Learning all major candlesticks patterns might be a tough thing specially for people like me who forget things very quickly and easily. Candlesticks nonetheless are the best charts for a trader. So there is no question of avoiding the because there are two many patterns to remember. Rather if we break down the price move it becomes pretty easy. A pattern is ultimately doing just that for you. If you find it hard to remember what is hammer or hanging man or spinning top just forget the technical names and focus on what a candle tells you. Four things – open high low and close. Instead of finding patterns just find out what a candle is telling about that day’s market action and you will be right most of the times. Later on as you practice more you will automatically remember all the technical terms for patterns.
Here we have SBI,trading symbol on nse is sbin. We look at the 7 months chart. There are 10 crucial points in this chart. Number 1 is the top for the channel. Price came off that point two times. That is a double top. The text book definition is a little strict. What we need is the idea. On the chart at 1 price couldn’t break it twice. That is good enough for us. We know that it is not going to go any higher. Naturally it should go down but we have to wait before it does go down. That wait is over at 2. Price broke the channel range. We are good to short. Price does not always run away. It will test highs and lows and then chose the direction. The candle plays a big role. If the breakout at two was with a small candle with a long upper shadow i will take it as a sign that bulls still have some force. But that candle has no upper shadow. Price opened and simply went down with not a single tick on the up side. This is clear indication of bears force. The next point at 3 has three white candles in a row. Price is moving down and a white candle shows buyers were stronger that sellers. But here those white candles didn’t make new highs. Look at the long upper shadows. Means buyers did pull price up but couldn’t sustain it there. Signal is still bearish. When you draw a top or bottom line simply focus on close beyond that line. Price crossing a line but not closing beyond it is no signal or reversal.
Points 6 and 8 are v shaped reversals. Prices turns violently without forming a proper base. Base is the launchpad of any reversal. Though these two did pull price up but it couldn’t cross the high line. Also notice at 11,6 and 8 price is lower than the previous low point. The upmove after these points were more like retracements than reversals.
Then comes the base. Point 10. Here price didn’t reverse in a jerky way. It made a base. A proper launchpad. That base was tested soon too and held good. Now price is much more likely to go up. Among the upmoves from points 11,6,8 and 10 only 10 had a clear candle formations. Look at candles after 10, mostly white. This is the effect of having a proper base in place. Earlier all retracements had mixed bag of candles,some white some black.
You can afford to totally ignore what those candles are called technically. As long as you know which candle is bullish and which is bearish you will do good. On Monday 23-01-2012 the target will be to break the high price line. If it does that then you can expect more upmoves. If it doesn’t atleast it is not likely to have another selling spree considering that the bottom has been found. If i am long in sbi my personal target will be to book partial profit if it closes at 2000. And buy some more if it goes above 2000 and hold till 2100.
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Good one