Basics of Technical Analysis for Beginners

1. First & foremost thing is to know how many types of candles are formed by any security (Doji, Bar).
2. Second thing is to know description of that candle (Bullish/Bearish). 
3. Third thing is to know break down of that candle.

understanding of candlestick

  • Any candle formed by security has 4 components (Open—Close, Low-Highl).
  • A candle is formed once the fight b/w 2 emotions (Buy-Sell) is got over in a certain time frame.
  • Green signals bullish & Red signals bearish momentum.

understanding of candlestick

  • Just learn the candles name like you print the image in mind.
  • Once you identify the candle break it down further to get detailed info about the move.
  • Like breaking an hourly candle into four 15m candles to know the momentum.

understanding of candlestick

  • Once you know the candle names next step is to know different kind of patterns formed by these candles.
  • There are 3 types patterns formed by candles as shown in the picture.
  • Patterns can be seen on any time frame chart (D,W).

understanding of candlestick

  • To learn & excel in candlestick the most important thing is do is practice.
  • We need to develop a habit of analysing candlestick patterns on 20—30 charts daily.
  • With that practice we get better day by day, week by week.
understanding of candlestick

Pattern tells us the same direction on chart in any time frame.

  • For intra day use 5,15 minutes.
  • For positional use 1hr, 2 hrs.
  • For short term use daily.
  • For medium term use weekly.
  • For long term use monthly & quarterly.
understanding of candlestick

Stock must be trading above all the imp. moving averages.

  • MACD must be positive on D,W,M charts.
  • RSI must be above 50.
  • CCI must be above 0.
  • Increasing volumes & delivery %age Your axe is sharpened now.
TA checklist for Swing trading

Sharpen your Axe with these pointers to complete 90% of your job.

Now 10% is execution of this setup where maximum of us to work upon.

That is entry/Exit.

There are 2 types of indicators

Leading & Lagging

technical indicators simplified

  • Leading indicator precedes the price action(RSI,CCI etc).
  • Lagging indicator trails the price action (MA,MACD etc).

Traders use both the indicators before Trading the set up.

Leading Indicators

  • These indicators helps to predict the price direction of a security.
  • These indicators helps in identifying the strength of the move in advance (RSI).
  • CCI helps in understanding the underlying momentum of the move.

Lagging Indicators

  • These indicators helps to know the actual trend in the market.
  • MACD is frequently used to know the momentum of the trend.
  • MA helps in identifying the longevity of the trend (ST, MTor LT).

Trend line simplified

A trend line is a straight line that connects two or more pivot points(high/low) to know the direction of a trend.

It acts as a line of support or resistance in particular trend.

It can be drawn on a chart of any time.

Trend line simplified

There are 3 types if trend Bullish, Bearish & Sideways.

A trend line should be drawn by connecting minimum 2 lows or highs to know the supports & resistance in the prevailing trend.

Trend changes If any stock breaks the trend line decisively.

Trend line simplified

When we draw upper & lower trend line it forms a channel.

A channel helps in identifying supports & resistances of the future in a prevailing trend.

There are 3 types channels

  • Ascendiing – Bullish
  • Descending – Bearish
  • Rectangle – Sideways

Trend line simplified

Application of TL

For short term use daily, hourly charts to draw the trend line & know the trend direction.

For medium term use weekly charts to draw a trend line.

For long term use monthly charts to draw a trend line.

MACD simplified

Its an indicator to identify the momentum & strength of a trend.

It is calculated by subtracting the 26-period EMA from the 12-period EMA which is called as MACD Line.

9D EMA of the MACD line is called signal line which trails the MACD line.

MACD simplified

MACD triggers technical signals when it crosses above (to buy) or below (to sell) its signal line.

The speed of crossovers is also taken as a signal of a market is overbought or oversold.

MACD divergences also need to checked before buy/sell.

Head & Shoulder Pattern

Head & Shoulder Simplified

It is formed by a peak (shoulder), followed by a higher peak (head), & then another lower peak (shoulder).

A line called neckline is drawn by connecting the lowest points of the two troughs.

Head & Shoulder Simplified

Its a reversal pattern which changes the existing trend of a security (Bullish to Bearish).

It is considered as one of the reliable trend reversal pattern.

The reverse of H&S is called as Inverse H&S pattern (Bearish to Bullish).

Flag Pattern Simplified

Its a continuation price pattern occurs in a middle of an existing trend which looks like the shape of a flag.

Flags are areas of tight consolidation in price for few days before actual BO occurs in a stock.

Flag Pattern Simplified

Flag patterns signify trend reversals or breakouts after a period of consolidation.

The pattern typically consists of between five and twenty price bars. Flag patterns can be either upward (bullish flag) or downward trending (bearish flag).

Flag Pattern Simplified

The bottom of the flag should not exceed the midpoint of the flagpole that preceded it.

Flag patterns have following components:

  • An Existing trend
  • The Consolidation channel
  • The Volumes
  • A Breakout & its Confirmation

Its a pattern which is formed by converging trend lines on a price chart in which 2 trend lines are drawn to connect the respective highs and lows in certain period.

There are 2 types of wedges

  1. Rising Wedge
  2. Falling Wedge

Wedge Pattern

Rising Wedge

Its a bearish pattern which begins with wide at the bottom and contracts as prices move higher and the trading range narrows.

It generally slopes up with declining volumes & traders use this pattern mostly for bearish trades.

Wedge Pattern

Falling Wedge

Its a bullish pattern which begins wide at the top and contracts as prices move lower.

It generally slopes down & traders use this pattern for bullish trades once the price breaks above upper trend line of the wedge.

Wedge Pattern

Bullish EngulfingIts a reversal pattern in which 2nd candle (Green) completely engulfs the real body of the 1st(Red) candle

On the 2nd day price opens lower than the previous Days Low & close above previous Days High.

It is one of the most reliable reversal pattern.

Bearish Engulfing

It consists of a small  (green)candle followed by a large down (red)candle that engulf the smaller candle.

It generally appears near the end of an uptrend or in the pullbacks of a larger downtrend.

It is one of the reliable reversal pattern.

Morning Star

Its a bullish reversal pattern consists of 3 candles: one small candle (doji) between a preceding long red candle and a succeeding long green one.

This pattern comes with a bullish ray of hope in downtrend.

Evening Star

Its a bearish candlestick pattern with 3 candles a large green candlestick, a small-bodied candle & a red candle.

It occurs near an end of uptrend.

It confirms when 3rd candle close is lower than 1st candle high.

3 White Soldiers

It a pattern consists of 3 long green candles with consecutive closes above previous low.

Each candle opens higher than the previous open and closes near the high of the day.

It appears in near the end of downtrend.

3 Black Crows

It a pattern consists of 3 long red candles with consecutive closes below previous low.

Each candle opens lower than the previous high and closes near the low of the day.

It appears in near the end of uptrend.

Inverted Hammer

It a bullish reversal pattern occurs near the bottom of a downtrend.

It consists of short candle with a longer lower shadow with a small body.

Candles of next few days must be watched for better confirmation.

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