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Candlestick Patterns

Candlestick patterns can help technical analysts identify trading opportunities. A hammer candlestick is a bullish reversal pattern that occurs at the bottom of a trend. It has little to no upper shadow, and the price closes at the top quarter of the range, with the lower shadow being two to three times the length of the body. Traders should not view candlestick patterns in isolation but consider the overall trend and wait for confirmation from areas of value and entry triggers before entering positions based on hammer formations.

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Masood Alam
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614 views

Candlestick Patterns

Candlestick patterns can help technical analysts identify trading opportunities. A hammer candlestick is a bullish reversal pattern that occurs at the bottom of a trend. It has little to no upper shadow, and the price closes at the top quarter of the range, with the lower shadow being two to three times the length of the body. Traders should not view candlestick patterns in isolation but consider the overall trend and wait for confirmation from areas of value and entry triggers before entering positions based on hammer formations.

Uploaded by

Masood Alam
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Candlesticks

Bad Trading Habits


Bad
Trading •

•
Failing to Manage your Trading Risk

Habits
Revenge Trading After Taking Loss

• Jumping from one system to another

• Sticking to Bad Trading Plan.

• Getting Emotional and Impatient.


Candlestick
Patterns
The candlesticks are used to
identify trading patterns.
Patterns, in turn, help the
technical analyst to set up a
trade.
Each candle shows the open, close, high and low price
➢ The wide part of the candlestick is called the body. It represents the open and
close of the period.
➢ The wicks at the top and the bottom of the candlestick show the highest and
lowest price reached during that period.

Candlestick ➢ The different colors of the body tell you if the candlestick is bullish (rising) or
bearish (falling).

A line chart is simplistic and only


displays price movement in a
line.
A Japanese candlestick chart
shows more information within
each individual candlestick.

Assumptions specific to candlesticks

➢ By the strength and sell weakness.


➢ Be Flexible with patterns ( Quantify and Verify)
➢ Look for Prior Trend
Assessing the
balance
between the
buyers and the
sellers
The longer the body of a
candlestick, the more momentum
there is in that direction.
Assessing the balance between the buyers and the sellers

The longer a bullish candlestick, the more buying


pressure there is in comparison to selling pressure
for that period.

The longer a bearish candlestick, the more selling


pressure there is in comparison to buying pressure
for that period.
The formation of Candlestick-Change in Sentiment
Bearish Sentiment Bullish Sentiment

❖ The longer a bullish candlestick, the more buying pressure there is in comparison
to selling pressure for that period.
❖ The longer a bearish candlestick, the more selling pressure there is in
comparison to buying pressure for that period.
Hammer
• The bullish hammer is a significant
candlestick pattern that occurs at the
bottom of the trend.

• Little to no upper shadow

• The price closes at the top ¼ of the range

• The lower shadow is about 2 or 3 times the


length of the body

• The longer, the lower shadow, the more


bullish the pattern

• A hammer can be of any colour.


Trading strategy
“Don’t trade any candlestick pattern in Isolation”
Trend – Trade in the direction of the trend
• If the price is above the 200MA, then have a long bias
• If the price is below the 200MA, then have a short bias
The Hammer
Candlestick
Trading Strategy
Guide
• A hammer is a bullish candlestick
reversal candlestick pattern that shows
rejection of lower prices.

• A Hammer is usually a retracement


against the trend
Area of value – Trade from an area of value
• The Hammer doesn’t tell you the
direction of the trend
• AOV is an area on your chart where buying/selling pressure is lurking
• The context of the market is more around (E.g. Support & Resistance, Trendline, Channel, etc.).
important than the Hammer. It refers to
the market condition like whether the Entry trigger – Identify an entry trigger
market is in an uptrend, downtrend, • So, once the conditions of your trading setup are met, you’ll look for an
sideways, has strong momentum, etc. entry trigger to enter a trade.
• It can be a Hammer candlestick or any other bullish reversal candlestick
patterns.

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