Beginners' club - Candlestick analysis

[iyerboi]

Hi,

I'm a beginner.
- One who's only a couple of months old
- One just trying to find my feet in the world of stock markets
- One on the lookout for literature to improve his trades
- One who does not have charting software and instead relies on Google finance for his charts
- One who's not into trading for a living, but wishfully hopes that there comes a day when he doesn't have to go anymore to the "10 to 7 plus overtime" workshop
- One who still cannot convince himself to book a loss of 200, and eventually ends up blaming the whole world and their uncles whn he ends up losing 5000
- One who swears not to return to the markets, yet comes back with new rules and goals - breaks them, loses money and hates himself all over again
- One who is determined to learn from his mistakes and from that of others so that one day he can realize his dream of becoming a disciplined trader.

I'm sure there are others who are travelling in the same boat. Looking forward to interacting with you all on this forum so that we can help each other out. (Helping hands are better than praying lips - isn't it?

And of course, we sure have our seniors to guide us when we are going astray


Cheers and Happy trading!
Pravi

 

[iyerboi]

Candlestick patterns

Hi

To begin with, I have summarized the major candlestick reversal patterns from the book "Japanese Candlestick Charting Techniques" - I'm told this is the first book on this subject in English.

We can look at the nifty charts for our analysis - trying and understanding why a particular trend change indicator worked or did not work. As I'm not a full time trader, i normally undertake not more than 2 option trades a day. The remaining time, i try to guess the trend reversals based on my learnings.

Just to ensure that you all take this with a shovel of salt - I myself am in the process of learning and may hence be a bit unclear or even incorrect or way too "academic" than practical on certain portions. Grateful if our seniors could intervene and help us in such instances - Nothing like being guided by ones who've "been there, done that"; not once but many times over


So here we go:

1. What are candlesticks?

A candlestick chart is a bar-chart which shows the price movements of a security, commodity, or currency over a period of time - 1 min, 2 mins, 5 mins, 30 mins, daily, weekly, monthly, etc.

I use Google finance for my intra-day options trades and it offers alternatives of 2mins, 5 mins, 30 mins, daily and weekly

Candlesticks usually comprise of a real body (indicating the range of prices between the opening and closing prices during the interval) and an upper and a lower shadow representing the highest and lowest price point during the interval.

If the security closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom.

If the security closed higher than it opened, the body is white, with the closing price at the top and the opening price at the bottom.

Different color shades may be used for this purpose. For instance, Google finance uses a Blue and White color scheme, Moneycontrol uses Red and Green

A candlestick need not have either a body or a wick.

Refer attachment for an illustration (taken from wiki)

 

[iyerboi]

2. Set I - Single candlestick reversal signals

A. Hammers: Bullish signal; Bottom reversal signal

The requirements are:
1. The market is in a downtrend
2. The real body is very small - and is at the upper end of the trading range
3. Upper shadow - not present or very short
4. Lower shadow - Longer, the better. Ideally, should be twice the length of the real body.
5. Color of the hammer's real body does not matter

B. Hanging man: Bearish signal; Top reversal signal

The requirements are:
1. The market is in an uptrend
2. Ideal to wait for confirmation in the form of lower opening and/or black real body in next session.
3. Same as nos. 2 to 5 above.
4. Chances of top reversal are better if there is a down gap in opening of the session after the hanging man session.

Attaching weekly Nifty charts for an easier u'standing. 1,3,4 and 5 are hammers (bottom reversal indicators) whereas 2 and 6 are hanging men (top reversal indicators).

Best wishes

 

[deepi2001]

thnx 4 ur help

 

[Rinchen Bhutia]

what is trigger price?

 

[Sunny1]

I think you would have better started advanced candle stick analysis topic....as there are already few threads based on basic candle stick....and google too ....is full of basic candle stick info....

But advanced topic is something that requires discussion....detailing the experience of traders using it..

 

[iyerboi]

I think you would have better started advanced candle stick analysis topic....as there are already few threads based on basic candle stick....and google too ....is full of basic candle stick info....

But advanced topic is something that requires discussion....detailing the experience of traders using it..

Yup, but meant this thread for an analysis from beginner's perspective - with interactions from fellow beginners. Grateful if advanced and experienced traders can give inputs too wherever possible and required.

 

[iyerboi]

what is trigger price?

Trigger price for? Of?

 

[iyerboi]

Have attached Herohonda's weekly chart here:

a. Hammer 1 worked
b. Hammer 2 did not mean anything; possibly because it was not in a downward but sideways trend??
c. Hammer 3 (i) indicated change of trend from downward to sideways, 3 (ii) acted as the bottom reversal - Should probably act as a major support .
d. Hammers 4 and 5 - should we be ignoring because the stock is in sideways trend?

Grateful if seniors could assist.

 

[iyerboi]

Attached Nifty 5 min chart for 23 December.

a. Hammer 1 worked

b. Hammer 2 was a fake! (Appeared in an uptrend. We should have a hangman in an uptrend to act as a reversal signal)

c. Hammer 3 worked (trend changed from sideways to uptrend)

Cheers