Technical Analysis-
Candlesticks
Prepared by -Group 13
Ritika Garg – PGSF1930
Ruchika Singh- PGFC1955
Akanksha Gupta- PGFC1956
Siddhant Garg – PGSF1944
Candlestick
• A candlestick consists of a solid part, the body, and two thinner lines which are
called candle wicks or candlestick shadows
• Green/white/blue colour shows price rising/bullish
• Red/black colour shows price falling/ bearish
• The length of the shadows shows how much the price has moved up and down
with respect to a candlestick within a specific duration.
• The candlestick body describes the difference between the opening and closing
prices for the corresponding time period
Importance of Candlestick
• One can identify whether the market is bearish or bullish, with a single glance at the colors and
lengths of the candlesticks. Such information might not be readily available in other charts.
• They can identify market turning points and also the direction of the trend.
• Patterns are easy to identify
• They indicate market turning points early and estimate the direction of the market
• They also make easier to tell whether the open price or close price was higher
• Candlestick charts are used by traders to determine possible price movement based on past
patterns
• Candlesticks are useful when trading as they show four price points (open, close, high, and low)
throughout the period of time the trader specifies.
Three-period candlestick pattern
• To identify triple candlestick patterns, we need to look for specific formations that
consist of three candlesticks in total.
• Some three-period candle stick patterns would signal a continuation of bullishness or
bearishness in the market, whereas other candlestick reversal patters may signal the
end of a prevailing trend and the start of a new trend in the opposite direction.
• Examples of Reliable Triple candlestick pattern
Morning star
Evening star
Three white soldiers
Three black crows
Three inside up
Three inside down
Three White Soldiers
Three Black Crows
Three Inside up
Three Inside down
Four continuation candlestick patterns
If a candlestick pattern doesn’t indicate a change in market
direction, it is what is known as a continuation pattern. These can
help traders to identify a period of rest in the market, when there is
market indecision or neutral price movement.
Doji
When a market’s open and close are almost at the same price point,
the candlestick resembles a cross or plus sign – traders should look
out for a short to non-existent body, with wicks of varying length.
This doji’s pattern conveys a struggle between buyers and sellers
that results in no net gain for either side. Alone a doji is neutral
signal, but it can be found in reversal patterns such as the bullish
morning star and bearish evening star.
TYPES OF DOJI PATTERN
There are five commonly defined types of Doji candlesticks that
indicate different trends and market climates
STANDARD DOJI LONG LEGGED DOJI
A Doji occurs when the market opens The long-legged Doji is a candlestick
and closes at the same price level that consists of long upper and lower
shadows and has approximately the
same opening and closing price.
DRAGON FLY DOJI GRAVE STONE DOJI
This type of Doji usually appears It shows the opening and closing
at the peak of an uptrend it of the candle at the low of the day
possibly signifies a reversal in and is quite bearish.
current trend
4 PRICE DOJI
Four price Doji is a candlestick where
open, high, low, and close are all the
same
HOW TO COMBINE FIBONACCI RETRACEMENT WITH CANDLESTICKS
• Fibonacci Retracement is one way to enhance your trading strategy, its like an extra candlestick confirmation to the
direction you intend to trade.
• Reversal candlestick patterns are more relevant when at the top of an uptrend or bottom of a downtrend. Or else at
the support and resistance level hence Fibonacci levels.
• If price reverses near a strong support and resistance level, in most cases, you will find a reversal candlestick
pattern.
• Similarly, if a doji or an engulfing forms right on a Fibonacci retracement level is an additional confirmation that
price is ready to reverse.
• Therefore reversal candlestick patterns at Fibonacci retracement levels portray a strong signal that price is likely to
change direction.
Take a look at the GOLD 4- hour chart above.
Looking at this chart, after drawing the fibonacci retracement levels, you wait for a candlestick
pattern formation on the fib levels. Here it formed a bullish engulfing pattern. This a confirmation
for a buy signal.
CANDLESTICK ANALYSIS FOR INTRADAY
TRADING
• These charts are the best way of conducting technical analysis
• Each candlestick reflects the information related to market dynamics like H,L,O,C
• It also represent bullish or bearish action
• It can increase the probability of increasing profit in intraday trading
• Two major reasons why to use candlestick charts for day trading:
Assist in knowing the entry or exit time- it helps in determining the right time of entering
and exiting the market depending on momentum or trend.
Helps in management of trade- it becomes easy to manage the risk and pros and cons of
holding or closing the current position.
5 of the most important patterns any intraday investor must know are: Doji, Engulfing pattern,
Morning star, Evening star and Hanging man.
GLOSSARY
• Bull market- A bull market is a market that is on the rise and where the economy is sound;
• Bear market - A bear market exists in an economy that is receding, where most stocks are declining in
value.
• Shadow or Wick- A shadow, or a wick, is a line found on a candle in a candlestick chart that is used to
indicate where the price of a stock has fluctuated relative to the opening and closing prices. Essentially,
these shadows illustrate the highest and lowest prices at which a security has traded over a specific time
period
• Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. They
are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior
move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not
officially a Fibonacci ratio, 50% is also used.
• Triple Period Candlestick Pattern-To identify triple Japanese candlestick patterns, you need to look for specific
formations that consist of three candlesticks in total. These candlestick formations help traders determine how the
price is likely to behave next. Some three candlestick patterns are reversal patterns, which signal the end of the
current trend and the start of a new trend in the opposite direction. And other three candlestick patterns
are continuation patterns, which signal a pause and then the continuation of the current trend.
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