The candle stick analysis were first used by Japanese for rice trading during the early 19th centuries. Now the intra day traders and short term(less than a week) traders are using this analysis.
We should use day candles and not the intraday candles. Day candles for period of a month or two can be used. Short term trends can be analysed using this.
The various types of candle stick patterns are
4. Hammer and Hanging man.
Candle stick analysis is one of the oldest technical analysis used by Japanese people, of late it is used by traders all over the world. It is used to analysis the price movement for the few days trend.
Using Candle stick analysis we can do analysis for next few days only not for weeks or months. For doing analysis Day candles should be used not the Intraday candles.
Traders who wants to trade the stocks within a week can use this analysis. In candle stick analysis it is not mandatory to have high volume except in some few types like DOJI.
Engulfing pattern is a kind of candle stick pattern which when appears, it shows trend reversal.
Condition for bullish engulfing.
1. Significant price fall should be there for few days.
2. After a series of negative candles a positive candle engulfing the previous negative candle has to form.
3. Volume may not be significant during the engulfing day.
If these conditions happen then we can go for a long position. The entry point should be above the highest point of last two day candles, the stop loss should be the lowest point of the last two days candle and the target should be the sum of entry price and risk taken.
In case of bearish engulfing the vise versa.
Piercing pattern is a kind of candle stick analysis, it is used to identify the trend reversal.
The conditions for bullish piercing are:
1. A significant price fall for the past few days should happen.
2. After a series of negative candles a positive candle with day opening position should be well below the previous days lowest point and the day opening position should be above 50% of the previous day candle have to appear.
3. The highest point in the positive candle should not be much higher than the closing day point.
4.Volume may be high during the piercing day.
If these conditions are satisfied then it is a bullish engulfing, we can go for long position.
The entry point should be above the highest point of the previous two days. Stop loss should be the lowest point of the previous two days. Target can be the sum of entry point and the risk taken.
Doji is type of pattern which is seen in candle stick analysis. It indicates trend reversal. In a particular day after a series of significant price rise or fall, if the opening and closing of the day is almost equal then it is a doji. Volume should be high.
If similar conditions happen during a horizontal price movement, then it is not doji. Significant price fall or rice should be there.
The Doji which appears at the end of bearish trend is called Morning Star and the one which appears at the end of bullish trend is Evening star. In case of Evening star, we can go for long position. The entry point should be above the highest point of doji. The stoploss point should be the lowest point of the doji. Normally doji's are powerful so we can keep the target as the sum of entry point and twice the risk.
For Morning star vise versa.
Hammer and hanging man both indicates the trend reversal. In case of hammer the conditions are as follows.
1. Following a significant price fall, i.e a serious of negative candles a positive candle should appear.
2. The lower tail of the positive candle should be twice the size of the candle and there should not be any upper tail or probable a very smaller one.
3.Volume should be high.
Then it is a bullish trend or Hammer we can go for long position.
Entry point= highest point of hammer.
Stop loss= lowest of hammer.
Target= entry point+2*risk(since hammer are powerful trend)
For hanging man vise versa.
FOR HAMMER (GREEN) AND HANGING MAN (RED) COLORS ARE VERY IMPORTANT.