3 Key Rules About Candle Sticks:: The Most Important Assumption of TA Is That History Repeats Itself

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The most important assumption of TA is that history repeats itself.

3 key rules about candle sticks:


Buy strength and sell weakness:
Whenever you buy, ensure it is a green day and whenever you sell, ensure it is a red day.

Be flexible with patterns:


There will be a variation between textbook candles and actual patterns. Hence, one needs to be flexible while identifying pa

Look for a prior trend:


If you are looking at a bullish pattern, the prior trend should be bearsih and vice versa

List of candlestick patterns:


Single candlestick patterns: Multiple candlestick patterns:
Marubozu Bullish engulfing
Doji Bearish engulfing
Spinning tops Bullish Harami
Paper umbrella Bearish Harami
Hammer Piercing pattern
Hanging Man Dark cloud cover
Shooting star Morning star
Evening star

Trading should take place based on length of the candle


One should avoid trade based on very short candles
to be flexible while identifying patterns.
Marubozu

Marubozu can appear anywhere in the chart irrespective of the prior trend.
Marubozu is a candlestick with no upper and lower wick. It just has a body.
The bullish sentiment is very strong when a green marubozu is made.
Hence, this bullish sentiment will continue over the next few trading sessions.
Thus, a trader should look at buying opportunities with the occurrence of a bullish marubozu.
The buy price should be around the closing price of Marubozu.
The stop loss should be the low of Marubozu
The spinning top

Spinning top has a a short body with wicks on both sides


It is a indecision by buyers and sellers to move the price
Doji

Dojis are similar to spinning tops except that it does not have a real body in it (a wafer thin body is also considered as doji)
The open and close prices are equal
The upper andlower wicks can be of any length
It indicates indecision in a market just like spinning tops
A doji at the bottom or top of rally indicates that there is an equal chance of the market continuing its uptrend or reversa
body is also considered as doji)

continuing its uptrend or reversal


The paper umbrella

It helps in setting up directional trades


It is characterized by a long lower wick and a small upper body
A paper umbrella consists of 2 trend reversal patterns:
The hanging man (Bearish) Appears at the top end of the trend
The hammer (Bullish) Appears at the bottom end of the trend

To qualify a candle as a paper umbrella:


The length of lower wick should be at least twice the length of the body

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