ta seminar - basic candlesticks (25 apr 19)

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Basic Candlesticks

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or inferred from such information, reports or analysis therefore does not take

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situation and particular needs.

Disclaimer

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1. What is Technical Analysis?

2. History of Candlesticks

3. How to Read Candlesticks

4. Candlestick patterns

Contents

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What is Technical Analysis?

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▪ A method of evaluating securities by analyzing statisticsgenerated by market activity. (E.g. past prices and volume)

▪ Technical analysts do not attempt to measure a security'sintrinsic value, but instead use charts and other tools to identifypatterns that can suggest future activity.

▪ Technical analysts believe that the historical performance ofstocks and markets are indications of future performance.

What is Technical Analysis?

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It is crucial to keep in mind that Technical

Analysis is not an exact science.

Rather, Technical Analysis deals with

probability distributions.

What is Technical Analysis?

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▪ Market Action Discounts Everything

▪ Prices move in Trends

▪ History tends to repeat itself

What is Technical Analysis?

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1. Market Action Discounts Everything

▪ Cornerstone of Technical Analysis

▪ The technical analyst believes that anything can possibly

affect the price and is actually reflected in the price of that

market

▪ Anything can be political, psychological or natural

disasters, etc.

What is Technical Analysis?

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2. Prices move in Trends

▪ The concept of Trend is essential to Technical Analysis

▪ Believe that market prices do exhibit Trends

▪ Purpose of charting price action is to identify Trends

What is Technical Analysis?

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3 Basic Trends of the Market

Uptrend Downtrend Sideways

▪ Uptrend has a pattern of rising peaks and troughs

▪ Downtrend has a pattern of lower peaks and troughs

▪ Sideways has a pattern of horizontal peaks and troughs

What is Technical Analysis?

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Uptrend has a pattern of rising

peaks and troughs

What is Technical Analysis?

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Downtrend has a pattern of

lower peaks and troughs

What is Technical Analysis?

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Sideways has a pattern of

horizontal peaks and troughs

What is Technical Analysis?

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3. History tends to repeat itself

▪ The study of Human psychology

▪ Chart patterns reflect Bullish / Bearish psychology of the

market

▪ Key to understanding the future lies in the study of the

past or that “The future is just a repetition of the past”

What is Technical Analysis?

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Candlesticks

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• Candlesticks are a type of charting technique

• Other techniques include Bar Charts and Line Charts

• Candlestick charts are used in Technical Analysis to

deduce trends and predict price movements

Introduction

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17Advantage of Candlestick Chart

• Easy to understand – offer a much more appealing chart

• Information displayed is more easily interpreted and

analyzed

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18History of Candlesticks

• Developed by the Japanese for rice trading in 16th

century

• Popularised by Steve Nison after his publication of

“Japanese Candlestick Charting Techniques” in 1991

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19How to Read Candlesticks

High

Close

Low

Hollow Body

Lower Shadow

Upper Shadow

Open

Price: Close above Open

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20How to Read Candlesticks

Price: Close below Open

High

Open

Low

Filled Body

Close

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21Candlestick Chart

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22Gap Up

Gap

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23Gap Up

• Bullish sign

• Opens above Previous Period’s High

• Remains above Previous Period’s High for Entire Period

• Closes above Previous High

Gap

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24Gap Up

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25Gap Down

Gap

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26Gap Down

• Bearish sign

• Opens below Previous Period’s Low

• Remains below Previous Period’s Low for Entire Period

• Closes below Previous Low

Gap

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27Gap Down

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28Doji

Price: Close = Open

High

Low

Close/Open

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29Doji

• Neutral pattern

• No real body

• Indecision signal

• Requires prior trend and future confirmation to determine

type of signal

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30Doji

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31Spinning Top

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32Spinning Top

• Signal indecision

• Small bodies

• Upper and lower shadows exceed length of the body

• Upper and lower shadows of approximately equal length

• Require confirmation

Length of Body

Lower Shadow

Upper Shadow

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33Spinning Top

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34Spinning Top

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35Doji and Spinning Top

Similarities

• Represent indecision

• Warn of reversal after strong move

• Rely on confirmation

Differences

• Doji has no body

• Spinning top always has long legs and small body

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36Umbrella Group or “karakasa”

• Definition: small real body (open, close range small)

• Shadows > 2 times length of real body

• Colour is not important

• Location is important. Their names are given based on location

• There are only 4 patterns in umbrella group

• There are single candlestick reversal pattern

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37Hammer

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38Hammer

• Bullish reversal pattern

• Single candle with long lower shadow and small real body

• Forms after a decline

• Color of real body is not important

• Length of shadow must be greater than 2x real body

• Confirmation is required

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39Hammer

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40Hammer

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41Hanging Man

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42Hanging Man

• Bearish reversal pattern

• Single candle with long lower shadow and small real body

• Forms after an advance

• Color of real body is not important

• Length of shadow must be greater than 2x real body

• Confirmation is required

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43Hanging Man

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44Inverted Hammer

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45Inverted Hammer

• Bullish reversal pattern

• Single candle with long upper shadow and small real body

• Forms after a decline

• Color of real body is not important

• Length of shadow must be greater than 2x real body

• Confirmation is required

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46Inverted Hammer

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47Shooting Star

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48Shooting Star

• Bearish reversal pattern

• Single candle with long upper shadow and small real body

• Forms after an advance

• Color of real body is not important

• Length of shadow must be greater than 2x real body

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49Shooting Star

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50Shooting Star

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51Quiz

What is the candlestick shown on the right?

A.Shooting Star

B.Morning Star

C.Inverted Hammer

D.Hammer✔ (forms after downtrend)

✔ (forms after uptrend)

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52Quiz

What is the candlestick shown on the right?

A.Shooting Star

B.Hanging Man

C.Inverted Hammer

D.Hammer

✔ (forms after uptrend)

✔ (forms after downtrend)

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Thank you