TDAmeritrade.com or the thinkorswim platform or TD Ameritrade YouTube channel Attend those in-person and virtual events As a matter of fact, I just finished teaching this last week, a technical analysis virtual workshop where we talked extensively about candlesticks and support and resistance That’s going to be coming up again very soon And continue those courses, simple steps for retirement portfolio and stocks technical analysis By the way, you can follow me on Twitter for more discussions of candlestick patterns @BenWatson_TDA Continue to learn more about the tools that you have available to you And we’re going to go back to the studio Guys, thank you very much, and enjoy the rest of– I’m still talking We’re still here OK, not tossing back to the studio yet So let’s continue this discussion So think about one of the things in terms of education that you can do And let me go back to the thinkorswim platform and reinforce that Education tab again As we start to come back down into this tab, going down to the video content, you can start to see those stocks technical analysis courses, as well as individual videos that can help you to understand candlestick patterns, levels of support and resistance, as well Now, that being the case, you can also go to our daily webcasts And let me bring up the webcast calendar so that you can see where some of those webcasts are so that you can continue your education And if you look at the webcast calendar– and let me make this a little bit larger so that you can see where that is– our technically speaking webcasts that talk about technical analysis occur midday Monday through Friday, breakout and reversal patterns, trading stocks and options, technical analysis and options, trading the trend, and with my good friend Pat Mullaly, advanced charting techniques on Friday So some great opportunities to extend your learning It looks like we’ve got another question coming in So let’s see if we can bring that question in Is there a candlestick course for further education on the TD Ameritrade platform?

So here’s where you’re going to see most of the information on candlesticks First of all, getting started with technical analysis with Barbara Armstrong, that webcast on Monday is at 11:00 AM Eastern time, is going to be a great resource to learn about candlesticks And then in those technically speaking webcasts, you’re going to see all of these instructors use candlesticks in their discussion And if we go back to the course material in the in-person events– and let me show you in those in-person events Those in-person events, as they come up, we have a technical analysis virtual workshop And that’ll be coming up in the rotation again, and that focuses an entire session on candlesticks and candlestick pattern analysis And coming up in a couple of weeks, we have Michael Ying doing a thinkorswim platform virtual workshop where he is going to demonstrate the tools and adjustments that you can make on the thinkorswim platform to customize the platform to make it look and feel the way that you want that to move All right, so let’s talk a little bit about a couple of other questions that are coming in I’m going to jump back over here to the chart One of the questions that came in was, what about price gaps on the chart? Can candles help us to understand what’s going on in those price gaps? And when we start to see gaps happen, that is usually referring to movement that happens overnight And again, most of the time, those gaps happen because of some sort of news information that comes into the system– in this case, the gap here on Apple occurred on the earnings announcement And overnight, the price of the stock moved It can change what happens with the candles As a matter of fact, we had a reversal candle here, and there was good news, and the price moved higher But there could have easily been negative news coming out of that earnings announcement, which would have moved the price to the downside So gaps don’t invalidate candles Gaps can help us to understand that follow through And sometimes gaps, when we see them around candles, like here can be indicative of either continuation moves or reversal So pay attention to the gaps They can give you some information about buying and selling pressure And they can relate to what you’re seeing in the candles But again, they’re not guarantees, and they’re not guaranteed to be filled in a particular direction They’re not guaranteed to see price moving in a particular direction So one of the questions is, on my platform, I have solid and hollow green candles, and I have solid and hollow red candles So what I’m going to do is I’m going to come up to the gear icon at the top of the chart where it says Chart Settings and I’m going to click on that gear icon And I’m going to come over here to Appearance And now, what I can do is I can choose whatever format I want to have for those candles I can make those candles appear whatever color that I want them to appear I can change the background I can change the border I can change what those doji or open and close exactly at the same price candles look like So I have the flexibility to be able to see what those candles look like Remember, I said that you could change these colors to match your favorite sports team if you wanted to So that could be green and gold maybe, if you wanted to be that So you can do a lot of different things to change the candles to display the way that you want those candlesticks to display on your chart And the nice thing about this is if you have sensitivities to color or particular colors or color combinations, you can change the appearance of the candlesticks to match what you want them to be and what is most comfortable for you So again, really quickly, let’s come back over here One of the questions that comes up on a relatively frequent basis is, well, why don’t we just let the computer find these candlesticks for us? Why don’t we just let computerized pattern matching find all of the relevant candles for us? Because there are those tools that are available

And if we come up to the top right hand corner and we go to Show Patterns and Select Patterns, we can actually select a variety of candles As a matter of fact, let’s select hammer candles And let’s see if we can see if the computer finds any hammer candles And it would point out with an arrow where those hammer candles occur Now, I know that I’ve going a hammer candle here, and I know that I’ve got a hammer-like candle here and one here and one right here and there’s one right here, but the computer is not really pointing out any of those The problem is the computer is very specific in its definition of what a candle is We, as human computers, are much better at the fuzzy logic to help us to understand what is a hammer candle or what is a hammer-like candle at a level of support or mirror level of support And we’re not as particular and not as precise as the computer So we are better at seeing where those candles are than the computer is And it can be a helpful tool for sure, but it’s not a replacement for you learning what those candles are and how to find them on your own So we’ll take one last question Where do we exactly draw the lines of support and resistance to connect the dots? And the question is that’s your personal preference If you see the lines that make sense that connect to candle body and a candle shadow or a wick, but that makes sense as a level of support or resistance, draw the line to the place that makes the most sense This is one of the hot raging debates among technical analysts Yeah, those do occur So don’t get burned by where you have to draw the line Draw the lines that make the most sense So let’s go back to our slides again and just remind everybody where to continue their education We’ve got lots of great events coming up The rest of the day today here at TD Ameritrade, investor education conference, but continue your education Join one of those webcasts that I pointed out, attend those in-person and virtual events, and go through the stocks technical analysis course to continue your education here at TD Ameritrade So I think now we’re going back to Lorraine in the network studio Lorraine, this has been a lot of fun I hope I’ve lit the way with our candles for more education You definitely have, Ben Couple of questions for you So we call you the chart master here at TD Ameritrade That’s a big title I think a lot of the time, some of our clients get hung up on, where do I start? What if I don’t know a lot and I hear a technical analysis and I watch this? Take us back So we have a paperMoney platform at TDA Can you tell our clients how they can use that in their charting, and how to get more used to practicing trading and all of these things you’ve shown us? Absolutely The first thing to do, Lorraine, is to download that thinkorswim platform and open it up, and start to look at the stocks that interest you A great way to do that would be think about the stores and the companies that you interact with on a daily basis Put those stock symbols in the chart and start to look at what’s happening with those stocks Put the chart on a candlestick pattern and start to find those candlestick patterns as they occur Now, to continue your education, I pointed out some of the webcasts that you can watch, but maybe the easiest thing to do is to watch me, the chart master, and everybody else that brings great market information and education every single day Monday through Friday on the TD Ameritrade network And listen to what we talk about and follow along Absolutely, it sounds like you just have to invest that time to learn more And again, we talk a lot about this paperMoney platform Can you just tell our viewers really quick what that paperMoney platform is? Yep, absolutely So as a matter of fact, I’m going to just shift back over here really quickly The paperMoney platform is, very simply, the simulation– it’s a software simulation of live market conditions It’s a downloadable software platform that you can put on your computer You can also use paperMoney versions of our mobile applications as well to be able to chart and practice trades, practice the strategies that you’re going to learn today here in the investor conference and elsewhere, and be able to put them into use without risking real money That way, when you’re ready to go from paperMoney to live trading, you’ve already done what you want to do You already know how it works, and you already

know where the risks are so that you can more easily translate that into actually taking action in your portfolio and being an educated and informed investor so that you can be more successful Yeah I mean we’ve talked all day, Ben, about those decisions that people have to make So this kind of edge where you can practice on that platform, you don’t have to commit real money You can learn to manage risk You can learn charting You could learn candlestick passions like you’ve just shown us today That’s really important for investors so that they’re comfortable, they know how to manage risk, they know how to actually use our technology and our platform So listen, thank you so much You’ve been awesome today We really do appreciate it You bet Thanks, Lorraine OK guys, let’s just take a short break And coming up, you do not want to miss our next session sponsored by the Cboe with JJ Kinahan and special guest Arianne Criqui Stay tuned We’ll be right back [MUSIC PLAYING]