Norman Hallett,

CEO of Subconscious Training Corporation,

Interview’s Steve Nison,
President of CandleCharts.com and
The World’s Foremost Expert in Candlestick Charting

Topic:
“How Candles Reflect Market Psychology And
Comments By Mr. Nison on Trader’s Staying Disciplined ”

May, 2008

Norman Hallett (NH): Hello, everyone. This is Norman Hallett from Subconscious
Training Corporation. I’m here today with Steve Nison, president of CandleCharts.com
and as you probably know he’s uniquely qualified to help you fully exploit the
opportunities candlestick charts present in today’s markets.

As a renowned author and speaker, he has a distinction of introducing candlestick charts

to the western world. Mr. Nison has authored three acclaimed books, including ‘Japanese
Candle Charting Techniques’. All of his books have been translated into nine languages
with sales of over 100,000 copies.

Mr. Nison is not only the acknowledged master of these previously secret candlestick
techniques, but he’s also an expert in western technical analysis, with over 30 years, real-
world experience. His work’s been highlighted in the Wall Street Journal, Worth
Magazine, Institutional Investors and Barron’s.

Nison has appeared on numerous episodes of CNBC and segments of Financial News
Network, the precursor to CNBC and one of his segments brought in the most viewers
that the network had ever gotten. Steve sold out seminars, have been hailed as the most
valuable and entertaining in the industry. He’s presented his trading strategies in 20
countries, to traders from almost every investment firm on how to apply and profit from
these candlestick methods.

He’s also lectured at numerous universities including Baruch and Cornell and was guest
speaker at the World Bank and the Federal Reserve. He was among the first to receive
the Chartered Market Technician, CMT designation from the Market Technician
Association and was previously senior technical analysts at Merrill Lynch and senior
vice-president at Daiwa Securities.

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He holds an MBA in finance and investments and if that’s not enough, I like him and I
know that he knows what he’s talking about. Steve thanks for spending some time with
us today.

Steve Nison (SN): My pleasure.

NH: Steve, as you know, we’re all about the mental and emotional issues that traders
to through personally in the market. I know that candlestick has a bent toward the
trader’s mental and emotional issues kind of read within the charts.

Will you give us your take on the importance of understanding the shifting psychology in
the markets and how the shapes of the candle lines or patterns relate to the traders and
shift in market psychology?

SN: Mike, my pleasure. One of the major advantages of the candlestick charts,
although they use the same data as a bar chart, open, high, low and close, they really give
you an early indication of, as you mentioned, a shift in market psychology, really seeing a
shift between the supply and demand situation. There’s always a battle between the bulls
and the bears and it’s really up to the most savvy of traders to pick up the little clues.
We’re all detectives in the market for those who trade and it’s up to us to pick up those
little clues that the markets send us.

Where the candlesticks really excel is at giving us those early potential reversal signals
and the reason for that is because of the shape of the candlestick line. You know, we
don’t have time to go over the basic construction of the candlestick line they can see that
on my site. I actually have a primmer on candlesticks, but essentially, the candlesticks,
you use an open, high, low and close and there’s either an empty, or what’s called a real
body, which is the relationship between the open and close, or black real body.

A white real body means the close is higher than the open and a black real body means
the close is under the open and the lines above and below the real bodies represent,
they’re called the shadows, the represent the highs and lows of the session.

The Japanese place a lot of emphasis on understanding the psychology of the market
participants and that’s why they came up with the candlestick line. If we have a tall
white real body, where the opening is near the low, and the close near the high, obviously
the bulls are in control during that session.

But, if we have a session where the real body gets more diminutive or we have what’s
called the “doji”, a doji is when the opening and the closing are the same in the
candlestick line. I use the word candlesticks and candles interchangeably.

The candlestick line looks like a cross, we’re getting a sense of a more, how would I say,
the Japanese would say with a doji for example, the market is tired.

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There’s an equilibrium between buying and selling forces and what such a candlestick
line hints at is if the immediately proceeding trend could be losing momentum.

So, we’re getting an idea of a shift in momentum and what that does is increase the
probability and that’s all we’re doing when we’re looking at trading scenarios, is playing
probabilities, when we get a small read body or a doji, we’re increasing the probability
that, and assuming the market was moving up before, the prior up-trend is losing
momentum and the probability has increased, it’s not 100%, but it has increased that the
market might be reversing.

There’s always ways, once again, beyond the session today, but there area ways to tell us
if we’re wrong about that. For example, the high of the doji should be resistance area if
the market breaks above that and they’re closed, the Japanese would say the markets
refreshed. But, essentially, the candlestick line reflects the psychology in the market,
whether it’s a single candlestick line or for example, there’s a candlestick pattern called a
“engulfing” pattern, where a black real body where the market’s moving down, a black
real body where the close is under the opening, is immediately followed by a white real
body where the close is over the opening, to sort of refresh everybody’s memory, and
we’re visually seeing that the bulls are resting control of the market from the bears.

Either the bears are stepping back or if there’s a lot of volume, there are a lot of bears in
the market, but the only thing to make this a small white real body would be a lot of bulls
overwhelming the bears. The candles are very visual, very pictorial and really
underscore being able to analyze the psychology behind the buyers and sellers and who’s
in control of the market at the time the candlestick line if formed.

NH: Very interesting, you’re a great guy to ask this question to, as you know, we’re in
the business of mental training and the mental and emotional issues that traders have, but
that doesn’t stop traders on my list and traders who buy our product and so on to ask me
how I trade and what system I use. Although I always advise that what I use is not
important, that the important thing is that they find something that works for them that
makes sense to them.

After I insist on that, I do let them know that candlestick is one of the techniques that I
use especially to bring me into a market, to opt me into a market and I do that because
I’m a believer that the mental and emotional part of trading is a very important part of
trading and candlestick pays special attention to the open and close…the open being the
point where traders have done all their homework at night and they make their move as a
sum total of all of their emotions that they’ve gathered for that opening moment and then
of course, the day trades and emotions go both ways, but at the end of the day, they need
to come to an emotional and hopefully a non-emotional decisions, but that’s the peak of
when they need to decide, what am I going to do for the rest of the night? I got to stick
with this position. Will I stay in or out?

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Those high peaks of emotion at the open and the close is why candlestick seems to
emphasize those periods. Am I right when I’m telling people that? Did I make this up or
is that they candlestick looks at things?

SN: Right, the Japanese will say, “The opening is the rudder of the day.” A lot of
news that’s filtered in from overnight, rumors and actual news, so the opening’s a very,
very important component of the market and the close, a lot of technical analysts look at
close as only and essentially a lot of technical analysis tools, such as things like moving
averages, are based on the close and in the futures they have something called, mark to
market.

So, the close is also very important. You will hear on the news, the stock closed at XYZ,
so the two most important parts of the day are the opening and closing and the Japanese
have recognized that for generations. That’s really the focus of the candles. They view
the highs and the lows, while they’re important; they view them as emotional extremes.
But, you could use the shadows, those lines above and below the real bodies to gage,
again, the psychology of the market.

For example, if you have a candle line, a real body, black or white, and the shadow is
multiple times longer on the bottom, so a long lower shadow say two or three times the
height of the real body, what’s happening is that the market opened during the highs
during the session, then sold off, then rallied to close at or near the highs of the session by
the end of the session.

So, what you’re seeing visually is the market rejecting lower levels. What causes that
could be either, as I referenced before, either the bears are stepping aside or the bulls are
coming in aggressively enough, Japanese refer to it as a Komikazi attack, and to
overwhelm the bears. But, the most important parts of that candlestick line are the open
and closing, the real body.

NH: So, I haven’t been misstating it too much?

SN: No, no, right on the mark.

NH: Listen, in your experience, what fear…what specific fear is the most common for
traders… and what would you advise a trader who’s having trouble with that fear, what
would you advise him or her to do to help them get past it?

SN: Well, probably the most common fear is, usually fear is a greater emotion. This is
probably the only proverb I use that’s not Japanese, because it’s such a great proverb, I
think it’s an American Indian proverb, but it says, “Fear doesn’t write out on a donkey.”
When you went out, you went out right away and that’s why more often than not, the
market’s have bigger sell-offs than rallies.

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There are exceptions to that, but the biggest fear I think is losing, getting into a really,
really, big loss that could take them months and months to recoup.

The way around that is using protective stops. My niche is candlestick charts, but one of
the things we really focus on with my educational resources is making traders and
analysts realize that candles are a tool, they’re not a system. If somebody uses candles by
themselves, they’re really doing themselves a disservice.

You have to look at trade management, stop at levels, risk board, really cool candles and
context. Looking at candles through the prism of where they are within the market.

So, a way to really lessen, I think a great fear of having really big losses is correct use of
stops. I spend a lot of time going over stops as protective stops and time stops and
traveling stops and I think that’s a major, a real, I get with a lot in institution traders and
most traders, most really good traders are going to lose more often then they win, but by
using stops correctly, they’re limiting the losses and letting their profits run. That, more
often than not, makes a very successful trader.

NH: I couldn’t agree more and I’m sure the listeners can’t argue with that. The more
you employ money management, the more you feel comfortable about whatever outcome
happens and then you can move to whatever the next trade is if that outcome happens, no
matter what the outcome is.

To give traders something specific, I talked to a lot of traders and everybody seems to
have their little thing that they do to kind of employ that mental toughness in their head
before they start trading in the day. Some people read a statement, the positive view,
they’ll read the paper in the morning, there’s some procedure, some thing.

What do you think is the simplest thing that any trader at any level can do to help
themselves, say starting tomorrow morning, to be a more disciplined trader?

SN: Set up a trading diary.

NH: Okay, somebody gets a trading diary, what do they put in it? Are they putting
their thoughts in there?

SN: Yeah, well they’re putting, again, it’s beyond the scope of what we can discuss in
this session, but some factors would include, why are you doing the trade? What’s you
risk? What’s your potential target when you ultimately do get out? Why did you get
out? What did you like? What did you do wrong?

Print up a chart, or just import it somehow into a document so you can view it over and
over again and make your notes on there. But, instead of just kind of trading by the seat
of your pants, have a trading plan and part of that trading plan is setting up a trading
diary. Again, another aspect of the trading plan is why did you do the trade?

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Yes, you see a candlestick signal, but there should be other things involved. There are
other things, looking at western tools and getting a good risk reward trade and things like
that. But, something very simple to do would be setting up some sort of trading journal.

NH: In other words, talking about what you’re about to do as opposed to say a diary,
where you talk about what you did in the past? Or, do you suggest doing both?

SN: Doing both, yeah, a trading journal would be kind of both. You’d use a journal to
go through the steps that you would take, why you would do the trade or not. Again,
what’s your stop, the reason for doing the trade, what’s your target and then once you get
out of the trade, whether the profit or loss. Then, you’d make it like a diary. What did
you do right? What did you do wrong? What would you do different? Perhaps you did
everything right and news came out.

The Japanese say, “Just because the water’s calm, don’t think there aren’t any
crocodiles.” Everything could be lined up, all the technical indicators, and surprise news
comes out and some things depend on luck. So, yeah, it’s a combination of both.

NH: I find that there are a lot of people who start a diary, they’ll do it for a week or
two and they’ll tell me things like, “Well, I just keep on writing the same thing every day.
I know what I’m doing,” or, “It gets repetitive and it doesn’t seem to be help.” What do
you tell people like that?

SN: If they have the mental discipline to do it, fine, but I find things written down on
paper, again, I deal with a lot of institutional traders and that’s what they do. They make
their whole career on how well they trade for the company and they write all this stuff
down. They do this day after day. So, if they’re doing it, I think the general public
should be doing it.

NH: Yeah, trading is not the place to be cavalier.

SN: Right, that’s right.

NH: All right, well, I promised to only ask a few questions, take a small part of your
time and I think I’ve held to that. I really appreciate your spending time with us. Are
there any parting words? First I want to make sure people know, they’re going to listen
to this and they’re going to be a little confused on some of the symbols you described.
Where can people take a look on your site to get a little pre-lesson and then maybe go
through this MP3 again?

SN: The site is www.Candlecharts.com and there is a banner sign that says, ‘click here
to sign up for the free video newsletter.’ Every two weeks or so I do an educational
piece, it’s all free, video and it’s sent directly to their email and it will be a five to seven
minute piece describing either the current markets or an important educational concept.
We get really great feedback on it. So, that’s probably the best way to start down the
path of candlestick education.

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NH: All right, perfect. They’ve been around a long time, but still a lot of people don’t
understand it, don’t know about it and I think anybody who’s visual out there, candlestick
is something that should probably be in your repertoire because it puts the market into
pictures. It’s perfect. Again, Steven, thank you very much. I appreciate your time as
always and I’ll see you at the next trade show.

SN: Looking forward to it.

NH: All right, take care.

This concludes the interview with Steve Nison.