Candlestick is a very simple and yet powerful way of analyzing price movement. There are various types of patterns – Engulfing, Piercing, DOJI and Hammer/Hanging man. Using these analysis one can create positions that are good for about a week or so

  • : Candle stick analysis provides a simpler way of representing stock price movement in a day. It provides a quick way of understanding day open, day close, high and low prices and a color based trend for the day. It is a very simple and powerful way of creating positions for trading in the short term
  • : Candlestick analysis is useful only for short term positions typically for creating trades that last a week or so
  • : Candle stick analysis is useful for creating trades that last for a week or so. Candlesticks help in understanding trend in reversals and hence volume plays an important role. Good volume means that the reversal is actually happening due to presence of the opposite force (for ex: buyers coming in a bearish trend)
  • : When the body of today's candlestick covers the entire body of previous day candlestick then its called as engulfing pattern. If the trend reverses to bullish then we can buy at the highest of today's and previous days high price, keeping the target as the length of the body of today's candle keeping the stop loss as the lowest of today's candle
  • : In a bullish candle, when the body of today's candle covers the low of previous day low and also covers 50% of the previous day's candle's body then its a piercing pattern. It is also required that the head of the candle is not too big and volume is good. In such cases it is a good indication of buyers coming in and a long position can be created. We can buy when the price next day goes above the previous day's high price, keeping today candle's low price as the stop loss and the difference between these two as the profit Similarly we can create sell position for a bearish candle
  • : DOJI means neutral - the stock opened and closed at almost the same price. A DOJI again could indicate a reversal trend where if the volume is higher then opposite forces (such as buyers in a bearish trend) have come in and the stock has good potential to reverse
  • : A morning star is a positive DOJI. The DOJI appears after continuous selling indicating that buyers are coming in (indicated by good volume). We can buy when the price goes above the candle's high, keeping a profit of previous day's full body with a stop loss of the DOJI's low Similarly, evening is a negative DOJI. The DOJI appears after a continuous buying rally indicating sellers have come in. A short position can be created when next day's price breaks below the DOJI's low keeping the previous day's full body as the profit and stop loss as DOJI's high price
  • : Hammer and Hanging man again indicates trend reversal. A hammer indicates buyers coming in a bearish trend. The requirement is the candle stick color to be in green, lower tail of the stick at least 2 times the body, upper tail is almost not visible. Then a buy order can be created the next day when price breaks the upper tail with a target of the 1.5 to 2 times the candle's size as the profit and stop loss of candle's low Similarly hanging man appears in a bullish market when sellers are coming in strong and indicates a potential reversal. The upper tail needs to be 2 times the body and lower tail almost not visible. Then a sell position can be created when the price breaks the lower tail
1 Comment
  1. Naresh 8 months ago

    Hi,
    Good exercises… Keep up the great work.

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