Candlesticks and Market Language

Introduction

• Understanding market language is important
• Candlesticks: Useful in every financial market
• 5 key patterns: Important for profit

What are Candlesticks?

• A way to read price
• Behavior of Buyers and Sellers
• Fundamental behaviors and patterns

Parts of Candlesticks

• Green Candle: Power of Buyers
  • Green Candle: Opens lower, closes higher
  • Wicks: Range of Price
• Red Candle: Power of Sellers
  • Red Candle: Opens higher, closes lower
  • Wicks: Range of Price

Important Candle Patterns

• Pin Bar
  • Long wicks, small body
  • Indicates Rejection
• Doji
  • Body and wicks almost equal
  • Indicates Indecision
• Engulfing Pattern
  • Large Candle covers the Small Candle
  • Types: Bearish and Bullish
• Star Patterns
  • Morning Star: Indicates upward movement
  • Evening Star: Indicates downward movement
• Gravestone Doji and Dragonfly Doji
  • Gravestone: Rejection at higher levels
  • Dragonfly: Rejection at lower levels
• Tweezers
  • Tweezer Top: Rejection at higher levels
  • Tweezer Bottom: Rejection at lower levels

Combination of Candlesticks

• Use on multiple time frames
• Combine candlesticks to form patterns
• Example: 15-minute candle

Mistakes by Beginners

• Trading on a single candle is wrong
• Using a framework is necessary

Framework: THAT Framework

• D: Direction
  • Use of 200 Moving Average
• A: Area
  • Support, resistance, moving average
• T: Trigger
  • Candlestick patterns

Examples

1. HDFC Bank

• Direction: Uptrend
  • Area: 200 MA support
  • Trigger: Bullish engulfing

2. Reliance

• Direction: Downtrend
  • Area: 200 MA resistance
  • Trigger: Bearish engulfing

3. Infosys

• Direction: Uptrend
  • Area: Support area
  • Trigger: Morning Star

4. Tata Motors

• Direction: Uptrend
  • Area: Support area
  • Trigger: Pin Bar

Conclusion

• Candlesticks help understand the language of the market
• Using the correct framework and patterns is necessary
• Consistent practice and experience are essential