Candlesticks is an ancient Japanese technique invented 300 years ago. Now-a-days it is commonly used & became the backbone of technical analysis .Without studying candlestick technical analysis is incomplete.
As we have already seen to draw candlestick four values are required, open,close,high & low. The portion between open & close is called 'body' & the vertical lines are called shadow, tail or wick.
If 'close price' is higher than 'open price' then it is called white candlestick & generally denoted by white or green colour.It is called 'bullish candle '
If 'close price 'is lower than 'open price' then it is called black candlestick.It is generally denoted by black or redcolour. It is called 'bearish candle'
Candlestick depicts the mood Of The market & traders. Shape of candlestick depends on so many factors, one Of The important factor is volume, that is buying & selling of a particular stock.
If huge buying happens, obviously,stock price goes on increasing,
Instead,if huge selling happens,stock price goes on decreasing & that gives rise to so many types of candlesticks.
If body is longer than the wick,it shows the continuation Of the trend whether upward or downward,
If 'close' is near 'high'of the day, it predicts uptrend in certain condition(that is if upper wick is shorter than lower wick),
On the other hand, if ' close' is near the ' low' ,then it predicts downtrend under certain conditions(that is if upper wick is longer than lower wick)
Thus candlesticks are easy to read, predict future moves & to compare with the past data,hence more popular among all charting methods for technical analysis.
If body is shorter & wicks are longer,it indicates indecision in the market about on going trend & trend change may occur.
There are three types of trends,
1.Upward trend-when price of stock goes on increasing over a certain period of time,
2.Downward trend- when price of stock goes on decreasing over a period of time,
3.sideway trend- when stock price doesn't show prominent change & remains approximately same over a certain period of time.
Mainly there are three types of candlestick patterns,
1.Single candlestick pattern
2. Double candlestick pattern
3. Triple candlestick pattern.
Among so many types of single candlestick patterns, let's see some frequently observed candlesticks.
*Hammer-
As name suggests, it's shape is like hammer. Lower wick is at least two times longer than the body. Ideally, it has no upper wick, but may have a small wick.
It has meaning when it comes at the end of downtrend. After a long downtrend at certain stock price, buyers become confident to buy, seller still want to drag the price lower but fresh buyers come into play & pull the price upward & at last they become successful to close the price above 'open price' or near 'below open price'
This candle may be green or red, if it is green it is prominent signal, if stock opened gap down(open price below previous close price), then the signal is more prominent .
If coupled with indicator(we are going to study indicators) &' support & resistance level' it gives bullish signal.
Hanging man - It is just like hammer but comes at the end of uptrend.
When a prominent uptrend occurs, at certain stock price, stock-holders aren't confident about the price & they want to exit, making selling pressure & they drag the price below' open price', but fresh buyers enters the trade hoping stock price to increase further. They pull the stock price above making the close above or near below 'open price'.
The situation becomes worse when traders making fresh entry understand the trend reversal & wants to sell & exit. This selling pressure makes downtrend more bitter.
The candle may be red or green,if red the signal is prominent & if day candle is gap-up open (open price is above previous close price), then the signal is more prominent.
Inverted hammer -
As it's name implies it's shape is like inverted hammer.
It has no or little lower wick & upper wick is at least two times greater than the body.
It says buyers took the price upper but sellers drag it below to close near the open price. If it appears at the end of downtrend it depicts the trend reversal from downtrend to uptrend.
The body may be black(red) or white(green).
If the body is green the trend is prominent & if the body is gap-down open the trend reversal is more prominent.
Shooting star -
It's shape is same as that of inverted hammer but it appears at the end of uptrend.
It is the certain price level where sellers comes into play after an uptrend & drags the increased price below & makes resistance to up-going trend, making close near the open price.
The body may be black(red) or white(green).
If the body is black the trend is prominent & if the body is gap-up open the trend reversal is more prominent .
*spining top -
It's shape is like' top' that children play. It's body is small & wicks are longer at least two times the 'body'.
This shows indecision in the traders. Sellers drag the price below, but buyers pull the price above keeping the close price near to open price. This confusion is due to the particular stock price, whether it is' resistance level' or not.
It indicates strong upmove or trend change. It should be compared with indicators or support & resistance level.
The body may be black(red) or white(green).
It is commonly observed in day charts.
*Doji -
This candle is formed when close price & open price are approximately equal.
That indicates number of sellers & buyers are equal.sellers drag price below & buyers pull it upwards resulting in Doji.
Actually it is the confusion between buyers & sellers whether the ongoing trend should continue or not.
These candlesticks are often seen in 'sideways trends'.It may depict the current trend of market soon coming to an end. So these candlesticks are' wait & watch' candlesticks.
There are two types of of' Doji's which may indicate trend reversal under certain conditions.
a. Gravestone Doji -
It looks like gravestone so the name gravestone doji.
Ideally lower wick is absent, may be small practically, but having long upper wick & may have small body.
It indicates buyers are confident about the price but sellers aren't & selling the stock, keeping the close equal to or near to open price.
If it comes at the end of uptrend, shows trend reversal & downtrend may occur.
b. Dragonfly Doji -
It's shape is like dragonfly. The lower wick is long & no or little upper wick.
It indicates buyers are aggressive about the price & buying the stocks from sellers, making no or little body.
If it comes at the end of downtrend it depicts ongoing trend coming to an end & fresh uptrend may start.
Marubozu -
Marubozu means 'bald' in Japanese language, having no hairs on head,that means candle has no or very little wicks as compared to body.
The candle may be black (red) or white(green).
In white marubozu open price is equal to low price & close price is equal to high price .
It indicates buyers are totally dominating & sellers are recessive ,what-so-ever price buyers are opting for, sellers are agreeing to it.
In black marubozu, the open price is equal to high price & close price is equal to the low price Of The day.
It indicates sellers are completely dominating the day & no buyers are there in the market.
Generally marubozu occurs when any news comes in the market, in favour of or against the particular stock .Absence of sellers indicates,sellers are waiting the stock price to reach to a particular level.
Absence of buyers indicates, buyers are waiting the stock price to reach to a particular level.
In both the cases marubozu represents continuation of trend or trend reversal.
If a particular price buyers want to buy or sellers want to sell is not reached in a day the trend continuation will occur, & if buyers or sellers are confident about the price, at the end Of The day, the trend reversal may occur the next day.
we are going to study' double candlestick patterns '& 'triple candlestick patterns' when we will study swing trading.
Candlestick interpretation -
Candlestick patterns may be' single candlestick pattern ' or 'multiple candlesticks pattern 'alone doesn't predict the future trend. Sometimes it works, sometimes not. That's why it should be coupled with any Of The indicators ,or 'support & resistance' or' pivot points' etc. Without this it may produce so much confusion to traders.
No system is perfect in stock market & 1+1=2 doesn't happen all the time. Theoretically whatever knowledge we get, it should be applied many more times to practical graphs, learn so many things yourself which nobody can explain to you.
From next article,we will learn 5 indicators & then we will couple candlestick with the indicator & see how intraday & swing trading (to hold stock for some days) opportunities may occur.
So friends, how are you feeling? Write to me about the content, my writing style, everything on my email. Your suggestions are always welcome!
bye bye.. .have a nice time.
,
As we have already seen to draw candlestick four values are required, open,close,high & low. The portion between open & close is called 'body' & the vertical lines are called shadow, tail or wick.
If 'close price' is higher than 'open price' then it is called white candlestick & generally denoted by white or green colour.It is called 'bullish candle '
If 'close price 'is lower than 'open price' then it is called black candlestick.It is generally denoted by black or redcolour. It is called 'bearish candle'
White (green) & Black(red) candlestick
If huge buying happens, obviously,stock price goes on increasing,
Instead,if huge selling happens,stock price goes on decreasing & that gives rise to so many types of candlesticks.
If body is longer than the wick,it shows the continuation Of the trend whether upward or downward,
If 'close' is near 'high'of the day, it predicts uptrend in certain condition(that is if upper wick is shorter than lower wick),
On the other hand, if ' close' is near the ' low' ,then it predicts downtrend under certain conditions(that is if upper wick is longer than lower wick)
Thus candlesticks are easy to read, predict future moves & to compare with the past data,hence more popular among all charting methods for technical analysis.
If body is shorter & wicks are longer,it indicates indecision in the market about on going trend & trend change may occur.
There are three types of trends,
1.Upward trend-when price of stock goes on increasing over a certain period of time,
2.Downward trend- when price of stock goes on decreasing over a period of time,
3.sideway trend- when stock price doesn't show prominent change & remains approximately same over a certain period of time.
Mainly there are three types of candlestick patterns,
1.Single candlestick pattern
2. Double candlestick pattern
3. Triple candlestick pattern.
Among so many types of single candlestick patterns, let's see some frequently observed candlesticks.
*Hammer-
White hammer
Black hammer
As name suggests, it's shape is like hammer. Lower wick is at least two times longer than the body. Ideally, it has no upper wick, but may have a small wick.
It has meaning when it comes at the end of downtrend. After a long downtrend at certain stock price, buyers become confident to buy, seller still want to drag the price lower but fresh buyers come into play & pull the price upward & at last they become successful to close the price above 'open price' or near 'below open price'
This candle may be green or red, if it is green it is prominent signal, if stock opened gap down(open price below previous close price), then the signal is more prominent .
If coupled with indicator(we are going to study indicators) &' support & resistance level' it gives bullish signal.
Hanging man - It is just like hammer but comes at the end of uptrend.
When a prominent uptrend occurs, at certain stock price, stock-holders aren't confident about the price & they want to exit, making selling pressure & they drag the price below' open price', but fresh buyers enters the trade hoping stock price to increase further. They pull the stock price above making the close above or near below 'open price'.
The situation becomes worse when traders making fresh entry understand the trend reversal & wants to sell & exit. This selling pressure makes downtrend more bitter.
The candle may be red or green,if red the signal is prominent & if day candle is gap-up open (open price is above previous close price), then the signal is more prominent.
Inverted hammer -
Different shapes of
inverted hammer
It has no or little lower wick & upper wick is at least two times greater than the body.
It says buyers took the price upper but sellers drag it below to close near the open price. If it appears at the end of downtrend it depicts the trend reversal from downtrend to uptrend.
The body may be black(red) or white(green).
If the body is green the trend is prominent & if the body is gap-down open the trend reversal is more prominent.
Shooting star -
It's shape is same as that of inverted hammer but it appears at the end of uptrend.
It is the certain price level where sellers comes into play after an uptrend & drags the increased price below & makes resistance to up-going trend, making close near the open price.
The body may be black(red) or white(green).
If the body is black the trend is prominent & if the body is gap-up open the trend reversal is more prominent .
*spining top -
White & Black spining top
It's shape is like' top' that children play. It's body is small & wicks are longer at least two times the 'body'.
This shows indecision in the traders. Sellers drag the price below, but buyers pull the price above keeping the close price near to open price. This confusion is due to the particular stock price, whether it is' resistance level' or not.
It indicates strong upmove or trend change. It should be compared with indicators or support & resistance level.
The body may be black(red) or white(green).
It is commonly observed in day charts.
*Doji -
'Doji 'candlestick
That indicates number of sellers & buyers are equal.sellers drag price below & buyers pull it upwards resulting in Doji.
Actually it is the confusion between buyers & sellers whether the ongoing trend should continue or not.
These candlesticks are often seen in 'sideways trends'.It may depict the current trend of market soon coming to an end. So these candlesticks are' wait & watch' candlesticks.
There are two types of of' Doji's which may indicate trend reversal under certain conditions.
a. Gravestone Doji -
Gravestone doji
It looks like gravestone so the name gravestone doji.
Ideally lower wick is absent, may be small practically, but having long upper wick & may have small body.
It indicates buyers are confident about the price but sellers aren't & selling the stock, keeping the close equal to or near to open price.
If it comes at the end of uptrend, shows trend reversal & downtrend may occur.
b. Dragonfly Doji -
Dragonfly doji
It's shape is like dragonfly. The lower wick is long & no or little upper wick.
It indicates buyers are aggressive about the price & buying the stocks from sellers, making no or little body.
If it comes at the end of downtrend it depicts ongoing trend coming to an end & fresh uptrend may start.
Marubozu -
Marubozu means 'bald' in Japanese language, having no hairs on head,that means candle has no or very little wicks as compared to body.
The candle may be black (red) or white(green).
In white marubozu open price is equal to low price & close price is equal to high price .
It indicates buyers are totally dominating & sellers are recessive ,what-so-ever price buyers are opting for, sellers are agreeing to it.
White marubozu
Black marubozu
Generally marubozu occurs when any news comes in the market, in favour of or against the particular stock .Absence of sellers indicates,sellers are waiting the stock price to reach to a particular level.
Absence of buyers indicates, buyers are waiting the stock price to reach to a particular level.
In both the cases marubozu represents continuation of trend or trend reversal.
If a particular price buyers want to buy or sellers want to sell is not reached in a day the trend continuation will occur, & if buyers or sellers are confident about the price, at the end Of The day, the trend reversal may occur the next day.
we are going to study' double candlestick patterns '& 'triple candlestick patterns' when we will study swing trading.
Candlestick interpretation -
Candlestick patterns may be' single candlestick pattern ' or 'multiple candlesticks pattern 'alone doesn't predict the future trend. Sometimes it works, sometimes not. That's why it should be coupled with any Of The indicators ,or 'support & resistance' or' pivot points' etc. Without this it may produce so much confusion to traders.
No system is perfect in stock market & 1+1=2 doesn't happen all the time. Theoretically whatever knowledge we get, it should be applied many more times to practical graphs, learn so many things yourself which nobody can explain to you.
From next article,we will learn 5 indicators & then we will couple candlestick with the indicator & see how intraday & swing trading (to hold stock for some days) opportunities may occur.
So friends, how are you feeling? Write to me about the content, my writing style, everything on my email. Your suggestions are always welcome!
bye bye.. .have a nice time.
,
No comments:
Post a Comment