In the share market, support & resistance these two concepts are highly discussed among the trades & investors. Trading by using support & resistance concepts is considered an old methodology. It has been popular for a long time.
Support & Resistance play a key level in trading. And obviously each & every traders and even investors are aware about this concept/levels. Support & Resistance are the zones where price will either halt & reverse or break through. These zones can also be called supply & demand zones, where buyers & sellers are active.
It is the most powerful concepts in Technical Analysis. Most of the technical analysis use support & resistance levels to identify price points on the chart where the possibilities of prices are reversal or pause of a prevailing trend.
The past price action indicates where these zones are. Mark them on the chart for future reference. An important concept to remember is that support & resistance zones marked from higher time frame charts are relatively more reliable. If you trade the 5 min chart, then go to 15 mins or hourly chart to mark these levels & import them on your 5 min chart & observe the reactions off these.
TWO TYPES OF SUPPORT & RESISTANCE
HORIZONTAL SUPPORT & RESISTANCE
a. Horizontal Support
The first support is called Minor support. When market return touch this level and take support & go up side, then these second support is considered as a strong support. Third time price return comes to this level & return move up side.,then this level is called Major Support. The third support is most strong.
b. Horizontal Resistance
We see the price going up & stop at a level or take a resistance & return goes down. This first resistance is called minor resistance.When Price goes up again & price goes around the first resistance & goes down again, so that is Second resistance which is called as strong resistance.When the price once again becomes the resistance to the same level, then you call that level a major resistance. It is not necessary that only 3 resistances are made. There is more supply compared than demand. When we look at the Horizontal Support & Resistance chart, we have to note that at least 7 to 8 candles between the levels are deferred.
TRENDING SUPPORT & RESISTANCE
a.Trending Support
When the market starts moving towards the uptrend and when the market comes down it makes it’s first support and then it returns towards the up side.The second support is made higher than the first support. As we have got two supports so if we touch the lowest of first & second supports then it makes a Trendline. Then there are chances that third support touches the trendline & goes upside. It is a bullish continuation signal.
b. Trending Resistance
When the market starts moving towards downside then resistance is formed. When the second resistance is formed it is lower than the first resistance. We have to touch the highest point of the first & second resistance than draw the trendline. There is a possibility that the third resistance will touch the trendline & move towards the downside. It shows a bearish continuation signal.
Importance for S&R Zones
a. Number of Touches
The more times the price tests a support or resistance area, the more significant the level becomes. When prices keep bouncing off a support or resistance level, more buyers and sellers notice and will base trading decisions on these levels.
b. Preceding Price Move.
Support and resistance zones are likely to be more significant when they are preceded by steep advances or declines. For example, a fast, steep advance or uptrend will be met with more competition and enthusiasm and may be halted by a more significant resistance level than a slow, steady advance. A slow advance may not attract as much attention.
c. Volume at Certain Price Levels
The more buying and selling that has occurred at a particular price level, the stronger the support or resistance level is likely to be. When strong activity occurs under high volume and the price drops, a lot of selling will likely occur when price returns to that level, since people are far more comfortable closing out a trade at the break-even point rather than at a loss.
d.Time
Support and resistance zones become more significant if the levels have been tested regularly over an extended period of time.
Stock brokers play a most important role in the Brokerage Firm. Stock Brokers are the Middleman between the stock exchange and trader/client/customers. Stock Brokers are a Professional trader. They buy & sell shares on behalf of clients and their standing instructions. The stock broker may also be known as a registered representative or an investment advisor. Stock brokers maintains the number of transactions of individual clients of institutional customers. Brokerage firms & Broker dealers are sometimes referred to as stockbrokers. This includes both full service brokers & Discount brokers. As a representative of his clients, a stock broker seeks the best deals to buy and sell stock. They usually deal in all types of securities and also handle derivatives, such as Commodity Futures, Currency Market, Option Market, Future Market. They also advise their clients about when to make transactions and guide them about what to look for in market dealings. Stock brokers are paid in form of commissions which usually consist of a percentage of a value of the trade transaction in a stock market. Brokerage firms are also known as discount brokers as they offer trade transactions at a single price. A stock broker provides advisory services for investing in a stock market and in return an investor pays a fixed fee to them. Margin interest payments are charged to investors for borrowing against the brokerage account for investment in a stock market. They also take service charges from their clients for performing administrative tasks, such as for handling Individual Retirement Account (IRA) and for mailing stocks in the form of certificates.
Stockbroker Pros and Cons
The job of a stockbroker is not without its challenges. Here are some of the pros and cons of becoming a stockbroker:
Pros:
Great career option for people who have in-depth knowledge of the stock market.
Offers high commission-based income potential
Good fit for ambitious individuals with strong selling skills
Cons:
Must be able to handle rejection.
Extremely competitive work environment.
May require excessively long work hours.
May have difficulty building a significant client base due to availability of online trading.
IPO or Initial Public Offering is when the shares of a private companies are opened up to the public for the very first time. It is the first sale of the company’s stock to the public to raise funds or capital. IPOs are very attractive for investors as there is a high chance of the stock price multiplying from its initial offer.
An initial public offering (IPO) is one way to Buy shares of a company that is going public. It is a popular mode of investment because it has the potential to grow manifold in a short period of time.
Decision
The first step is to choose the right company’s IPO for investment and understand the past performance of companies & underlying companies before applying for IPO. Gain knowledge about the company through the prospectus of the company. You can find the prospectus of the company on Securities & Exchange Board of India (SEBI) website. The prospectus gives a fair idea about the company’s business plan & its purpose.
Funding
The next & second step is to arrange for the funding. You can use your savings to invest in an IPO. But worry not if you don’t have funds, several nationalized banks & private banks like ICICI, HDFC & popular stockbrokers, offer the facility to apply for loans to invest in IPO. So inquire about the Interest before you take a loan.
Demat-cum-trading account
The next step is a Demat account is a prerequisite to apply for an IPO. Demat accounts provide facilities to store your stocks or buying & selling stocks online. A Demat account can be opened by submitting your PAN card, Aadhar card, Address & Identity proofs. You can easly get many options for trading platform to trader with your shares.
Application Process
You can apply for an IPO through your trading account and Bank account. You need to understand ASBA (Application Supported by Blocked Amount) facility, which is compulsory for IPO Application. The ASBA is an application allowing the Banks to block money in your bank account at the time of placing for IPOs. The ASBA is available in both form physical & demat. The facility eliminates the use of demand draft & cheques. You need to specify your PAN, Demat account number, bank account number and bidding details in the application.
BIDDING
Bidding is the next step to be followed. You need to bid while applying for shares, as per the lot size is mentioned in the prospectus. Lot size is the minimum number of shares you have to apply for during an IPO. There is a bid price too. The company usually sets a price band. The upper limit is known as the Cap price while the lowest is called floor price. You have to bid for shares in this price range. Although you can revise your bid during an IPO, it is important to note that you will need to block the money required while bidding. The blocked amount stays in the bank account and earns interest till allotment.
Allotment
Once the bidding is completed, depending on the investor’s reaction to the IPO, you will be allotted the shares. One thing to keep in mind is, there are possibilities that you might get less than the number of shares you asked for or in some cases none at all. Such instances arise due to the massive demand in the market. When such incidents occur, the bank unblocks your bid money. However, if you get the full allotment of shares you’ll be issued with a Confirmatory Allotment Note (CAN) within 6 working days after closure of the IPO and the next process is to wait for the listing of stocks on the stock exchange.
Process to apply for IPO Online
Login to your online net-banking account
In the investment section,click on the IPO/e-IPO option.
Fill out your depository details and bank account details to complete the verification process.
After this, you are led to a screen titled “Invest in IPO”.
Select the IPO for which you would like to apply.
Enter the number of shares and the “bid price.”
Read the “Terms and conditions” on the documents before you place your bid.
Confirm and place your order by clicking on “Apply Now”.
The open and the close are the same or nearly the same.
The length of the shadow should not be excessively long, especially when viewed at the end of a bullish trend.
Signal Enhancements:
A gap away from the previous day’s close sets up for a stronger reversal move.
Large volume on the signal day increases the chances that a blowoff day has occurred, although it is not a necessity.
It is more effective after a long candle body, usually an exaggerated daily move compared to the normal daily trading range seen in the majority of the trend.
https://www.youtube.com/watch?v=YWMcGyD2a4I&t=1s
2. Bullish Engulfing
Criteria:
The body of the second day completely engulfs the body of the first day. Shadows are not a consideration.
Prices have been in a definable uptrend, even if it has been short term.
The body of the second candle is the opposite color of the first candle,the first candle being the color of the previous trend. The exception to this rule is when the engulfed body is a Doji or an extremely small body.
Signal Enhancements:
A large body engulfing a small body. The previous day was showing that the trend was running out of steam. The large body shows that the new direction has started with good force.
When the Engulfing Pattern occurs after a fast move down, there will be less supply of stock to slow down the reversal move. A fast move makes a stock price over-extended and increases the potential for profit taking.
Large volume on the engulfing day increases the chances that a blowoff day has occurred.
The engulfing body engulfing more than one previous body demonstrates power in the reversal.
If the engulfing body engulfs the body and the shadows of the previous day, the reversal has a greater probability of working.
The greater the open gaps down from the previous close, the greater the probability of a strong reversal.
3. Bearish Engulfing
Criteria:
The body of the second day completely engulfs the body of the first day.Shadows are not a consideration.
Prices have been in a definable uptrend, even if it has been short term.
The body of the second candle is the opposite color of the first candle,the first candle being the color of the previous trend. The exception to this rule is when the engulfed body is a Doji or an extremely small body.
Signal Enhancements:
A large body engulfing a small body. The previous day was showing that the trend was running out of steam. The large body shows that the new trend was running out of steam. The large body shows that the new.
When the Engulfing Pattern occurs after a fast spike up, there will be less supply of stock to slow down the reversal move. A fast move makes a stock price over-extended and increases the potential for profit taking and a meaningful pullback.
Large volume on the engulfing day increases the chances that a blowoff day has occurred.
The engulfing body engulfing more than one previous body demonstrates power in the reversal.
If the engulfing body engulfs the body and the shadows of the previous day, the reversal has a greater probability of working.
The greater the open gaps up from the previous close, the greater the probability of a strong reversal.
The lower shadow should be at least two times the length of the body.
The real body is at the upper end of the trading range. The color of the body is not important although a white body should have slightly more bullish implications.
There should be no upper shadow or a very small upper shadow.
The following day needs to confirm the Hammer signal with a strong bullish day.
Signal Enhancements:
The longer the lower shadow, the higher the potential of a reversal occurring.
A gap down from the previous day’s close sets up for a stronger reversal move provided the day after the Hammer signal opens higher.
Large volume on the Hammer day increases the chances that a blowoff day has occurred.
5. Hanging Man
Criteria:
The upper shadow should be at least two times the length of the body.
The real body is at the upper end of the trading range. The color of the body is not important although a black body should have slightly more bearish implications.
There should be no upper shadow or a very small upper shadow.
The following day needs to confirm the Hanging Man signal with a blackcandle or, better yet, a gap down with a lower close.
Signal Enhancements:
The longer the lower shadow, the higher the potential of a reversal occurring.
A gap up from the previous day’s close sets up for a stronger reversal move provided the day after the Hanging Man signal trades lower.
Large volume on the signal day increases the chances that a blowoff day has occurred, although it is not a necessity.
6. Piercing Candle
Criteria:
The body of the first candle is black; the body of the second candle is white.
The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.
The second day opens lower than the trading of the prior day.
The white candle closes more than halfway up the black candle.
Signal Enhancements:
The longer the black candle and the white candle, the more forceful the reversal.
The greater the gap down from the previous day’s close, the more pronounced the reversal.
The higher the white candle closes into the black candle, the stronger the reversal.
Large volume during these two trading days is a significant confirmation.
7.Dark Cloud Cover
Criteria:
The body of the first candle is white; the body of the second candle is black.
The uptrend has been evident for a good period. A long white candle occurs at the top of the trend.
The second day opens higher than the trading of the prior day.
The black candle closes more than halfway down the white candle.
Signal Enhancements:
The longer the white candle and the black candle, the more forceful the reversal.
The higher the gap up from the previous day’s close, the more pronounced the reversal.
The lower the black candle closes into the white candle, the stronger the reversal.
Large volume during these two trading days is a significant confirmation.
8. Bullish Harami
Criteria:
The body of the first candle is black; the body of the second candle is white.
The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.
The second day opens higher than the close of the previous day and closes lower than the open of the prior day.
Unlike the Western Inside Day, just the body needs to remain in the previous day’s body, whereas the Inside Day requires both the body and the shadows to remain inside the previous day’s body.
For a reversal signal, further confirmation is required to indicate that the trend is now moving up.
Signal Enhancements:
The longer the black candle and the white candle, the more forceful the reversal.
The higher the white candle closes up on the black candle, the more convincing the signal that a reversal has occurred despite the size of the white candle.
9. Bearish Harami
Criteria:
The body of the first candle is white; the body of the second candle is black.
The uptrend has been apparent. A long white candle occurs at the end of the trend.
The second day opens lower than the close of the previous day and closes higher than the open of the prior day.
For a reversal signal, confirmation is needed. The next day should show weakness.
Signal Enhancements:
The longer the white candle and the black candle, the more forceful the reversal.
The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the size of the black candle.
10.Morning Star
Criteria:
The downtrend has been apparent.
The body of the first candle is black, continuing the current trend. The second candle is an indecision formation.
The third day shows evidence that the bulls have stepped in. That candle should close at least halfway up the black candle.
Signal Enhancements:
The longer the black candle and the white candle, the more forceful the reversal.
The more indecision that the star day illustrates, the better probabilities that a reversal will occur.
A gap between the first day and the second day adds to the probability that a reversal is occurring.
A gap before and after the star day is even more desirable.
The magnitude, that the third day comes up into the black candle of the first day, indicates the strength of the reversal.
11.Evening Star
Criteria:
The uptrend has been apparent.
The body of the first candle is white, continuing the current trend. The second candle is an indecision formation.
The third day shows evidence that the bears have stepped in. That candle should close at least halfway down the white candle.
Signal Enhancements:
The longer the white candle and the black candle, the more forceful the reversal.
The more indecision that the star day illustrates, the better probabilities that a reversal will occur.
A gap between the first day and the second day adds to the probability that a reversal is occurring.
A gap before and after the star day is even more desirable. The magnitude, that the third day comes down into the white candle of the first day, indicates the strength of the reversal.
12. Kicker
Criteria:
The first day’s open and the second day’s open are the same. The price movement is in opposite directions from the opening price.
The trend has no relevance in a kicker situation.
The signal is usually formed by surprise news before or after market hours.
The price never retraces into the previous day’s trading range.
Signal Enhancements:
The longer the candles, the more dramatic the price reversal.
Opening from yesterday’s close to yesterday’s open already is a gap. However, gapping away from the previous day’s open further enhances the reversal.
13. Shooting Star
Criteria:
The upper shadow should be at least two times the length of the body.
The real body is at the lower end of the trading range. The color of the body is not important although a black body should have slightly more bearish implications.
There should be no lower shadow or a small lower shadow.
The following day needs to confirm the Shooting Star signal with a black candle or, better yet, a gap down with a lower close.
Signal Enhancements:
The longer the upper shadow, the higher the potential of a reversal occurring.
A gap up from the previous day’s close sets up for a stronger reversal move.
The day after the Shooting Star signal opens lower.
Large volume on the Shooting Star day increases the chances that a blowoff day has occurred, although it is not a necessity.
14. Inverted Hammers
Criteria:
The upper shadow should be at least two times the length of the body.
2. The real body is at the lower end of the trading range. The color of the body is not important, although a white body should have slightly more bullish implications.
There should be no lower shadow or a very small lower shadow.
The following day needs to confirm the Inverted Hammer signal with a strong bullish day.
Signal Enhancements:
The longer the upper shadow, the higher the potential of a reversal occurring.
A gap down from the previous day’s close sets up for a stronger reversal move provided.
The day after the hammer signal opens higher.
Large volume on the Reverse Hammer day increases the chances that a blowoff day has occurred.
https://www.youtube.com/watch?v=q2BvvyL0z8c
15. Tri Star
Criteria:
All three days are Dojis.
The middle day gaps above or below the first and third day. The length of the shadow should not be excessively long, especially when viewed at the end of a bullish trend.
Signal Enhancements:
The greater the gap, away from the previous day’s close, the more it sets up for a stronger reversal move.
Large volume on one of the signal days increases the chances that a significant reversal is taking place.
16. Three Black Crows
Criteria:
Three long black bodies occur, all of nearly equal length.
The prior trend should have been up.
Each day opens within the body of the previous day.
Each day closes near its low.
17. Two Crow
Criteria:
A long white candle continues the uptrend.
The real body of the next day is black while gapping up and not filling the gap.
The third day opens within the second day’s body and closes within the white candle’s body. This produces a black candle that fills in the gap.
Signal Enhancements:
If the third day was to close more than halfway down the white candle, it would form an Evening Star pattern.
18. UpSide Gap Two Crows
Criteria:
A long white candle continues the uptrend.
The real body of the next day is black while gapping up and not filling the gap.
The third day opens higher than the second day’s open and closes below the second day’s close. This produces a black candle that completely engulfs the small black candle.
The close of the third day is still above the close of the last white candle.
Signal Enhancements:
If the third day were to close within the white candle, it would become Two Crows.
19. Counterattack Lines
Criteria:
The first Candlestick body should continue the prevailing trend.
The second Candlestick gaps open continuing the trend.
The real body of the second day closes at the close of the first day.
The body of the second day is the opposite color of the first day’s.
Both days should be long candle days.
Signal Enhancements:
The longer the bodies, the more significant the reversal pattern.
20. Belt Hold
Criteria:
The Candlestick body should be the opposite color of the prevailing trend.
It significantly gaps open, continuing the trend.
The real body of the Candlestick has no shadow at the open end. The open is the high or low of that trend.
The length of the body should be a long body. The greater the length,the more significant the reversal signal.
Signal Enhancements:
The longer the body, the more significant the reversal pattern.
21. Unique Three River Bottom
Criteria:
The Candlestick body of the first day is a long black candle, consistent with the prevailing trend.
The second day does a Harami/Hammer. It also has a black body.
The second day’s shadow has set a new low.
The third day opens lower, but not below the lowest point of the previous day. It closes higher but below yesterday’s close.
Signal Enhancements:
The longer the shadow of the second day, the probability of a successful reversal becomes greater.
22. Breakaways
Criteria:
The first day is a long-body day and has the color of the existing trend.
The second day gaps away from the previous close. It has the same color as the first day candle.
Days three and four have closes that continue the trend.
The last day is an opposite-color day that closes in the gap area between day one and day two.
23. Three Inside Up & Three Inside Down
Criteria:
The Harami pattern is the overriding signal component of this pattern.
The harami body should be the opposite color of the long candle day.
Day three has a close that is higher than the open of day one. Or lower than day one in the bearish indicator.
24. Three Stars In The South
Criteria:
The first black candle day has a lower shadow that indicates buying stepping in—almost a Hammer but not quite.
The second day is like the first but on a smaller scale.
Day three should be a Marubozu with no shadows. It is within the previous day’s trading range.
25. Three White Soldiers
Criteria:
Each consecutive long candle closes with a higher close.
The second and third Candlesticks open in the previous day’s body.
The opens should be within the top half of the previous day’s body.
26. Advance Block
Criteria:
Each white candle occurs with higher closes.
The opens occur in the previous day’s body.
The bodies are getting smaller, and/or the upper shadows are getting longer.
27. Deliberation
Criteria:
The first two white candles are relatively equal long candles.
The third day is a small body.
The small body opened at or very near the previous day’s close. Or it may have gapped up slightly.
28. Concealing Baby Swallow
Criteria:
Two large Black Marubozus make up the beginning of this pattern.
The third day is a Reverse Hammer formation. It gaps down from the previous day’s close.
The final day completely engulfs the third day, including the shadow.
29. Stick Sandwich
Criteria:
A downtrend is concluded with a large black candle followed by a white candle. The white candle opens above the black candle close and closes above the black candle’s open.
The final day completely engulfs the white candle and closes at the same level as the previous black candle.
30. Homing Pigeon
Criteria:
The body of the first candle is black; the body of the second candle is black.
The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.
The second day opens higher than the close of the previous day and closes lower than the open but above the closing price of the prior day.
Unlike the Western Inside Day, just the body needs to remain in the previous day’s body, whereas the Inside Day requires both the body and the shadows to remain inside the previous day’s body.
For a reversal signal, further confirmation is required to indicate that the trend is moving up.
Signal Enhancements:
The higher the second candle closes up on the first black candle, the more convincing it is that a reversal has occurred.
31. Ladder Bottom
Criteria:
Like the Three Black Crows pattern, the beginning of the signal has three black candle days, each with lower opens and closes of the previous day.
The fourth day resembles a reverse hammer, opening, then trading up during the day before closing on its low.
The final day opens above the open of the previous day open, a gap up and upward continuation for the rest the day, a Kicker-type pattern. It finally closes above the trading range of the previous three days.
32. Matching Low
Criteria:
The body of the first candle is black; the body of the second candle is black.
The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.
The second day opens higher than the close of the previous day and closes at the same close as the prior day.
For a reversal signal, further confirmation is required to indicate that the trend is moving up.
33. Upside Tasuki Gap
Criteria:
An uptrend is in progress. A gap occurs between two candles of the same color.
The color of the first two candles is the same as the prevailing trend.
The third day, an opposite color candlestick opens within the previous candle and closes below the previous open.
The third day close does not fill the gap between the two white candles.
The last two candles, opposite colors, are usually about the same size.
34. Downside Tasuki Gap
Criteria:
A downtrend is in progress. A gap occurs between two candles of the same color.
The color of the first two candles is the same as the prevailing trend.
The third day, an opposite color Candlestick opens within the previous candle and closes below the previous open.
The third day close does not fill the gap between the two black candles.
The last two candles, opposite colors, are usually about the same size.
35. On Neck Line
Criteria:
A long black candle forms in a downtrend.
The next day gaps down from the previous day’s close; however, the body is usually smaller than one seen in the Meeting Line pattern.
The second day closes at the low of the previous day.
36. In Neck Line
Criteria:
A long black candle forms in a downtrend.
The next day gaps down from the previous day’s close; however, the body is usually smaller than one seen in the Meeting Line pattern.
The second day closes at the close or just slightly above the close of the previous day.
37. Thrusting
Criteria:
A long black candle forms in a downtrend.
The next day gaps down from the previous day’s close; however, the body is usually bigger than the ones found in the On Neck and In Neck patterns.
The second day closes just slightly below the midpoint of the previous day’s candle.
38. Rising Three Method
Criteria:
An uptrend is in progress. A long white candle forms.
A group of small-bodied candles follow, preferably black bodies.
The close of any of the pullback days does not close lower than the open of the big white candle.
The final day opens up into the body of the last pullback day and proceeds to close above the close of the first big white candle day.
39. Falling Three Method
Criteria:
A downtrend is in progress. A long black candle forms.
A group of small-bodied candles follows, preferably white bodied.
The close of any of the uptrend days does not close higher than the open of the big white candle.
The final day opens up into the body of the last uptrend day and proceeds to close below the close of the first big black candle day.
40. Side By Side white Lines
Criteria:
An uptrend is in progress. A gap occurs between two candles of the same color.
The color of the first two candles is the same as the prevailing trend.
The third day, a candle opens at the same or near the open price of the previous day.
The third day closes near the close of the previous day.
41. Separating Lines
Criteria:
An uptrend is in progress. Then a day occurs that is the opposite color of the current trend.
The second day opens at the open of the previous day.
The second day should open on its low for the day and proceed higher.
42. Mat Hold
Criteria:
An uptrend is in progress. A long white candle forms.
A gap up day that closes lower than its open creates a small black candle.
The next two days form small candles somewhat like the Rising Three Method.
The final day gaps up and closes above the trading ranges of the previous four days.
43. Three Line Strike
Criteria:
Three White Soldiers, three white candles, are continuing an uptrend.
The fourth day opens higher, but then pulls back to close below the open of the first white candle.
Candlestick is the most popular & most usable chart in trading. Even most of the successful traders also advise to use this charts for trade. Candlestick chart is invented by MUNEHISA HOMMA.
This charts were developed in the 18th century by Munehisa Homma, a Japanese rice trader. He is considered as the father of the candlestick chart. He is one of the most successful trader in History. The Candlestick trading Bible is one of the most powerful trading systems in history. This trading system is based on Japanese candlestick patterns in combination with technical analysis. Learning Japanese candlestick is like learning a new language. We have to understand the psychology behind the candle formation, understand the candle pattern & most important thing is to understand the trends.
CANDLESTICKS BODY
Candlesticks have different colors and body size.
The most trading platforms were using White & Black color refers to Bullish & Bearish candlestick charts.But, at present it has been upgraded with colorful charts where white candle is denoted by Green Color & Black candle is denoted by Red color.Filled part of the candlestick is called the Real Body. Thin lines poking above & below the body are called Shadows/Tail.
If the candle closes above the open price, it indicates the market forms a bullish candlestick. Bullish candles always display as Green color.And if the candle closes below the open price, it indicates the market forms a bearish candlestick. Bearish candles always display as Red color.
But the color doesn’t matters, you can use whatever color you want.
Long v/s Short
Long bodies of candles shows strong buying & selling pressure. Bullish long candle indicates that buyers are more stronger than sellers and they are taking control of the market during this period of time. Conversely, a bearish long candle indicates that sellers are stronger than buyers & they are taking control of the market during this period of time.
Short & small bodies indicate a little buying & selling activity.Upper & lower shadows give us important information about the trading session. Candlestick with long shadows show that trading action occurred well past the open & close. Japanese candlesticks with short shadows indicates that most of the trading actions are confined near the open & close.
If a candlestick has a longer upper shadow, and short lower shadow, this means that buyers flexed their muscles and bid price higher. But for one reason or another, sellers comes in and drove the price back down to end the session back near its open price.
If a Japanese candlestick has a long lower shadow and short upper shadow, this means that sellers flashed their washboard abs and forced the price lower. But for one reason or another a buyer comes in and drove prices back up to end the session back near its open price.
CANDLESTICK PATTERNS
Candlestick patterns are one of the most powerful trading concepts, they are simple, easy to identify, & very profitable setups. Candlestick patterns are the language of the market. Here are some of the candlestick patterns that will help us in the market:
1. THE DOJI CANDLESTICK PATTERN
Doji is the most important Japanese Candlestick Pattern. When this candlestick forms, it tells us that the market Opens & Close at the same price which means that there is equality & indecision between buyers & sellers there is no one in control of the market. If the closing & opening prices are same, that means candle is giving us a single, that market is not able to decide which direction to take. The above chart shows how the market has changed the direction after the formation of the Doji candle pattern. If Doji forms in uptrend it gives a signal, that the buyers are failing to keep the price up & sellers are pushing the price back to the opening price. When Doji form in downtrend that indicates the market is ready to go up side & it gives a reversal signal.
2.THE DRAGONFLY DOJI PATTERN
Dragonfly Doji is a Bullish candlestick Pattern. Dragonfly Doji is formed when the open, high & close are the same & it has no upper shadow. An important identification of dragonfly doji is its long lower shadow. Indecision & trend reversal are indicators of the dragonfly Doji. The long lower tail suggests that the force of supply & demand are nearing a balance & that the direction of the trend may be nearing a major turning point.
The above chart shows how the downtrend market changes the direction of the market toward uptrend. The formation of dragonfly Doji with long lower tails shows us that there is a high buying pressure in the area. The war between Bull & Bear, attempted by the bear towards pushing price down, but here buyers are stronger than sellers.
3.THE GRAVESTONE DOJI
The gravestone doji is the Bearish version of the dragonfly doji. It is a bearish reversal candlestick which mostly occurs at the top of uptrends. The formation of the long upper tail is an indication that the market is testing a powerful supply or resistance area.
The image above is a perfect gravestone Doji. This pattern indicates that while buyers were able to push prices well above the open. Later in the day, sellers overwhelmed the market pushing the price back down. This is interpreted as a sign that bulls are losing their momentum and the market is ready for a reversal.
4.THE BEARISH ENGULFING BAR CANDLESTICK PATTERN
The bearish engulfing is one of the most important candlestick patterns. Engulfing bar is formed when it fully engulfs the previous candle.
The first candlestick shows that the bulls were in charge of the market, while the second shows that bearish pressure pushed the market price lower. The second period will open higher than the previous day but finish significantly lower.
The engulfing bar can engulf more than one previous candle, but to be considered an engulfing bar, at least one candle must be fully consumed. When this pattern occurs at the end of an Uptrend, this indicates that buyers are engulfed by sellers which signals a trend Reversal.
The pattern is also a sign for those in a long position to consider closing their trade.
5.THE BULLISH ENGULFING BAR PATTERN
A bullish engulfing pattern is the opposite of a bearish engulfing pattern. Many traders use this candlestick pattern to identify price reversals and continuations to support their trading strategies.
The bullish engulfing bar consists of two candlesticks, the first one is the small body, & the second is the engulfing candle. When a bullish engulfing candle forms at the end of downtrend the reversal is much more powerful as it represents a capitulation bottom. The color of the body is not important, what’s important is that the smaller one is totally engulfed by the second candlestick.
6.MORNING STAR CANDLESTICK
The Morning Star Pattern is considered as a BULLISH REVERSAL PATTERN. A morning star candlestick pattern can successfully predict or explain trends in price movements in the case of equity, currency trading or financial derivatives. This pattern occurs at the bottom of Downtrend near a support level, it is interpreted as a powerful trend Reversal Signal. The first candlestick is bearish. The second candle is small & this can be Bullish Or bearish. Second one produces indecision in the market, second candle could be a DOJI or any other CANDLE. The Third candle is a bullish candlestick that gapped up on the open & closed above midpoint of the body of the first day, this candlestick holds a significant trend reversal signal.
7.THE EVENING STAR PATTERN
The Evening Star Pattern is the opposite of the Morning star pattern. The evening star pattern is considered as a Bearish Reversal Pattern. This pattern occurs at the top of an Uptrend. The First candle is a Bullish candle. The second candle is a small candlestick, it can be bullish or bearish or it can be a DOJI or any other Candles. The third candle is a large bearish candle. In general the evening star pattern is the bearish version of the morning star pattern. Third candlestick gaping lower than the previous candlestick indicating a confirmation of the reversal & the beginning of new trend down.
8.HAMMER (BIN BAR)
The hammer is a reversal candlestick pattern when it occurs at the bottom of a Downtrend. Long lower shadow that indicates a bullish rejection from buyers & their intention to push the market.
Understand the psychology behind the formation of patterns , here sellers forcefully push the price down but that time of period buyers are more powerful than sellers which result in trend reversal.
9.SHOOTING STAR (BEARISH PIN BAR)
Shooting star is the Bearish version of the hammer. This candle is characterized by a small body. And long upper shadow. Shadow should be twice the length of the real body. This pattern occurs in an uptrend. It indicates a bearish reversal pattern.
It is one of the most powerful signals.
10.HARAMI PATTERN ( INSIDE BAR)
Harami pattern (Pregnant In Japanese) is considered as a Reversal & Continuation pattern, & it consists of two candlesticks. The first candle is the large candle, it is called the mother candle, followed by a smaller candle which is called the baby. Harami pattern to be valid, the second candle should close outside the previous one. This candlestick is considered as a Bearish Reversal Signal when it occurs at the top of an uptrend, and it is Bullish Signal when it occurs at the bottom of a Downtrend. Smaller body is totally covered by the previous mother candle. Don’t bother yourself with colors, the most important is that the smaller body closes inside of the first bigger.
11.TWEEZERS TOPS & BOTTOMS
The tweezers top formation is considered as a Bearish Reversal Pattern seen at the top of an Uptrend. The tweezers bottom formation is interpreted as a Bullish Reversal Pattern seen at the bottom of a Downtrend. The first one is a bullish candlestick followed by a bearish candlestick. And the tweezer bottom formation consists of two candlesticks as well. The tweezer bottom happens during a Downtrend.
Note:
The candlestick pattern is more workable in higher time frame (weekly, daily & 4hr.) compare to lower time frame. When candlestick pattern is form in the chart, than wait for confirmation & follow up.
“Blue – Chip companies are by definition the companies that have MADE IT BIG. Blue chip stocks are shares of very large and well-recognized companies with a long history of sound financial performance. These stocks are known to have capabilities to endure tough market conditions and give high returns in good market conditions. Blue chip stocks generally cost high, as they have good reputation and are often market leaders in their respective industries.”
WHAT ARE BLUE CHIP STOCKS?
The term Blue Chip stock was coined in 1923 by a Dow Jones employee, Oliver Gingold , referring to some high priced shares of $200 above, at a brokerage firm.
Blue chip Stocks are companies that are often worth billions of dollars, pay dividends & have a long history of reliable operations. This comes from the game of POKER where the blue chip carries the highest value.
It is a stocks of companies which are leading in its sector and are famous at the national level having a record of giving continuous dividend payments and other strong investment qualities. Usually have a great reputation for QM (Quality management), product & services. Generally, blue chip stocks are the safest stocks to invest in.
This stock is usually the market leader or come in the top three companies in its sector and are very well known and also have the market capitalization in billions. Ben Graham in his book The Intelligent Investor has written that an investor should look for a company which has been giving its investors dividends for twenty years or more. This thought gives us an idea of how a such stocks should be.
Blue-chip stocks are synonymous with fewer debts, consistent dividends/returns and goodwill of the company. Such stocks are not only safe but also help investors in mitigating risks. Blue chip stocks have experienced a number of bear phrase, a market downturn, financial troubles, etc., but since they are survived, they are still going strong. When the market corrects blue chip, stocks remain stable. This stability in share price is the biggest benefit of blue chips. If in any situation their price falls, this fall is slower and recovers again soon.
FEATURES OF BLUE CHIP SOCKS:
Large Market Capitalization –
Since blue chip stocks are the leaders in their respective sectors they have a market cap of Rs. 20k Crores.
Risk and returns
Blue Chip Stocks are considered safe investment options as they can endure economic downturns and are not highly volatile. They also present a slow but moderate growth potential. These are typically dividend paying stocks where the payment is made quarterly. It is advisable to diversify your portfolio when investing in individual stocks, to avoid company risk.
Dividend Payments
A solid trend which shows that the company pays dividends to its shareholders in a timely and consistent basis is a great morale booster for a stock owner simply because it acts as a cherry on the cake. It is income over and above your capital appreciation so, for example, a 20% dividend would mean an extra 20% income over and above your investment appreciation in a particular blue-chip company.
Remarkable Performance Even in the Economic Downturns:
When we talk about blue chip stocks, it can be recognized as one of those stocks which perform well even when there is a downfall in the market or economy.
The diversification
Blue chip companies tend to be large corporates with an international portfolio that spans several sectors. For instance, BP is ostensibly an oil and gas company, but it also owns its own petrol stations, a string of convenience stores in the US, as well as the Wild Bean Coffee Company in the UK. This gives the firm some exposure to the retail and consumer markets, in addition to the commodities sector.
ADVANTAGES OF BLUE CHIP STOCKS:
The tax—free benefits
Every blue chip stock is eligible for inclusion within a stocks and shares ISA, which means that all of your returns are protected from taxation. Blue chips can also be held within a lifetime ISA or a self—invested personal pension (SIPP), meaning that you can keep blue chip stocks in your pension portfolio without paying any tax on the interest that you accrue.
Price stability:
Price stability of blue chip stocks in falling market is one of its biggest advantages. It does not mean that price of blue chip stocks does not fall when index is falling. Its price will also fall, but the fall will be slower and recovery will be faster.
Long-Term Returns:
These stocks provide stable returns in the long run.
Regular Dividends:
These stocks are known for providing routine returns in the form of dividends to their shareholders as a result of their efficient dividend policy.
DISADVANTAGES OF BLUE SHIP STOCKS:
This is a wrong assumption. No company can continue to enjoy its prime position forever.Some known examples are: Reliance Communication, DLF, Kodak, Nokia, Lehman Brothers, etc.
High Downside Risk:
There is a considerable market risk associated with the blue chip companies too. The reason being, some of these organizations fail to keep up with the competition, leading to the downfall of their stock prices.
Older Companies
As a younger investor, you have a significant advantage over older stock buyers. You very likely have an understanding and knowledge of the hot new products in sectors like technology and retail. These products are often sold by newer, hipper companies that will not be on anybody’s blue chip stock list. Any money invested in an older, boring, established blue chip company is money you do not have to purchase stocks of companies that are on the cutting edge of what is happening in the economy.
Slower Growth:
In most cases this is true. As Blue chip companies are all matured, large companies, hence their future growth is not as fast. If we will compare potential returns of a good “growth stocks” verses a blue chip stock, the latter cannot win. Hence, it is essential to estimate ones investment goal accurately. If objective is faster capital appreciation in long term, growth stocks are better.
“ETFs or Exchange Traded funds are similar to index mutual funds. However, they trade just like stocks.”
MEANING:
In 1990 the world’s first ETF was created in Canada, transforming the investment landscape & offering the advantages of pooled investing & trading flexibility. Demand continues to grow as both retail & institutional investors depend on ETFs. The first ETF in the United Stateswas Launched in 1993.
ETF stands for Exchange Traded Fund, & just like a Stock, it is traded on stock exchanges such as NYSE & NASDAQ. But unlike a stock, which focuses on one company, an ETF tracks an index, a commodity, bonds, or a basket of securities. ETFs were started in 2001 in India.
ETFs are securities that closely resemble index funds, but can be bought and sold during the day just like common stocks. These investment vehicles allow investors a convenient way to purchase a broad basket of securities in a single transaction. Essentially, ETFs offer the convenience of a stock along with the diversification of a mutual fund.
An exchange-traded fund is a marketable security, meaning it has an associated price that allows it to be easily bought and sold. ETF combine the range of a diversified portfolio with the simplicity of trading a single stock.
ADAVNTAGES OF ETFs
There are numerous advantages to ETFs, especially when compared to their mutual fund cousins.
Diversification
Diversification is another key benefit that an investor derives from ETF investments. Firstly, one can potentially choose from a wide range of ETFs which mainly differ on the basis of the underlying asset such as gold, equity or index funds. Further, certain ETFs such as an equity ETF will save you from concentration risk as it would invest its funds in a diversified portfolio of equity stocks. An ETF can track a broader range of stocks, or even attempt to mimic the returns of a country or a group of countries.
Cost Efficient
ETF is a cost-efficient product and often considered unique because of the low expense ratio. A lower fund management fee can generate incremental savings and therefore, increase payouts in the long term. ETF shareholders don’t need to pay a manager and a team of analysts and brokers to buy and sell funds on their behalf, nor to manage fund inflows and outflows, exchange traded funds typically have much lower expense ratios than traditional mutual funds.
Flexibility
Speaking of flexibility, like an equity, ETFs trade throughout market hours. ETFs can be sold short or on margin, and prices are continuously updated during the trading day. In other words ETFs trade just like equities on the stock market.
Lower Fees
ETFs, which are passively managed, have much lower expense ratios compared to actively managed funds, which mutual funds tend to be. What drives up a mutual fund’s expense ratio? Costs such as a management fee, shareholder accounting expenses at the fund level, service fees like marketing, paying a board of directors, and load fees for sale and distribution.
Can Be Purchased in Small Amounts:
Since ETFs trade like stocks there are advantages for position sizing. Small positions can be purchased (no minimum investment) to scale in or scale out of a position, or take a single small position in a particular ETF.
DISADVATAGES OF ETFs
Investors need to have a demat & a trading account. Mainly holds large capitalization stocks. Attract longer term investors; Intraday trading is not required. For larger corporations, direct investment in an index can be a perfect substitute for an ETF. Alternatively, an investor may have a lower cost & lower taxes.
They have to pay a brokerage (usually around 0.35% to 0.99%). This is considered high for a new short-term investor.
Intraday Pricing Might Be Overkill
Longer-term investors could have a time horizon of 10 to 15 years, so they may not benefit from the intraday pricing changes. Some investors may trade more due to these lagged swings in hourly price. A high swing over a couple hours could induce a trade where pricing at the end of the day could keep irrational fears from distorting an investment objective.
TAX IMPLICATIONS
For ETFs which invest beyond the traditionally popular asset classes of equities and fixed income, investors need to exercise caution as apart from an increased tracking error, tax implications may be high at best or unclear at worst, which may have a sizable impact on returns.
Over Diversification
Many ETFs participate in over diversification. ETFs are generally not actively managed, but are programmed to follow a specific index. The index, and therefore the ETF, may not own the very best stocks.
It may be more advantageous to buy a limited number of the best companies rather than own the entire index. This would be particularly true with ETFs that track indices with a small universe of stocks such as a specific sector or industry.
Intraday Pricing Might Be Overkill
Longer-term investors could have a time horizon of 10 to 15 years, so they may not benefit from the intraday pricing changes. Some investors may trade more due to these lagged swings in hourly price. A high swing over a couple hours could induce a trade where pricing at the end of the day could keep irrational fears from distorting an investment objective.
STEPS OF BUYING ETFs ONLINE:
You have to find a good online broker. Then open Demate A/C & Trading A/C. And decide which ETFs you want to buy. Then place an order with Broker.
Broker enters the order to be filled in the market
Order is filled in the market .
Broker deliver ETF shares to the Investor. Monitor your ETF position regularly.
DIFFERENCE BETWEEN MUTUAL FUND AND ETF
The biggest difference between mutual fund & ETF is that Mutual Funds trade at the end of the day, while ETFs tradeintraday Stock orders can be made with ETFs but not with mutual funds. ETFs often have lower expenses ratio than mutual funds.
MUTUAL FUND
ETFs
Professionally managed investment vehicle, where the resources from multiple investors are collected and traded is known as Mutual Fund.
The ETF is a investment scheme that tracks the index, and are listed & traded on a stock exchange.
“Volume Weighted Average Price (VWAP) is a technical analysis tool used to measure the average price weighted by Volume. VWAP is typically used with intraday charts as away to determine the general direction of intraday prices. VWAP is similar to a moving average in that when price is above VWAP, prices are rising & when price is below VWAP, prices are falling VWAP is primarily used by technical analysts to identify market trend.”
Full form of VWAP is Volume Weight Average Price. The average price weighted by volume. VWAP is a trading tool calculated by taking the number of shares bought times the share price & dividing by total shares.
Volume Weighted Average Price is an Indicator, or used for Intraday trading. VWAP equals the dollar value of all trading periods divided by the total trading volume of the current day.
The VWAP appears as a single line on intraday chart (1min,5min,15min & so on), similar to how a moving average looks. The calculation starts when trading opens & when it closes. Because it is good for the current trading day only , intraday periods & data are used in the calculation.
HOW TO CALCULATE VWAP:
VWAP is calculated through the following steps:
For each period, calculate the typical price, which is equal to the sum of the high, low, and close price divided by three [(H+L+C)/3]. One bar or candlestick is equal to one period. What this period is set at is up to the trader’s discretion (e.g., 5-minute, 30-minute, etc.).
Take the typical price (TP) and multiply by the volume (V), giving a value TP*V.
Keep a running tabulation of the TP*V totals as well as a running tally of volume totals. These are additive and aggregate over the course of the day.
VWAP is calculated by the formula: cumulative TP*V / cumulative volume
This calculation, when run on every period, will produce a volume weighted average price for each data point. This information will be overlaid on the price chart and form a line, similar to the first image in this article.
Moving VWAP is simply adding up various end-of-day VWAP figures and averaging them out over a user-specified number of periods.
VWAP will be calculated automatically in one’s charting software. There should be no mathematical or numerical variables that need adjustment. On the moving VWAP indicator, one will need to set the desired number of periods.
HOW TO ANALYSIS VWAP:
VWAP initiate at the opening price level, & will move up or down with price movement & volume as the session continues. It can help to eliminate a lot of the noise within a stock throughout the day, even more so than a moving average would. It is compared at time to a moving average, & though it shares similarities, they are not the same.
It’s said when price is below the indicators, the stock is in downtrend or there is a downtrend bias to the day and when price is above the indicator, the stock is a uptrend.
Find the average price the stock traded at over the first five-minute period of the day. To do this, add the high, low, and close, then divide by three. Multiply this by the volume for that period. Record the result in a spreadsheet, under column PV.
Divide PV by the volume for that period. This will give the VWAP value.
To maintain the VWAP value throughout the day, continue to add the PV value from each period to the prior values. Divide this total by total volume up to that point. To make this easier in a spreadsheet, create columns for cumulative PV and cumulative volume. Both these cumulative values are divided by each other to produce VWAP.
VWAP Pullback Entry:
Entry Option 1 – Aggressive Traders
Wait for a break of the VWAP and then look at the tape action on the time and sales.
You will need to identify when the selling pressure is spiking, and the tape is going crazy.
This, my friend, is more art than science and will require you to practice reading the tape.
The goal is to identify when the selling pressure is likely to subside and then enter the trade.
This approach will break most entry rules found on the web of simply buying on the test of the VWAP. The problem with this approach is you don’t know if the price will breach the VWAP by 1% or 4%.
I learned the hard way, and if the VWAP were at $10, I would place my limit order at $10. At times there were traders who couldn’t care less about the VWAP, and it would slice through the indicator with such swiftness, the lasting sting to my psyche persists until this day.
This technique of using the tape is not easy to illustrate looking at the end of day chart. You will need to practice this approach using Tradingsim to assess how close you can come to calling the turning point based on order flow.
VWAP Breakout Entry:
Entry Option 2 – Risk Averse Traders
This is what I would recommend to traders that are new to the VWAP indicator.
Essentially, you wait for the stock to test the VWAP to the downside. Next, you will want to look for the stock to close above the VWAP.
You will then place your buy order above the high of the candle that closed above the VWAP.
While this is a more conservative approach for trade entry, it will open you up to more risk as you will likely be a few percentage points off the low.
You will need to determine where you are in your trading journey and your appetite for risk to assess which entry option works best for you.
It goes without saying that while we have covered long trades; these trading rules apply for short trades, just do the inverse.
In the share market, support & resistance these two concepts are highly discussed among the trades & investors. Trading by using support & resistance concepts is considered an old methodology. It has been popular for a long time.
Long bodies of candles shows strong buying & selling pressure. Bullish long candle indicates that buyers are more stronger than sellers and they are taking control of the market during this period of time. Conversely, a bearish long candle indicates that sellers are stronger than buyers & they are taking control of the market during this period of time.
