Stock Market Basics to Advance - Lecture 6

 Stock Market Basics to Advance - Lecture 6  

Part 1 : Candlestick Pattern (What is Candlestick pattern, Doji & Types, Engulfing & Types, Morning star pattern)

A candlestick chart is a type of price chart utilized in technical analysis to depict the movement of a security, derivative, or currency. There are four components of a candlestick, which are the open, close, high, and low prices for a specific time period. It comprises four key components:

Open: The open denotes the price at which trading begins for the given time frame. In a daily candlestick chart, this would be the starting price at the onset of the trading day. ( The open price is the first price at which the stock trades in one specific day.)

High: The high signifies the highest price reached within the time frame represented by the candlestick. It is typically illustrated by the upper wick or shadow of the candlestick. (The high price is the highest price where this stock reaches during the day.

Low: The low represents the lowest price reached during the time period. It is depicted by the lower wick or shadow of the candlestick. (The low price is the lowest price reached during the entire day.

Close:

The close is the price at which trading concludes for the given time frame. In a daily candlestick chart, this would be the final price at the end of the trading day. The close price is the last price at which the this stock trades in one specific day.

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   These elements collectively form the body and wicks of the candlestick, providing a visual representation of the price action and volatility throughout the specified time period.

 What are the different candlestick patterns?

A). Doji Candlestick Pattern:

The Doji candlestick pattern is identified by its open and close prices being almost equal or exactly at the same level, resulting in a very small or non-existent body. This suggests a balance between buyers and sellers, signaling indecision or a potential reversal in the market. When a Doji forms, it implies that neither the bulls nor the bears were able to seize control during the trading session.

Definition: A Doji candlestick occurs when the open and close prices are nearly the same, creating a very small or non-existent body, indicating market indecision.

Long-Legged Doji: This variation of the Doji candlestick has long upper and lower shadows, suggesting a wide trading range during the session, but with the open and close prices remaining close to each other.

o  There are two types of Doji candle

Ø Dragonfly Doji

Ø Gravestone Doji

Ø Dragonfly Doji : 

This type of Doji features a long lower shadow and little to no upper shadow, indicating initial dominance by sellers pushing the price lower, but buyers managing to push it back up to near the opening level by the close. If there is upside movement from low and opening, closing and high point is same then it is said to be dragonfly doji candle.

·     It is Bullish Candle

·     It compulsory create on support

 Stock Market Basics to Advance - Lecture 6  
Part 1 : Candlestick Pattern (What is Candlestick pattern, Doji & Types, Engulfing & Types, Morning star pattern)

Ø Gravestone Doji :

Conversely, the Gravestone Doji exhibits a long upper shadow and little to no lower shadow, signifying initial control by buyers driving prices higher, but eventually being overtaken by sellers pushing the price back down to near the opening level by the close. If there is downside movement from high and opening, closing and low of candle is same then it is said as Gravestone Doji Candle.

·     It is Bearish Candle

·     Compulsory created at resistance.

B) Engulfing Pattern

    In this type of candlestick, if second candlestick is much larger than first, so that it completely covers or engulf the length of the previous candle. They are basically used to indicate a market trend reversal. There are two types of engulfing candle i.e. Bullish engulfing and bearish engulfing.

     

B  Bullish Engulfing Pattern

    1. Bullish Engulfing Pattern is a technical analysis chart pattern that signals a potential reversal from a downtrend to an uptrend.

     2. It consists of two candlestick, a small bearish (Red) candlestick followed by larger bullish (Green) candlestick that engulfs or covers the entire body of previous candle.

     3.This pattern indicates that buying pressure has overcome selling pressure and suggests that the market may be transitioning from a bearish sentiment to a bullish sentiment.

 Bearish Engulfing Pattern

    

    1. A Bearish Engulfing Pattern is a technical analysis chart pattern that signals a potential reversal from an uptrend to a downtrend.

    2. It consists of two candlesticks, a small bullish (Green) candlestick followed by larger bearish (Red) candlestick that engulfs or covers the entire body of previous candle.

    3. This pattern indicates that selling pressure has overcome buying pressure and suggests that the market may be transitioning from a bullish sentiment to a bearish sentiment.

 

C) Morning Star Candlestick:

1. In this type of candlestick pattern, there are 3 candlestick patterns to show bullish reversal. First Candlestick is usually bearish which shows presence of sellers in market

2.The second candle is small-sized, preferably one with a small body. This shows the reduction in selling pressure as buyers come into the market.

3.The third candle is a bullish candle, preferably one with a large body that engulfs the preceding small candlestick. 

4. The psychology behind the formation of this pattern is the transition of the market from being bearish to bullish. Low of second candle will be our stop loss.

 Stock Market Basics to Advance - Lecture 6  
Part 1 : Candlestick Pattern (What is Candlestick pattern, Doji & Types, Engulfing & Types, Morning star pattern)