BEGINNER'S GUIDE

TO

TECHNICAL
ANALYSIS
AND

SYSTEM
TRADING
 Holding losses and hoping to break
even is not an investing or trading
plan. That is dumb money on suicide
watch
BY Fred McAllen
contents
06
C H A R T
P A T T E R N S

44
C A N D L E S T I C K
P A T T E R N S

62
W I N N I N G
P S Y C H O L O G Y
 Chapter 1
Index
Chart patterns
1. Reversal patterns
1.1 Double top
1.2 Double bottom
1.3 Head & Shoulder
1.4 Inverse head & Shoulder
1.5 Rising wedge
1.6 Falling wedge
2. Continuation patterns
2.1 Bullish Flag
2.2 Bearish Flag
2.3 Bullish pennant
2.4 Bearish Pennant
2.5 Ascending triangle
2.6 Descending triangle
2.7 Bullish rectangle
2.8 Bearish rectangle
 Chapter 2
Index
Candlestick patterns
1. Single Candlestick patterns
1.1 Hammer
1.2 Hanging Man
1.3 Inverted Hammer
1.4 Shooting Star
2. Double Candlestick patterns
2.1 Bullish Engulfing
2.2 Bearish Engulfing
2.3 Tweezer Top
2.4 Tweezer Bottom
3. Triple Candlestick patterns
3.1 Morning Star
3.2 Evening Star
3.3 Three White Soldiers
3.4 Three Black Crow
 Index

Chapter 3
Winning Psychology
1. Do's & Don't of trading psychology
2. Common mistakes by traders
2.1 Trading without a setup
2.2 Emotional trading & over confidence
2.3 Over leveraging
2.4 Revenge trading
2.5 Risk management
 01

C H A P T E R

01
CANDLESTICK
PATTERNS
 Candlestick is the language of the stock
market. It may seem a little difficult or
overwhelming at first. Belief me! gradually
you will start enjoying the journey of reading
the chart patterns.

Don't worry: trust the process and

remember there is no shortcut to business.
We will be focusing on learning and then
earning.

Starting with the most seen and popular

candlestick pattern used by most of the
profitable traders.

We've tried using examples from the market

to give you more clarification.
When in doubt don't forget to look at the
examples.
Happy reading!
How to read a single
candlestick

BULLISH CANDLESTICK
BEARISH CANDLESTICK
Before we jump right into the chart patterns
it is important to understand the basic
trend of the market.

There could be only 3 possible trends in the

market.
Uptrend, downtrend and sideways
Now, how can we increase the possibility to
ride the market is by using candlestick
chart patterns. We will be using reversal &
continuation pattern in detail.
Reversal pattern

Reversal pattern means the formation

of candlesticks which indicates the end
of the existing trend (uptrend or
downtrend)

Double Double head &

top bottom shoulder

Inverse
Rising Falling
head &
wedge wedge
shoulder
 Double Top

The Double Top Reversal is a BEARISH

REVERSAL pattern . As its name implies, the
pattern is made up of two consecutive peaks
that are roughly equal, It looks like M pattern.

UPTREND REVERSAL SIGNAL

The pattern forms The pattern signals The reversal of an
during an a change in uptrend into a
uptrend price direction downtrend
EXAMPLES
 Double bottom

The Double Bottom pattern is a

BULLISH REVERSAL pattern . As its name
implies, the pattern is made up of two
consecutive lows that are roughly equal, It
looks like W pattern.

DOWNTREND REVERSAL SIGNAL

The pattern forms The pattern signals The reversal of a
during a a change in downtrend into an
downtrend price direction uptrend
EXAMPLES
 Head & Shoulders

The pattern contains 3 successive highs, with

the middle Peak (head) being the highest and
the two outside peaks (shoulders) being low
and roughly equal. The lows of each peak can
be connected to form support, or a neckline.

UPTREND REVERSAL SIGNAL

The pattern forms The pattern signals The reversal of an
during an a change in uptrend into a
uptrend price direction downtrend
EXAMPLES
 Inverse Head & Shoulders

Inverse Head and Shoulders, is a reversal

pattern that shares many common
characteristics with the Head and Shoulders.
The pattern contains 3 successive lows with the
middle low (head) being the deepest and the
two outside lows (shoulders) being shallower.

DOWNTREND REVERSAL SIGNAL

The pattern forms The pattern signals The reversal of a
during a a change in downtrend into an
downtrend price direction uptrend
EXAMPLES
 Rising wedge

The Rising Wedge is a bearish pattern that

begins wide at the bottom and contracts as
prices move higher and the trading range
narrows. To avoid false breakouts, you should
wait for a candle to close below the bottom
trend line before entering.

UPTREND REVERSAL SIGNAL

The pattern forms The pattern signals The reversal of an
during an a change in uptrend into a
uptrend price direction uptrend
EXAMPLES
 Falling wedge

The Falling Wedge is a bullish pattern that

begins wide at the top and contracts as prices
move lower. This price action forms a cone that
slopes down. To avoid false breakouts, you
should wait for a candle to close above the top
trend line before entering.

DOWNTREND REVERSAL SIGNAL

The pattern forms The pattern signals The reversal of a
during an a change in downtrend into an
downtrend price direction uptrend
EXAMPLES
 Continuation pattern
Chart patterns that indicates a likely
continuation of the prevailing trend.

Bullish Bearish Bullish

Flag Flag Pennant

Bearish Ascending Descending

pennant Triangle Triagle
 BULLISH FLAG

Bullish flag pattern can be found in strong

uptrends. The shape of the pattern is similar to
a flag on a pole, hence the name. The pole is the
result of a nearly vertical price increase while
the flag is formed as the price consolidates after
the increase.

UPTREND CONTINUATION SIGNAL

The pattern forms The pattern signals uptrend to be
during an the continuation of continued
uptrend the trend
EXAMPLES
 BEARISH FLAG

Bearish flag pattern can be found in strong

downtrend. The shape of the pattern is similar
to a flag on a pole, hence the name. The pole is
the result of a nearly vertical price decrease
while the flag is formed as the price
consolidates after the decrease.

DOWNTREND CONTINUATION SIGNAL

The pattern forms The pattern signals Downtrend to be
during an the continuation of continued
downtrend the trend
EXAMPLES
 BULLISH PENNANT

The bullish pennant is similar to the bullish flag

pattern. The key difference is the consolidation
phase that shows a less intensive effort to
reverse the trend.

UPTREND CONTINUATION SIGNAL

The pattern forms The pattern signals uptrend to be
during an the continuation of continued
uptrend the trend
EXAMPLES
 BEARISH PENNANT

The bearish pennant is similar to the bearish

flag pattern. The key difference is the
consolidation phase that shows a less intensive
effort to reverse the trend.

DOWNTREND CONTINUATION SIGNAL

The pattern forms The pattern signals Downtrend to be
during a the continuation of continued
downtrend the trend
EXAMPLES
 ASCENDING TRIANGLE

The ascending triangle pattern forms when the

price is making higher lows, but it is unable to
break through a resistance zone. It shows how
buyers gain more and more control as the price
runs up to the resistance level . Eventually, a
breakout occurs .

UPTREND CONTINUATION SIGNAL

The pattern forms The pattern signals Uptrend to be
during an the continuation of continued
uptrend the trend
EXAMPLES
 DECENDING TRIANGLE

The descending triangle pattern forms when the

price is making lower highs, but it is unable to
break through a support zone. It shows how
sellers gain more and more control as the price
runs down to the support zone. Eventually, a
breakout occurs .

DOWNTREND CONTINUATION SIGNAL

The pattern forms The pattern signals Downtrend to be
during a the continuation of continued
downtrend the trend
EXAMPLES
 BULLISH RECTANGLE

The bullish rectangle pattern is a temporary

sideways movement (box pattern) in an uptrend
that usually appears at or near an existing
resistance level that the price can’ t surpass
immediately.

UPTREND CONTINUATION SIGNAL

The pattern forms The pattern signals Uptrend to be
during an the continuation of continued
uptrend the trend
EXAMPLES
 BEARISH RECTANGLE

The bearish rectangle pattern is a temporary

sideways movement in a downtrend that
usually appears at or near an existing support
level , which the price has a hard time beating.

DOWNTREND CONTINUATION SIGNAL

The pattern forms The pattern signals Downtrend to be
during a the continuation of continued
downtrend the trend
EXAMPLES
 02

C H A P T E R

02
CANDLESTICK
PATTERN
SINGLE CANDLESTICK PATTERN
HAMMER HANGING
MAN

INVERTED SHOOTING
HAMMER START
 HAMMER

This is a candle with a short body and a

long lower wick. It is usually located at
the bottom of a downward trend. It
indicates that despite selling
pressures, a strong buying surge
pushed the prices up.
 INVERTED HAMMER

The inverted hammer has a long upper

candlewick and a small body in the
lower part of the candle. Same as the
hammer, an inverted hammer appears
during bearish trends. It suggests a
price reversal.
 HANGING MAN

The hanging man looks the same as the

hammer, but it appears during bullish
trends and suggests that a new bearish
trend might appear. This is a candle
with a short body and a long lower
wick. It is usually located at the top of
an upward trend.
 SHOOTING STAR

The shooting star has the same structure

as the inverted hammer. This is a candle
with a short body and a long upper wick.
It is usually located at the top of an
upward trend too.
DOUBLE CANDLESTICK PATTERN

BULLISH
TWEEZER
ENGULF
TOP

BEARISH TWEEZER
ENGULF BOTTOM
 BULLISH ENGULFING

This is a pattern of two candlesticks

where the first candle is a short red
one engulfed by a large green candle. It
indicates a bullish market that pushes
the price up
 BEARISH ENGULFING

This pattern is simillar to Bullish enguf

where the first candle is a short green
one engulfed by a large red candle. It
usually occurs at the top of an upward
trend. It indicates a slowdown in the
market rise and an upcoming
downtrend.
 TWEEZER TOP

The Tweezer Top pattern is a bearish

reversal candlestick pattern that is
formed at the end of an uptrend.
It consists of two candlesticks,
Both the tweezer candlestick make
almost or the same high.
 TWEEZER BOTTOM

The Tweezer Bottom candlestick

pattern is a bullish reversal candlestick
pattern that is formed at the end of
the downtrend. It consists of two
candlesticks, Both the candlesticks
make almost or the same low.
TRIPLE CANDLESTICK PATTERN

MORNING
EVENING
STAR
STAR

3 WHITE 3 BLACK
SOLDIERS CROW
 MORNING STAR

Morning Star candlestick is a triple

candlestick pattern indicating bullish
reversal. It is formed at the bottom of a
downtrend
It consists of three candles; the first one
being a bearish candlestick, the second one
can be bullish or bearish with a small body,
and the third one is a bullish candle.
 EVENING STAR

An Evening Star is a candlestick pattern that

indicates a reversal.
It consists of three candlesticks: a large
bullish candlestick, a small-bodied candle,
and a bearish candlestick.
Evening Star patterns appear at the top of a
price uptrend, signaling that the uptrend is
going to end.
 3 WHITE SOLDIERS

This is a three-candle pattern that has

three green consecutive candles with
small or no wicks. After a downtrend,
this is a strong indication of an
upcoming bull trend.
 3 BLACK CROWS

This pattern is similar to 3 white soldiers

whereas it has three consecutive red
candles with short or no wicks. After an
upward trend, this is a strong indication
of an upcoming bear market.
 03

C H A P T E R

03
 WI I N N I N G
PSYCHOLOGY
 My arms are huge!!
Check out
these GUNS!

An
al
ys
is

Charts

Psychology
Pos sizing
Uhh!! Thats great Risk
what about Management
the rest of you ?? Discipline
Consistency
 DO'S & DON'T OF TRADING
PSYCHOLOGY

Follow Trading setup Take emotional trade

Acknowledge losses Be Over confidence
Learn from mistakes Revenge trading
Take break if needed Threat of high
Follow discipline expectation
Control impulses FOMO, Greed &
Stay consistent Fear
COMMON MISTAKES BY TRADERS

Becoming a stock market trader

may seem very fascinating &
having financial freedom.
It may seem very easy and
uncomplicated to implement, and
we may have a good profitable
trading setup, but where most of
the traders lag is the psychology.

Why so?
Here are some of the common
mistakes made by traders
Trading without a Setup
 1.
Trading without a Setup

Every trader needs a trading plan.

Making a blind guess will only
make you a gambler.
Start from the basics if you're a
beginner don't get into too much
technicality. Have a strategy
Start reading charts Treat your
losses as an oportunity to learn
EMOTIONAL TRADING
&
OVER CONFIDENCE
 2.
EMOTIONAL TRADING
& OVER CONFIDENCE

We all might have experienced

beginner's luck thinking that we
have mastered and can't go wrong
after making profitable trades in
series. Overconfidence and
emotional trading are not smart
trading.
Becoming an emotional trader will
lead to revenge trading and then
losses, eventually we realize that
it's money at stake
OVER LEVERAGING
 3.
OVER LEVERAGING

One of the cardinal sins of traders

particularly of those who don't fully
understand of how leverage works
Some people only see the potential
wins and ignore the potential losses.
It is not unknown for traders with a
limited knowledge of leverage to
soon find that their losses have
wiped out the entire value of their
trading account.
REVENGE TRADING
 4.
REVENGE TRADING

We need to understand that trading

is a probability game & its obvious to
make losses, One should always treat
their losses as an opportunity to
learn. You need to make peace with
it, dont get into revenge trading or
prove yourself that you're winner
RISK MANAGEMENT
 5.
RISK MANAGEMENT

Not having a proper risk management

is the root cause of holding on losses in
a view of break even The risk-to-
reward ratio is something every trader
should take into consideration, as it
helps them decide whether the end
profit is worth the possible risk of
losing capital.
Stop judging your trading day by
how much profits you made.
Instead, start judging it by how
much disciplined and process-
driven you were