STOCK'S KNOWS

Friday, May 4, 2018

Chart Patterns: Part 1

Gaurav Chart Patterns, Technical Analysis

Hey friends, welcome to Stock’s Knows. In the previous article, we have learned about Candlestick patterns and their interpretation.

Another important concept of technical analysis is chart patterns. Since market participants are Humans and it is a human psychology to repeat things. Like candlestick patterns, we can also find some chart patterns repeatedly in charts of any tradable security.

If we somehow know about those chart patterns and interpretation of them, it will be very helpful for us to analyze and predict the direction of price. From this article, we will learn all those chart patterns with their interpretation and also, we will understand how to trade them to get profit.

First, two chart patterns are Head and Shoulder pattern and Inverted Head and Shoulder Pattern.

1)Head and Shoulder Pattern:

Head and Shoulder pattern is a combination of three tops, in which 1^st and 3^rd tops are lower than the 2^nd top, they look like left and right shoulders of a human. And the Second top looks like the head of a human. Graphical look of this pattern is like a human’s head with left and right shoulders. Hence this pattern’s name is head and shoulder pattern.

Head and shoulder pattern is a strong bearish reversal pattern. It generally forms at the end of an uptrend. In below picture, we can see, how head and shoulder pattern looks like. In the picture, we also see the neckline of Head and Shoulder, which is very important part of it.

Breakout:

Breakout of Head and Shoulder pattern happens if the price falls and closes below neckline with huge volume surge. Volume is very important at the breakout of any pattern.

How to trade?

One can go short when breakout of neckline happens with huge volume.

Stop loss ideally somewhere above the neckline.

For target, one needs to measure price difference between head and neckline and project it from neckline to below it.

Image Source: Investing.com

Image Source:Investing.com

2)Inverted Head and shoulder pattern:

Inverted Head and Shoulder pattern is the inverse form of Head and Shoulder pattern. Inverted Head and Shoulder forms from three bottoms. First and third bottoms are higher than the second bottom. Inverted Head and Shoulder pattern is a strong bullish reversal pattern. It generally shows at the end of a downtrend. Below are the Inverted head and shoulder pictures. We can see neckline in that picture, which is also very important part of this pattern.

Image Source:Investing.com

Breakout:

Breakout of Inverted Head and Shoulder pattern happens once price breaks Neckline with huge volume surge.

How to trade?

One can go long when breakout of neckline happens with huge volume surge.

Stop loss is ideally somewhere below the neckline.

For target, one needs to measure price difference between head and neckline and project it from neckline to above it.

Note: I have used JP ASSOCIATES chart only for an example, it is not the recommendation.

This was Head and Shoulder twins patterns. In next part, we will learn more chart patterns. If you find helpful above information then please Share our article and Subscribe to the newsletter of our blog.

Candlestick Patterns: Part 3

Gaurav Candlestick Patterns, Technical Analysis

Hey friends, welcome to Stock’s Knows. This is 3^rd and final part of candlestick patterns. In this part, we will understand candlestick patterns formed by more than two candles.

1)Morningstar:

Morningstar pattern is strong bullish reversal pattern having three candles in it. The 1^st candle is always a long bearish candle .2^nd candle is like spinning Top or doji (Shows indecision). The 3^rd candle is long bullish candle need to close above the midpoint of a 1^st candle. Generally forms at the end of a downtrend and after that uptrend will start.

2)Evening Star:

The evening star is strong bearish reversal pattern and also made of three candles. The 1^st candle is always a long bullish candle. 2^nd candle shows indecision (small body and long shadows). The 3^rd candle is a long bearish candle and needs to close below the midpoint of the 1^st candle. It generally forms at the end of an uptrend and indicates the upcoming downtrend.

3)Three white soldiers:

Three white soldiers pattern is a strong bullish reversal pattern if forms after consolidation or downtrend. The 1^st candle is bullish, close near high. 2^nd candle opens within the range of 1^st candle and close above high of the 1^st candle and need to have a longer body than the 1^st candle. 3^rd candle opens within the range of 2^nd candle and closes above the high of the 2^nd candle.

4)Three Black crows:

Three black crows pattern is a strong bearish reversal pattern if forms after consolidation or uptrend. The 1^st candle is bearish, close near low. 2^nd candle open within the range of 1^st candle and close below low of a 1^st candle. The 3^rd candle must be big bearish, which opens within the range of 2^nd candle and close below the low of the 2^nd candle. All the three candles have no or small shadow.

5)Three inside up:

Three inside up is also a strong bullish reversal pattern. The 1^st candle is the bearish candle, shows that market is still bearish. The 2^nd candle is bullish and shorter and closes above the midpoint of the 1^st candle. The 3^rd candle is long bullish candle close above high of 2^nd and above high of the 1^st candle.

6)Three inside down:

Three inside down is a strong bearish reversal pattern. The 1^st candle must be the bullish candle, shows that market is still bullish. The 2^nd candle is bearish and shorter and closes below the midpoint of the 1^st candle. The 3^rd candle is long bearish candle close below the low of the 2^nd candle and below the low of the 1^st candle.

This was all about candlestick patterns. You need to learn and practice to analyze it. More practice is more helpful for any chartist.

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Candlestick Patterns: Part 2

Gaurav Candlestick Patterns, Technical Analysis

Hey friends, welcome to Stock’s Knows. This is the 2^nd part of candlestick pattern article. In this article will understand candlestick patterns formed by 2 candlesticks.

1)Bullish Engulfing:

Bullish Engulfing candlestick pattern forms by 2 candles, the first candle is generally small and bearish, the 2^nd candle is bullish and long. 2^nd candle engulfs the first one. This type pattern is known as a Bullish Engulfing pattern. It is a bullish reversal pattern and in most of the cases, it found near the bottom at the end of the downtrend. If next candle closes above the high of a 2^nd candle, it clearly indicates upcoming uptrend.

Bullish Engulfing as bullish reversal pattern

2)Bearish Engulfing:

It is also two candle pattern. The 1^st candle is always small and bullish, a 2^nd candle is long and bearish. 2^nd candle fully engulfs the first one. It majorly forms at the end of uptrend hence it is a bearish reversal pattern. When 3^rd candle will close below the low of the 2^nd candle, it clearly indicates an upcoming downtrend.

Bearish Engulfing Candlestick Pattern as Bearish reversal

3)Bullish Harami:

Bullish Harami pattern is a mirror image of the bullish engulfing pattern. In bullish harami pattern, the 1^st candle is long and bullish. The 2^nd candle is small and bearish. A 2^nd candle always in between high and low of the first candle. It forms generally at the bottom, end of the downtrend. It is a bullish reversal pattern. If 3^rd candle closes above 1^st candle’s high, it clearly indicates upcoming uptrend.

Bullish Harami Candlestick Pattern as Bullish reversal

4)Bearish Harami:

Bearish Harami pattern is the mirror image of the Bearish Engulfing pattern. The 1^st candle is always long bearish candle and the 2^nd candle is always small bullish candle. 2^nd candle forms in between High and low of the 1^st candle. It is bearish reversal pattern and forms generally at the end of an uptrend. If 3^rd candle closes below Low of the 1^st candle, it is clear indication of the upcoming downtrend.

Bearish Harami candle as bearish reversal pattern

5)Dark cloud cover:

Dark cloud cover is also bearish candlestick pattern. In this pattern, the 1^st candle is a strong bullish candle, but the 2^nd candle is a strong bearish candle and opens above the high of the 1^st candle, close below the midpoint of the first candle. It forms near the resistance zones.

Dark Cloud Cover as Bearish Reversal pattern

6)Piercing Line candlestick pattern:

Piercing Line pattern is just mirror image of Dark cloud cover pattern. The first candle is always strong bearish candle and 2^nd candle open below the low of the 1^st candle and close above the midpoint of the 1^st candle. It is a bullish reversal pattern. It generally forms near the support zone.

Piercing Line as Bullish reversal pattern

7)Tweezer tops:

The tweezer top is the bearish reversal pattern. A 1^st candle is the strong bullish candle and closes at high. The 2^nd candle is a bearish pattern and opens at high-level decrease to a lower level. Highs of both candles are almost same. It generally forms at the end of an uptrend.

8)Tweezer bottoms:

The tweezer bottom is the bullish reversal pattern. The 1^st candle is the strong bearish candle, close at the low level. 2^nd candle open at low and increase from that level and close near high. Lows of both candles are almost same. It generally forms around support zones and at the ending of the downtrend.

Tweezer Bottom as Bullish reversal pattern

This was the 2^nd part of candlestick pattern article. In 3^rd part, we will understand about candlestick pattern formed by more than two candles. If you find helpful above information then please Share our article and Subscribe to the newsletter of our blog.

Candlestick Patterns: Part 1

Gaurav Candlestick Patterns, Technical Analysis

Hey friends, welcome to Stock’s Knows. This is the 4th article of technical analysis. In this article, we will learn about some candlestick patterns and their interpretation. Candlestick charts are most useful charts because different types of candlestick patterns have their different interpretation which is very helpful to understand the market.

1)Marubozu:

A candlestick pattern which has the only body but no shadow or small shadow is known as marubozu. A rarely found marubozu candlestick pattern is of both types bullish and bearish. For bullish marubozu, always open equals Low and Close always equals high, in bearish Marubozu open equals High and Close equals Low. Marubozu type candlestick pattern can be both continuation and reversal pattern.

Marubozu as Bullish continuation pattern:

If you find Bullish marubozu in the uptrend, it indicates the continuation of that uptrend.

Marubozu as Bullish reversal pattern:

If you find Bullish marubozu after the downtrend, it is the indication of a reversal of trend and uptrend may be coming.

Marubozu as Bearish Continuation pattern:

If you find Bearish marubozu in the downtrend it is the indication of the continuation of that downtrend.

Marubozu as bearish reversal pattern:

If you find bearish marubozu after the uptrend, it is the indication of trend reversal may be coming.

2)Spinning top :

In spinning top candlestick pattern, a body is very small as compare to shadows. Generally, shadows are more than double size of the body. This looks like a spinning top toy, so it named as spinning top candle. It is the sign of indecision and it generally forms at the end of an uptrend or a downtrend. After spinning top candlestick pattern one need to wait for next candle, which will indicate the situation.

Spinning Top candlestick pattern can indicate both bullish and bearish reversal.

Spinning top as bullish trend reversal:

Spinning Top as Bearish Trend Reversal:

3)Doji:

Doji patterns have very small or nobody and long shadows, there are four types of doji patterns:

a)Gravestone doji,
b)Dragonfly doji,
c) Doji
d)Long-legged Doji

a)Gravestone Doji generally forms after an uptrend and it is the indication of the end of an uptrend or reversal of an uptrend and downtrend might start.

b)Dragonfly doji generally forms after a downtrend and it is the indication of an end of downtrend or reversal of trend and uptrend might start.

c)Doji forms both after the uptrend or after the downtrend. If it forms after the uptrend, it indicates the bearish trend reversal. If it forms after the downtrend, it indicates the bullish trend reversal.

d)Long-legged doji forms after both of trends. If it forms after uptrend it indicates the bearish trend reversal ( or indecision) and if it forms after downtrend it indicates bullish trend reversal (or indecision).

3)Hammer and Inverted Hammer pattern:

i)Hammer candlestick pattern looks like the hammer, it has the small body, small upper shadow, and longer lower shadow. There is no bullish or bearish hammer, hammer generally forms after significant downtrend near the bottom of the downtrend. whether it has the bullish body or bearish body it indicates that bottom may be hammered out and uptrend might start. Price will go up from here.

Hammer candlestick pattern as bullish reversal pattern

ii)Inverted hammer candlestick pattern looks like the inverted hammer, it has the small body, small lower shadow, and long upper shadow. Generally, length of the shadow is more than double of the length of the body. It generally forms after both uptrend and downtrend. If it forms at the bottom, after significant downtrend it indicates that buyers are coming back and sellers are exhausted.

Inverted Hammer as Bullish reversal candlestick pattern

iii)Shooting star:

If inverted hammer form at the top, after significant uptrend it is known as shooting star because it looks like when a star shooting from the sky. If low of shooting star breaks in next candle it clearly indicates of bearish reversal and downtrend might come because of sellers are back in the game.

Shooting star Candlestick as Bearish reversal

This was the part 1 of candlestick patterns, in 2^nd part will understand candlestick patterns formed by more than one candle. If you find helpful above information then please Share our article and Subscribe to the newsletter of our blog.

Basics of trading and important things to know while trading.

Gaurav Technical Analysis,

Hey friends, welcome to Stock’s Knows. This is the 3^rd article of Technical Analysis, in today’s article, we will know Basics of Trading.

What is Trading?

Trading is a method to make a profit from buying and selling shares or security or currency during the shorter time frame. There are different types of traders in the market. Risks, rewards and time frames are different for different types of traders. We can classify mainly three types of traders shown in the market.

1)Intraday Trader:

An intraday trading is a method to get profit from changes in the price of shares during the day. An intraday trader needs to close his opened position before closing the market, whether it is a profitable position or losing position. Intraday traders are players which play in direction of Market.

Intraday traders always try to book their profit quickly or cut loss quickly. Though intraday trading removes the overnight risk of carrying shares, it is not the easy task to do.

2)Positional Trader:

Positional trading is like day trading but positional traders do not square off their position before closing the day but they take their position in any security and hold for some days to the week and try to get profit from changes in share price during some time period.

Although it consists of overnight carrying risk, as per my view in positional trading you have some more time as compare to intraday to take decisions as per your risk or reward capacity. They book profit or cut losses as per their plan on basis of the movement of share or security price.

3)Short term or Swing Trader:

Short term or swing trading is trading for a time period of 1 week to 4 weeks. A swing trader always tries to get profit from market swings during some weeks. Swing trading also carries Overnight holding risk but it is less risky as compared to intraday and positional trading as per my view.

They always buy at low and sells at high. Risk and reward in swing trading are different from both above types of trading. Though all types of trading are risky but if you trade strictly as per your plan, you will get profit in the long run.

Some important things to decide while trading:

1)The risk to reward ratio:

The risk to reward ratio is first important thing while trading. The risk to reward ratio is defined as: How much reward you expect per share while taking risk of Rs.1 per share.

If you expect Rs.5 per share as a reward while taking risk of Rs.1 per share your risk to reward ratio will be “1:5” (Risk: Reward or Risk/Reward). Higher the reward compares to risk better it is. A ratio of 1:5 is better than 1:1 ratio.

For different type trader risk to reward is a different but minimum risk to reward ratio is always 1:1 because minimum reward while taking risk of Rs.1 per share is not less than Rs.1 per share.

2)Target:

Target is a level near that one need to book full or partial profit. Booking profit is very important because the market is always volatile and if someone waits for more and more profit and not book profit, it is possible that market may reverse its direction and profitable position will become losing position.

To avoid those scenarios one needs to set the target and continue to book at least partial profit. In above condition trailing stop loss will help you.

3)Stop loss:

In any type of trading cutting losses is as much important as booking profit. STOP LOSS is a level beyond that one need to square off his position to cut the loss as per his risk-carrying capacity.

As per trader’s risk to reward ratio and on the basis of charts, stop loss must be decided. Because of news, events, and volatility, the market can change its direction any time.

To protect himself from that volatility and to limit the losses, one always need to place stop loss orders.

If you are in buy side, your stop loss level would be just below the nearest support level, if you are in sell-side your stop loss level must be above the nearest resistance level.

There are many support and resistances possible in any price range, one needs to decide that where to put stop loss as per his risk to reward ratio and as per his trading style.

There are different stop loss levels in the same position for Intraday or Positional or swing trader.

In trading, many people because of emotions prevent to cut losses earlier and think the market will reverse to give him reward so they hold their positions but an ideal trader do the exact opposite of it, he always tries to cut losses quickly and try to run his profitable position.

Thinking that market will reward me because so and so reason is not good quality of a trader.

Accepting whatever real condition is, the best quality of a trader. If you want to be profitable in trading you need to do like the ideal trader.

Types of STOP LOSS:

1)Trailing stop loss:

Trailing stop loss is moving stop loss which moves in favor of the position as price goes in favor of the opened position.

If you have bought some shares at 200 and your stop loss is at 196, suppose price moves from 200 to 204 then you need to increase stop loss from 196 to 200, in this condition your trade is protected and you won’t lose anything.
After sometime price further increases to 208 then you need to increase your stop loss to 204, in this condition your profit of Rs.4 per share is locked and in any market condition you will get minimum that profit. This is known as trailing stop loss.

No. CONDITION STOP LOSS PRICE

1) Just Bought 196 200

2) After some time 200 200

3) More time passed 200 208

2)Fixed stop loss:

After understanding about trailing stop loss, you will think people need to always use trailing stop loss, but it is not true.

Sometime trailing stop loss will give unnecessary losses, because in the highly volatile market it is possible that price of purchased share suddenly decrease and hit your stop loss and quickly increase from that level and hit your target, but your position was squared off and you will get the unnecessary loss.

So trailing stop loss is a good idea but not in all cases. In the highly volatile market, you have to increase your risk, need to find strong support below that you can put stop loss, to increase the probability of hitting it.

In that case, you can not trail your stop loss. This type of Stop loss is known as strict or fixed stop loss.

This was some basic and important things of trading.

If you find helpful above information then please Share our articles and Subscribe to the newsletter of our blog.

Friday, May 4, 2018

Chart Patterns: Part 1

Candlestick Patterns: Part 3

Candlestick Patterns: Part 2

Thursday, May 3, 2018

Candlestick Patterns: Part 1

Tuesday, May 1, 2018

Basics of trading and important things to know while trading.

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