Kishore Mirchumal Mansinghani

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Kishore Mirchumal Mansinghani

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Kishore Mirchumal Mansinghani

  1. 1. Getting Started in Candlestick ChartingCandlestick bars indicate the high-to-low range with a vertical line. However, in candlestickcharting, the larger block in the middle indicates the range between the opening and closingprices. Traditionally, if the block in the middle is filled or colored in, then the currency closedlower than it opened.In the following example, the „filled color‟ is black. For our „filled‟ blocks, the top of the blockis the opening price, and the bottom of the block is the closing price. If the closing price is higherthan the opening price, then the block in the middle will be “white” or hollow or unfilled.
  2. 2. Candlesticks are formed using the open, high, low and close.  If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.  If the close is below the open, then a filled candlestick (usually displayed as black) is drawn.  The hollow or filled section of the candlestick is called the “real body” or body.  The thin lines poking above and below the body display the high/low range and are called shadows.  The top of the upper shadow is the “high”.  The bottom of the lower shadow is the “low”.Long bodies indicate strong buying or selling. The longer the body is, the more intense thebuying or selling pressure.Short bodies imply very little buying or selling activity. Bulls mean buyers and bears meansellers.Long white candlesticks show strong buying pressure. The longer the white candlestick, thefurther the close is above the open. This indicates that prices increased considerably from open toclose and buyers were aggressive.Long black (filled) candlesticks show strong selling pressure. The longer the black candlestick,the further the close is below the open. This indicates that prices fell a great deal from the openand sellers were aggressive.ShadowsThe upper and lower shadows on candlesticks provide important clues about the trading session.Upper shadows signify the session high. Lower shadows signify the session low.
  3. 3. Candlesticks with long shadows show that trading action occurred well past the open and close.Candlesticks with short shadows indicate that most of the trading action was confined near theopen and close.If a candlestick has a long upper shadow and short lower shadow, this means that buyers flexedtheir muscles and bid prices higher, but for one reason or another, sellers came in and droveprices back down to end the session back near its open price.If a candlestick has a long lower shadow and short upper shadow, this means that sellers flashedtheir washboard abs and forced price lower, but for one reason or another, buyers came in anddrove prices back up to end the session back near its open price.Basic Candlestick PatternsSpinning TopsCandlesticks with a long upper shadow, long lower shadow and small real bodies are calledspinning tops. The color of the real body is not very important.The pattern indicates the indecision between the buyers and sellers
  4. 4. The small real body (whether hollow or filled) shows little movement from open to close, andthe shadows indicate that both buyers and sellers were fighting but nobody could gain the upperhand.Even though the session opened and closed with little change, prices moved significantly higherand lower in the meantime. Neither buyers nor sellers could gain the upper hand, and the resultwas a standoff.If a spinning top forms during an uptrend, this usually means there aren‟t many buyers left and apossible reversal in direction could occur.If a spinning top forms during a downtrend, this usually means there aren‟t many sellers left anda possible reversal in direction could occur.MarubozuMarubozu means there are no shadows from the bodies. Depending on whether the candlestick‟sbody is filled or hollow, the high and low are the same as it‟s open or close. If you look at thepicture below, there are two types of Marubozus.
  5. 5. A White Marubozu contains a long white body with no shadows. The open price equals thelow price and the close price equals the high price. This is a very bullish candle as it showsthat buyers were in control the whole entire session. It usually becomes the first part of a bullishcontinuation or a bullish reversal pattern.A Black Marubozu contains a long black body with no shadows. The open equals the high andthe close equals the low. This is a very bearish candle as it shows that sellers controlled the priceaction the whole entire session. It usually implies bearish continuation or bearish reversal.DojiDoji candlesticks have the same open and close price or at least their bodies are extremely short.The doji should have a very small body that appears as a thin line.Doji suggest indecision or a struggle for turf positioning between buyers and sellers. Prices moveabove and below the open price during the session, but close at or very near the open price.Neither buyers nor sellers were able to gain control and the result was essentially a draw.There are four special types of Doji lines. The length of the upper and lower shadows can varyand the resulting candlestick looks like a cross, inverted cross or plus sign. The word "Doji"refers to both the singular and plural form.When a doji forms on your chart, pay special attention to the preceding candlesticks.If a doji forms after a series of candlesticks with long hollow bodies (like white marubozus), thedoji signals that the buyers are becoming exhausted and weakening.
  6. 6. Keep in mind that even after a doji forms, this doesn‟t mean to automatically short. Confirmationis still needed. Wait for a bearish candlestick to close below the long white candlestick‟s open.If a doji forms after a series of candlesticks with long filled bodies (like black marubozus), thedoji signals that sellers are becoming exhausted and weakening.Reversal PatternsPrior TrendFor a pattern to qualify as a reversal pattern, there should be a prior trend to reverse. Bullishreversals require a preceding downtrend and bearish reversals require a prior uptrend.Hammer and Hanging Man
  7. 7. The hammer and hanging man look exactly alike but have totally different meaning dependingon past price action. Both have little bodies (black or white), long lower shadows and short orabsent upper shadows.The hammer is a bullish reversal pattern that forms during a downtrend. It is named becausethe market is hammering out a bottom.When price is falling, hammers signal that the bottom is near and price will start rising again.The long lower shadow indicates that sellers pushed prices lower, but buyers were able toovercome this selling pressure and closed near the open.Word to the wise… just because you see a hammer form in a downtrend doesn‟t mean youautomatically place a buy order! More bullish confirmation is needed before it‟s safe to pull the
  8. 8. trigger. A good confirmation example would be to wait for a white candlestick to close above theopen of the candlestickRecognition Criteria:  The long shadow is about two or three times of the real body.  Little or no upper shadow.  The real body is at the upper end of the trading range.  The color of the real body is not important.The hanging man is a bearish reversal pattern that can also mark a top or strong resistancelevel. When price is rising, the formation of a hanging man indicates that sellers are beginning tooutnumber buyers. The long lower shadow shows that sellers pushed prices lower during thesession. Buyers were able to push the price back up some but only near the open. This should setoff alarms since this tells us that there are no buyers left to provide the necessary momentum tokeep raising the price. .Recognition Criteria:  A long lower shadow which is about two or three times of the real body.  Little or no upper shadow.  The real body is at the upper end of the trading range.  The color of the body is not important, though a black body is more bearish than a white body.Inverted Hammer and Shooting StarThe inverted hammer and shooting star also look identical. The only difference between them iswhether you‟re in a downtrend or uptrend. Both candlesticks have little bodies (filled orhollow), long upper shadows and small or absent lower shadows.
  9. 9. The inverted hammer occurs when price has been falling suggests the possibility of a reversal.Its long upper shadow shows that buyers tried to bid the price higher. However, sellers saw whatthe buyers were doing and attempted to push the price back down. Fortunately, the buyers stillmanaged to close the session near the open. Since the sellers weren‟t able to close the price anylower, this is a good indication that everybody who wants to sell has already sold. And if there‟sno more sellers, who is left? Buyers.The shooting star is a bearish reversal pattern that looks identical to the inverted hammer butoccurs when price has been rising. Its shape indicates that the price opened at its low, rallied, but
  10. 10. pulled back to the bottom. This means that buyers attempted to push the price up, but sellerscame in and overpowered them. A definite bearish sign since there are no more buyers leftFor more candlestick patterns go to www.candlesticker.com

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