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.
- 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.
- 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.
- 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).
- 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.
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.
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.
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.
There are 2 types of indicators
Leading & Lagging
- 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.
- 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.
- 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).
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.
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.
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
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.
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 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
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.
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).
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 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).
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
- Rising Wedge
- Falling 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.
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.
Its 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.
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.
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.
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.
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.
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.
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.