A candlestick is a japanese invention and it has four attributes or data points that depict the journey of price movement in a given time frame. candle is the body and stick is known as the shadow. The body is colored and it refects the sentiment of the price movement in a given time frame. Open, High, Low and Close are the four data points that can be known just by looking at the candlestick. There are certain types of candlestick patter which a trader or an investor should know because they help us in taking a decision at the critical moments.
These are the major types of candle patterns there are many more patterns depending upon the candle size but since they are similar
in formations we will not discuss them all because of their subtle nature and shapes.
There are 5 types of Doji candles shown in the image - Standard, Grave Stone, Long legged, gravestone and fourprice. They represent the situation of indecision or trend reversal
Hammer is a pattern which represents a trend reversal. In a down trend hammer indicates that someone is buying a paticular security at lower levels and selling is not resulting in further price corection.
Inverted Hammer is a pattern which represents a trend reversal. In an Up trend inverted hammer indicates that someone is selling a paticular security and offloading their share.
Bullish Engulfing is a clear cut down trend reversal pattern which takes place at the bottom or middle of the downtrend it is usually accompanied by a short covering or trend reversal rally.
Bearish Engulfing is an Up trend reversal pattern which takes place at top of the uptrend and it usually represents an oncoming downtrend and follow up selling pressure also known as long liquidation.
A Bullish Harami is something which occurs in a downtrend as shown in the image it usually represents the end of a downtrend and its reversal, its also a sign of the beginning of the new uptrend.
A Bearish Harami is a pattern that appears in the Uptrend and it usually signifies the emergence of the bears out of nowhere meaning it denotes the random selling pressure or it may sometimes also denotes a trend reversal.
A morning star is something which appears in a downtrend its a strong trend reversal pattern because it depends not upon two candles but it takes atleast three candles to complete the pattern and it usually represents the onset of an uptrend.
An evening star is something which appears in an Uptrend its a strong trend reversal pattern because its a similar pattern to morning star the only difference is in their positioning, it signifies the onset of a downtrend.
A Shooting Star is an inverted hammer usually formed at the top of an uptrend and signals a downtrend it has a characterstic long tail which represents a strong selling pressure at the top for confirmation we can wait for a red candle also check the image to spot this pattern.
Three white soldiers is a continuation pattern in which three long green candles are in a formation of higher top and higher bottom signifying the change of downtrend pattern and reversal in the graph of the security by highlighting the investor sentiments.
Three black crows is a continuation pattern in which three long red candles are in a formation of low high and lower bottom signifying the change of uptrend pattern and reversal in the graph of the security. In a strong uptrend it is a strong trend reversal pattern.
This candle is represented by open = Low price and High = Close price esentially no shadow or a very small shadow is known as morubozu it depicts the investor sentiment that at every price the buyer is willing to buy the security and at every price the seller is willing to sell the security for bullish and bearish marubozu respectively.
The entire technical analysis rests upon 3 pillars Price, Volume and Time. All the technical indicators are a combination of one of these three parameters. There are two types of technical indicators one of them is known as leading indicator which is of great utility to the traders whereas the other one is known as lagging indicator which of great significance to investors.
Leading Indicators helps us in identifying trends and taking positions in the security some of the examples are mentioned in bold letters
- RSI, PIVOT POINTS, STOCHASTIC OSCILLATOR, WILLIAM %R, OBV etc
Lagging Indicators helps us in identifying the long term support and resistance of a security and helps us in placing our investment bets, some of the indicators are given as examples - MOVING AVERAGE(SIMPLE, WEIGHTED, EXPONENTIAL), CROSSOVERS, BOLLINGER BANDS, ICHIMOKU CLOUDS etc
A small tip if you see Fx or Indicators on the screen then you're working in the Trading View and if you see Fx or Studies on the screen then you're working in the Chart Iq view.
In order to learn technical analysis you can click on the button of the video library where you could view the entire library and see for yourself how the indicators are applied in the demat accounts and how to trade on the basis of signals generated from the indicators.