4.1 – History tends to repeat itself – The big assumption
As mentioned earlier, one of the key assumptions in technical analysis is that we rely on the fact that history tends to repeats itself. This probably is one of the most important assumptions in Technical Analysis.
It would make sense to explore this assumption in greater detail at this juncture as candlestick patterns are heavily dependent on it.
Assume today, the 7th of July 2014 few things are happening in a particular stock. Let us call this factor:
- Factor 1 – The stock has been falling for the last 4 consecutive trading sessions
- Factor 2 –Today (7th July 2014) is the 5th session, and the stock is falling on relatively lower volumes
- Factor 3 – The range in which the stock trades today is quite small compared to the last four days.
With these factors playing in the background, let us assume that on the next day (8th July 2014) the fall in stock gets arrested and the stock rallies towards a positive close. So, as an outcome of the 3 factors, the stock went up on the 6th day.
Time passes and let’s says after a few months, the same set of factors is observed for 5 consecutive trading sessions. What would you expect for the 6th day?
According to the assumption – History tends to repeat itself. However, we need to make an addendum to this assumption. When a set of factors that have panned out in the past tends to repeat itself in the future, we expect the same outcome to occur, as was observed in the past, provided the factors are the same.
Therefore, based on this assumption, we can expect the stock price to go up on the 6th trading session even this time around.
4.2 – Candlestick patterns and what to expect
The candlesticks are used to identify trading patterns. Patterns, in turn, help the technical analyst to set up a trade. The patterns are formed by grouping two or more candles in a certain sequence. However, sometimes powerful trading signals can be identified by just a single candlestick pattern.
Hence, candlesticks can be broken down into single candlestick pattern and multiple candlestick patterns.
Under the single candlestick pattern, we will be learning the following…
- Marubozu
- Bullish Marubozu
- Bearish Marubozu
- Doji
- Spinning Tops
- Paper umbrella
- Hammer
- Hanging man
- Shooting star
Multiple candlestick patterns are a combination of multiple candles. Under the multiple candlestick patterns, we will learn the following:
- Engulfing pattern
- Bullish Engulfing
- Bearish Engulfing
- Harami
- Bullish Harami
- Bearish Harami
- Piercing Pattern
- Dark cloud cover
- Morning Star
- Evening Star
Of course, you must be wondering what these names mean. As I had mentioned in the previous chapter, some of the patterns retain the original Japanese name.
Candlestick patterns help the trader develop a complete point of view. Each pattern comes with an in-built risk mechanism. Candlesticks give an insight into both entry and stop-loss price.
4.3 – Few assumptions specific to candlesticks
Before we jump in and start learning about the patterns, there are few more assumptions that we need to keep in mind. These assumptions are specific to candlesticks. Do pay a lot of attention to these assumptions as we will keep referring back to these assumptions quite often later.
At this stage, these assumptions may not be obvious to you. I will explain them in greater detail as and when we proceed. However, do keep these assumptions in the back of your mind:
- Buy strength and sell weakness – Strength is represented by a bullish (blue) candle and weakness by a bearish (red) candle. Hence whenever you are buying ensure, it is a blue candle day and whenever you are selling, ensure it’s a red candle day.
- Be flexible with patterns (quantify and verify) – While the textbook definition of a pattern could state certain criteria, there could be minor variations to the pattern owing to market conditions. So one needs to be a bit flexible. However, one needs to be flexible within limits, and hence it is always required to quantify the flexibility.
- Look for a prior trend – If you are looking at a bullish pattern, the prior trend should be bearish, and likewise, if you are looking for a bearish pattern, the prior trend should be bullish.
In the next chapter, we will begin by learning about single candlestick patterns.
Key takeaways from this chapter
- History tends to repeat itself – we modified this assumption by adding the factor angle.
- Candlestick patterns can be broken down into single and multiple candlestick patterns.
- There are three important assumptions specific to candlestick patterns.
- Buy strength and sell weakness.
- Be flexible – quantify and verify.
- Look for a prior trend.
Team Zerodha……keep rocking. Special thanks to Mr. Karthik Rangappa for his way of teaching!!!
Please do stay tuned for further updates.
Don’t you think the advice to buy on a bullish trade and sell on bearish trade is wrong?
In fact, one should do the reverse of that. What do you say?
The other way to look at this is – you are buying strength and selling weakness.
This isn’t clear.
It is just an assumption but analysing logically, when we are buying during blue candle day, it means we are paying more for a stock and the high price we paid for the stock may go down after sometime.
Then how come we buy strength and sell weakness here?
Consider this, a stock moves from 100 to 160 in 3 months, this is a 60% move. Buying this at 100 and selling this at 160 is easier said than done. You cannot time is unless you have luck favoring you. So instead of trying to time and aspiring to catch the entire 60% move, I’m happy buying at 120 (after ensuring the trend has established) and selling around 145-50. So in a sesnse, you catch a portion of the big move, which is completely fair enough.
but on bearish day a person can also do short trading for making profit
Like u said before TA/ candlsticks is for short term or intraday trading.What if a person is trying to trade for long term period given that its fundamental is strong than he has to do the opposite ,right?
I AM SPECIFICALLY ASKING IN REGARD TO ENTRY POINT PRICE FOR LONG TERM TRADING
If you are trading long term, I’d suggest you don’t really look at TA. How would it matter if you bought a stock at 100 or 103 in the longer run?
Can these candlestick patterns be used for short span like 5 minutes?
Yup, can be used across any time frame, any asset.
SIR,
Like u said before TA/ candlsticks is for short term or intraday trading.What if a person is trying to trade for long term period given that its fundamental is strong than he has to do the opposite ,right?
I AM SPECIFICALLY ASKING IN REGARD TO ENTRY POINT PRICE FOR LONG TERM TRADING
Great Tutorial !!………Thanks Mr. Karthik Rangappa
waiting for programming for traders book in this manner
Sir, Is it necessary that a candlestick pattern has to have a high/ low price of a trend ? Referring to the image, does the last candle indicate Bearish Engulfing pattern. Thanks.
Sorry. Forgot to upload the image before.
Yes, infact I can see 2 bearish engulfing patters here.
2 Bearish Engulfing Patterns means, In the last of the Graph only you can able to see it right?
Please confirm that.
Unable to get the context Saikiran, can you please elaborate. Thanks.
Can you tell me or Draw a circle Where you are seeing 2 Bearish Engulfing Patterns..So that i can co relate with what i have studied in your Article..
Are you sure this is in context of this chapter? I’m unable to spot the line where I’ve mentioned ‘2 bearish engulfing pattern’. Can you kindly help me place it? Thanks.
Sir thanks for this information which u provided but wat timing of candle stick we have to consider . Bcz there r sever period candle stick such that 1 minute , 5 minute n 15 minute n 30 minute candle sticks r there so which time candle stick is better to predict the market .
The shorter the time frame, the higher is the noise component. Given this, I’d suggest you stick to at least 15 mins while trading intraday.
Sir can you tell ideal timeframe where one should do intraday trading.
I’d prefer 10 or 15 mins candle.
Sir,
Firstly, What the third candlestick (from left) suggest as there is no body part?
secondly ,Why some candlestick have dark green and some have light green?
lastly, You mention somewhere that if BODY part is LONG then it may be good signal. Is it true? Or I understood wrong?
I think first candle you are referring to could be a marubuzo. Kindly check for that.
I’m not sure what the dark green candle indicates, it could be a software specific issue.
Long body indicates a more pronounced price action, please view this along with other technical parameters.
Yes Yes , I read MORUBUZO rit now!! Thanks!!!
Can u plz elaborate “Be Flexible, Quantify and Verify” with a good and simple example or provide me link.
I have explained this in section 5.2 of this chapter – http://zerodha.com/varsity/chapter/single-candlestick-patterns-part-1/.
Also request you to please do go through the initial few comments.
I don’t see things you are talking about anywhere in the chapter. I am missing something?
Which topic are your referring to?
Dark candle may be an indication of trend continuation
what candlestick pattern to see and trade in intraday . is there any software which recognise the formation , which time frame to use .
You can look for both single and multiple candlestick patter while trading intra day. Zerodha’s Pi has a pattern recognition feature which can be used.
the above said in chart mother and child pattern , buy above the mother candle keeping low as stop loss.
Yes sir.
Be flexible with patterns (quantify and verify) – what does it mean, how much to be flexible and how to verify it.
This means, whenever you are looking at candlestick pattern don’t always look for textbook definition of candlestick patterns. Textbook definitions are good, but need not always be true in real markets. For example a bullish marubuzo is defined by 0pen = low & High = Close. This means there is no upper or lower shadows. However in real mkts you could have a small shadow and you should still be flexible to identify it as a bullish marubuzo. This is what I mean by ‘be flexible’. However you also need to quantify what you are being flexible with.
Thanks for this excellent tutorial. It has been very useful.
I need one clarification on the point “Buy strength and sell weakness”. Your comment says “whenever you are buying ensure it is a blue candle day and whenever you are selling, ensure it’s a red candle day.”
However, on the trading day, how do you determine if it is a blue / red candle day? Because at that point you only know the open price and the candle for the entire day is not yet formed. Did you mean the intraday candle formed for that day till that point should be blue/red?
Exactly – so if you notice throughout the module I have suggested buying/selling only around 3:20 PM which is towards the close of the day. Around 3:20 PM you will be able to ascertain if it is a blue/red candle day with conviction…and hence take the required action.
But why should one buy on a blue candle day and sell on a red candle day?
Won’t buying on a blue candle day would mean paying more, as the prices would have moved up? And selling on a red candle day would mean selling for less, as prices would move down on such days? How is this profitable, and shouldn’t we do just the opposite?
Sorry, if my questions sound stupid. I am a beginner and this concept doesn’t make sense to me.
Buy strength (represented by a blue candle) and sell weakness (represented by a red candle) – this is an integral part of trading based on CS pattern.
I have had the same thought while reading. Can anyone explain why we should not we be doing the opposite?
You do this with an expectation that the prices would drift further (in the direction of the trade). Taking an action on Blue/Red candle day only enhances the probability of a profit.
Dear Sir,
Even if we come to know at 3:20pm that it was bullish or bearish day then what one can do as after 3:20pm system will not allow you to trade.Can you please give example how one can use this info.
Regards
You can always trade derivatives in NRML.
Why have you removed Ctrl+F option from Z-connect blogs ? It was very useful to navigate through the blog while searching for a specific word/term etc. Please enable the same ASAP.
Ctrl+F is a browser specific search function which may be different on other browsers. Why don’t you try F3 if Ctrl+F doesn’t work for you.
We’ve not disabled anything.
if we sell it on a red candle day, wont it result in loss for the seller?
Selling on red candle day means short the trade and profit out of the falling prices.
sir,its silly but should be clarified with genius ,whenever we see charts i dont know how much should i ZOOM,bcoz in opening multiple chats one will be little zoomed others will be differently zoomed.is there particulr style to ZOOM so that there is no confusion
Zoom in just enough to see the candles with great clarity. Make sure you dont load too many data points, if you do then the chart may look highly cluttered. So take care to zoom in just as much as required.
sir,
What do you mean by short or long tail. does we have to look at high or low
or it is open or close tail?
The long and short tails here refers to the swings the stock makes wrt to its open or close. For example in a bullish candle, the lower tail refers to the range between the open and low and the upper tail refers to the range between the close and high. Likewise in a bearish candle, the lower tail refers to the range from close to low and the upper tail refers to the range from open to high.
Respected sir kartik,
Really helpful venture by you which is a boon for young investors like me. I just started trading and the thing i noticed is there are too many advisory firms providing tips on trading. However they do not clarify on how the particular trade has been selected. I would really appreciate if you could help me in the matter as its quite confusing for me, by suggesting a proper advisory panel.
The idea with Varsity is to empower you with all the knowledge one needs to identify his own trade, seeking an investment/trading advice would defeat this purpose.
Kudos to this spirit !
Cheers!
Thanks for a great material, a real fun learning … one question how to identify a blue candle day and red candle day for buying or selling
Thanks Pratap – the next chapter has the answer for your question 🙂
http://zerodha.com/varsity/chapter/single-candlestick-patterns-part-1/
dear karthik,
Can you please clarify if we buy in green candle as in end of the day 3.20 ,many of the chance i see the stock price reverse so
from single candle how can we determine to buy.Was that for intraday trade for the next day or long trade.
thanks
Vikas, the color of the candlestick is just 1 of the parameters, there are many other parameters in the checklist which should satisfy before you initiate the trade. So please make sure all of them satisfy before you pull the trigger on the trade.
Hi –
Can you help me with this?
In a daily chart, 1 candle represents 1 day. Since the market closes at 03.30PM and only opens the next day at 09.00AM, there is a “closed/non-trading” time. Opening price does not have to be equal to previous day’s closing price.
But for an intraday chart where 1 candle represents a few mins (or an hour), there is no “closed/non-trading” time between successive candles. In that case open price of a candle should always be closed price of previous candle. There can be no “gapping”.
I know this idea is wrong, but I don’t know where I am going wrong. I therefore want to understand the construction of intraday candlestick charts. No patterns, signals etc. – just the construction.
Raj – intraday gaps are possible. In fact it intraday gaps happen all the time. This means ‘minute 1’ closing need not necessarily be ‘minute 2’ opening.
“Look for a prior trend – If you are looking at a bullish pattern, the prior trend should be bearish and likewise if you are looking for a bearish pattern, the prior trend should be bullish.” Please describe
Raman – there are plenty of examples quoted in the following chapters, suggest you to please look through the same for clarity. Let me know if in case you find it difficult.
looking at a bullish pattern, the prior trend should be bearish – Can you please explain with an example as you do. I understood whole chapter and not this line.
Most of the patterns discussed are ‘trend reversal’ patterns. By definition, a trend reversal pattern requires the opposite pattern in the past for it to be considered as ‘trend reversal’. So a bullish pattern needs a bearish prior trend and vice versa.
Sir you and zerodha are doing fantastic job by bring in this tutorials, thank you very much for creating technical analysis literacy among us, your resources are to the point and very very easy to understand. I have a question – should candlestick patterns be used as one of the indicators for intraday high frequency trading when I have pattern confirmation by looking at candles from past few days along with some other indicators. Also should I look at daily candlesticks over past few days or should I look at only intraday candles with patterns confirmation? Because the idea is prepare today for tomorrows trades.
Thanks for the kind words 🙂
If the idea is to prepare today for t’row’s trades then I would suggest you look at EOD data. Do note, I’m assuming you are new to trading here. Also use candlesticks on a stand alone basis…indicators should complement your candle studies.
Thank you so much for the reply sir.
I’m presuming by EOD data you mean to say daily “open high low close etc” data for past few days, please correct me if I’m wrong. Another question is what if some pattern observed on intraday candlestick 5min or 10min chart or perhaps some other minute time frame chart? Is it useful to generate buy/sell signals? Because sometimes there is lot of action on intraday itself, so can candles prove as good confirmation on intraday trades. If so what time frame you suggest for intraday candles?
P.S. yes I’m new to trading but I’ve been testing my programmes/algorithms in live market for quite a some time now.
Yes, EOD refers to the day’s open, high, low, and close data. Yes, you can initiate trades on a intra day basis by observing intra day patterns…although you need to be aware of the fact that lesser the time frame the higher is the noise component. I would suggest you use 15mins candles.
Thank you so much Sir for giving your valuable insights, your guidance will prove very useful and productive for me. Thanks a lot.
Glad to know this Mehul! Good luck and all the best.
I must appreciate the honesty and kind heartednesd by zerodha for sharing wonderful information and knowledge which is otherwise not shared by experts and maintains as personal fiefdom and as abstruse as possible…
I have certain real life doubts regarding the suggestion of. ‘Buying as per trend’…In such case one should sell a stock is falling…But practically it tells otherwise,for instance,RIL was corrected from 940 to 908 intra day and closed @915,so classic case for sell,but very next day it moved to 940 and the rally continued all the way up to 1015 next month also bullishness continued and in Jan reached high point of 1080…
Would like to hear from you…have full admiration about your knowledge..so eager to hear from you…
It happened in December 2015
Kumar, firstly thanks for the kind words 🙂
Specific to RIL, if you were to look at the charts across any time frames then you will realize that the stock is trading in a range -between 875 to about 1020….which means to say any movement between these two price points is very transient in nature. Trades within this range are well defined and has to be super quick.
In fact this is true in general, keep three things in the back of your mind –
1) If the stock is in a range – trade it within the range , buy at the lower end, book profits at the top of the range, and vice versa (Ex RIL)
2) Stock is rallying (up trend) look for buying opportunities on low volume corrections
3) Stock is falling, look for selling opportunities on low volume uptick
Given this framework you throw in a bit of options strategies to calibrate your trading style to suite your risk and reward outlook 🙂
Another important aspect of our stock market is f&o positions especially the outlook of those who written it…for instance,take Infosys,in January it announced stellar result,stock rallied from 1085 to 1130 on result day,even after the result which surprised street and analyst alike did not move up,not even closed above 1040 once on entire 14 days of trading in January post q3 result but as soon as Jan expiry over it moved to 1064 next day in 2 days it reached 1090 now hovering around 1070/1080 range…if there is something significant it was unraveled in result but then it did not move now it is flying ….In such conditions really doubt any such thing called fa and TA or only the positions in options by the Biggie’s is more important???
Hope you will give a reply encompasses all the factors influencing Indian stock market…Thanks…
Trading and investing are two different animals 🙂 You need two different mentalities and thought process here. Also, the answer to this is not straight forward and it really requires you to know both TA and FA well. Once you are comfortable with both you will eventually understand (at least in parts) on whats happening in the markets !
Thanks for valuable information sir. I t helped lot understanding trade for a totally newbie like me. I do not had any trading account. Sir i have few doubts. Sir where can i get the list of stocks/ shares available to trade. If I had sell in intra day than is it compulsory to buy n vice versa 2. What happens if there is no buyer for the stock which I am willing to sell will my order get cancelled.3. I am willing to open an account with you what is the minimum amount should I had in my account to start trading. & last can I tfr money from my trading account to my bank account.
1) Business papers like Businessline, ET carries the list everyday you could give it a try
2) When you sell intraday you have to buy it back the same day
3) You short trade will be auctioned
4) There is no minimum amount required – please do leave your details here – https://zerodha.com/open-account someone from sales will get in touch with you and follow up.
5) Yes you can transfer money from your trading account to bank account and vice versa.
Every single thing here.Beautifully explained. 😀
if zerodha varsity is the only thing i read would i know all the things i absolutely “need” to know about trading before entering the stock market?
Manas – things presented here is what we have learnt over 12+ years of trading and investing experience. This learning has been very expensive for us, not to mention the trauma we had to go through. So you have the advantage of not having to commit the same mistakes, you can simply learn from our mistake 🙂
If you read through Varsity, I can assure you, you will be much better placed than many others. But please do be aware.. like other things in life, one has to always keep learning and adapting.
Good luck.
Thanks a LOT 🙂
I have just started my account in Zerodha and I must say I am damm impressed with your services and initiatives to educate investors. In this chapter , I am having one doubt on – “Buy strength and sell weakness”. Shouldn’t it be the other way round i.e. buy when weak i.e. price is low and sell when price is high ? I am not a day trader as such but more like a mid-long term investor who is planning to use the tools of technical analysis to figure out a good entry/exit price.
Hinanshu – I’m glad you liked our education initiative 🙂
Buy Strength indicates that you buy when the markets are going strong so that you can ride the bullish momentum, likewise with “Sell on weakness”.
I am now too confused.If I buy when markets are going strong , wont I be buying at higher cost ?
Keep up the good work on the education matter
Yes, you buy when the strength is good and therefore you get to ride the wave :).
Thank you for these materials. It is really refreshing to see such efforts. I am trying to get started with technical analysis and the data science aspects. Could you please say where one could find historic minute by minute or even hourly data for NSE (for either free or even at a nominal rate)? I have been able to find daily data, on nseindia and yahoo but no luck finding higher frequency data.
I’d suggest you have a word with Neo trade analytic – http://neotradeanalytics.com/buy-nse-realtime-data-for-amibroker
Hi Karthik,
I am a short term positional trader, I mainly follow two indicators 1) Williams %R, 2) AD. I generally do purchase stocks in the range of -80 to -100, (as per first indicator) but lots of time with lots of stocks in its falling period or say a downtrend when I wait for it to reach -80 to -100, it takes U turn from from -50, -60, or -65 range and reaches to -20 to -1 level. So what do I do to catch them in midway of their downfall and get benefit of their up move?
I can relate to this, what I have figured over the years is that you need to define your rules and stick to it no matter what. You cannot trade every stock, every opportunity..we just need to trade what the system suggests.
Dear Karthik… and what the “Williams %R” suggest according to you, and how do i deal with it.
Vikash – hard to explain as a comment. Will probably put up a post on it sometime soon.
Hi Kartik,
One general suggestion can we get intimation through email when you or any other person writes something on my question/Comments?
Sure, I’ll check if this can be done form our end. Cheers.
Sir,All technical analysis books say ” Buy Low ,Sell high”to make profit. In other words, it means Buy when Bearish and sell when bullish. But you say ” Buy strength and sell weakness “. would you kindly explain this apparent contradiction.
Buy low and sell high is good to say, but hard to implement! Buy strengths sell weakness implies that you go with the trend!
” Buy strength and sell weakness – Strength is represented by a bullish (blue) candle and
weakness by a bearish (red) candle. Hence whenever you are buying ensure it is a blue candle day and whenever you are selling, ensure it’s a red candle day.” These lines are taken from Zerodha varsity, Module 2-1,Chapter-4, page 30. I am having a confusion with it. Why should we buy a stock on a blue candle day when the price is high and sell it on red candle day when the price is going down. We will incur loss. Rather it should be opposite, that is, the share should be bought at the end of the red candle day when the price is low and sold at the end of the blue candle day when the price is high. I need a justification. Sorry for bothering you, I am new to this
Its like this – you buy on strength with an expectation that the stock will continue to display strength, and therefore you will profit. Likewise, you will sell when there is weakness, with an expectation that the stock will continue to display weakness. The whole idea is to go with the trend here, rather than going against.
Hi Karthik,
Good day,
The price action trading and study the candle stick patterns are the same or the different kind of thing? Please explain.
And, I’ve one doubt about the speculative and non-speculative in F&O section. If i do F&O on intraday basis (MIS, BO, CO in F&O Instrument), it’s consider as speculative or non-speculative?!!!
Thanks in advance.
Price action leads to formation of charts, charts can be candlesticks, bars, renko or any other form. Regarding taxation, its best you post it under taxation module.
still confusion not clear karthik, I read some article about the price action trading strategy, they using very few indicator and moving averages and they give important on the pattern creation and predict the direction. they look like about candle stick pattern reading (study) strategy. That’s why i’m asking both are same or not? Please clear my confusion.
Thanks in advance.
Yes, price action is nothing but the way a stock has traded during the day. The price action can be translated to graphs. In others words – they are the same but people use different terminologies.
Hello All
I am a beginner in commodity trading. Kindly assist me in the following
1.Which type of analysis is suitable for the Intraday commodity trading.
2.Which pattern i should use ?
3.At present i am using a 5 minutes candlestick chart , Is that right to use.
4.At present i am trading only in Metals ,kindly suggest some best analysis & patterns to study & follow.
We have just started discussing commodities, please do have a look at this – http://zerodha.com/varsity/chapter/gold-part-1/
Hi
Is there a tool to identify the repetition of a trend
No two trends are similar, they all vary.
Hii Sir please sir i am very serious regarding intraday trading as I want a big suggestion from you as I want to know about some book that would give me a perfect mind set for intraday trading in commodity specialy crude oil. Price doesn’t matter for me
Check this VJ – http://www.amazon.in/Trading-Living-Psychology-Tactics-Management/dp/0471592242
I have completed total varsity and want to learn candlestick deeply for intraday 30 min chart, which book will be best for commodity #crudeoil
I would suggest you pick up Japanese Candlestick pattern by Steve Nison.
which book will work best for intraday trading for 30 min graph for TCS,HINDPETRO,ONGC,BPCL,RELIANCE in NSE? same book Japanese Candlestick pattern by Steve Nison ?? sugest other book also price does not matter..
Yes, I’d suggest you start with Steve Nison;s books. You could also look at Alexander Elder’s, ‘Trading for a living’.
I have purchased Steve Nison book but he has not mentioned marzuno pattern.. Rectangular pattern…. Why??
Not sure 🙂
sir if i am using 30 min chart and i found a reversal pattern like a engulfing patern at 9.15 am and the previous day trend i.e .. is uptrend such as 14.45 pm ,15.15pm has upternd so should i considered it engulfing or if same day there is uptrend and reversal patern then it is considered as candlestick reversal pattern??? i am taking about equity market ( intraday) 30 min timeframe……………market opens at 9.15am and close at 15.15am according to my candlestick timeframe
Its best to ignore it, for the simple reasons that sentiments change overnight.
Mr.Karthik Rangappa…you sir, have a great style of teaching. There’s so much valuable information here. Love you Zerodha!
Thanks for the kind words, Nadeem. Good luck and happy reading.
Sir, such lucid explanation… aah! you guys rock!! can you please enlighten me on,
1) Buy strength and sell weakness and, 3) Look for a prior trend.
Regards..
Thank you 🙂
1) It means that you need to play along the momentum – go long when there is strength and short when the trend is low
3) All CS patterns come with a prior trend, you need to look for these before setting up a trade.
thanks to zerodha for your varsity program.
Cheers!
Thank you so much Sir for giving your valuable insights, your guidance will prove very useful and productive for every newbies trader. now I am EWP trader after practising 3year experience for ewp .if zerodha will be not provided new platform for retail trader so I will be not become a EWP trader thanks to zerodha love you
Basic Fibonacci indicator is available 🙂
Hi Sir, please share your thoughts and opinion on continuation patterns like Flag and Triangles. would you advice to trade on these patterns. also do you have these details in Zerodha varsity. if not, can you please recommend any material or youtube videos or websites. Thank you.
Yes, certainly. These are good patterns to trade on. I’d suggest you read these from the book on Dow Theory authored by Edward Magee.
Hi,
There is one bug in Charting on Kite Web. Raised under ticket 498701.
Basically if you select 1 D (1 day) as timeline then current day candle mix with yesterday candle and combined 1 candle appears for today which is wrong. Yesterday candle comes correctly, but only todays candle is wrong as mentioned above.
Also when you open a chart then for 1 second it shows correctly and then immediately it start showing wrong.
Please correct it.
REgards,
Saurabh
Please ignore above message. Actually my computer was set to different timezone hence the above issue was coming. still if you which you can correct it such that chart is not dependent on system watch.
Cheers!
Saurabh, I don’t think there is any bug in the charting. I just opened about 10 charts to reconfirm this. They all seem to be working perfectly fine. Are you sure you are looking at the right timeframe? By the way, there is no 1 second chart….the minimum look back period is 1 minute.
Hi!
I cannot thank you guys enough for providing us with this sort of education.
Just one question, previously we were able to download the PDF files which really helped to through different topics. But now I was not able to find a link for it and also unable to login with my Zerodha ID.
Hope to get an answer soon.
Cheers.
Thanks for the kind words, Karan.
We have started uploading the PDFs already. It should be done next week.
Dear Karthik,
COuld you please elaborate on the point “Be flexible with patterns”..?
Well, I’ve explained this with respect to each pattern, I’d suggest you continue reading 🙂
Sir,
What is the difference between inside bar and Engulfing Bar , Kindly explain & how to catch that in candlestick pattern
Thanks
They are essentially the same. I’ve explained Bullish Engulfing later in the module.
Hi,
I have a query regarding the first assumption for candlestick “Buy strength and sell weakness”. I am confused with this statement as normally i have heard experts saying that we should not worried and sell if stock is going weak , it should be considered as a golden chance to purchase the stock at cheap price.
Please correct if i am wrong.
Thanks
Buy strength and sell weakness helps you stay in the direction of the trend, Manish.
Hi karthik,
I was so upset that, I placed the order for tata motors at 9:1 am in pre market even at high price than previous day close at Rs 403.86. Placed order at 404 but, exchange don’t alloted me any share.
Don’t know why???
After market opens it jumped to 28 points and tata motors was trading at higher price than 426. I don’t know why they don’t alloted me, why????? ? ? ? i missed a chance of great profit… ???
Please reply
Did.
Sorry previous day close was much lesser 401.50.
I think there was too much rush to buy this share.
Possible!
Well, maybe there were better bids in the pre-open session. Better luck next time 🙂
Hi,
What candlestick timeframe should I choose for swing trading or indraday trading ?
Should I choose 1 day /1 hours/15 min ?
For swing trading where you will hold the position for few days, you need to look at EOD chart (day).
Sometime 1 hour candlestick chart shows some pattern but 1 day chart may show different pattern. So, with what duration should I follow the candlestick chart (1HR/4HR/1DAY etc)?
Yes, candlesticks capture the sentiment for the given time frame. This is because of the difference in time-frequency. It really depends on the timeframe you are trading with.
This one of the simple and fabulous tutorial…
Thank you for imparting such a wonderful knowledge Mr Kartik
Cheers! Happy learning!
If I invest a long period of time (about 1 month) then what I should to see of candlestick of weekly daily or hourly
Daily candles will help.
Sir,
I am RAJAN A. T. of KITE reference no ZB 2125
I have noticed following points in the candle sticks pattern chapter 4.
Point – A
Buy strength and sell weakness – Strength is represented by a bullish (blue) candle and weakness by a bearish (red) candle. Hence whenever you are buying ensure it is a blue candle day and whenever you are selling, ensure it’s a red candle day.
I am a bit confused , On buying an option on a blue candle day , as the price goes higher, by selling at the peak rate the trader can book maximum profit. Am I right or wrong?
But the bearish candle stick shows the option value going down. Hence when a trader sells on a red candle day the return is apparently getting reduced. and the trader will ultimately face the LOSS
In this context how can the above POINT – A will be evaluated.
Please eloberate & clear my doubt/ confusion
Yes, a trader can gain significantly if he does as you’ve stated. Please note, when you trade options, the decision to buy or sell is different – its based on many other factors relevant to options and not just the candle color. We have a module dedicated to options here – https://zerodha.com/varsity/module/option-theory/
1).Buy when blue and 2).sell when red- it meant about volume strength, am i right or wrong. And if wrong please simplify.
Refers to the candlesticks, which represents the price action for the time frame you are looking at.
Karthik,
This is a really valuable content for beginners like me. I thoroughly appreciate your efforts.
I have a questions from this chapter. You have mentioned Buy strength and sell weakness. i.e. to buy when the candle is blue and sell when the candle is red. But why can’t I buy when the candle is red and the prices are low? Eventually the candle is gonna be blue according to the theory of History repeats and I can sell at that time to make profits.
Thanks,
Yasir.
Your theory is perfectly acceptable when it comes to Fundamental Analysis. Read Module 3 that comprehensibly covers this.
However, the rule with Technical Analysis is that you buy strength and sell weakness, playing the trend the stock is moving in
Dear Karthik,
I am reading this book and its AMAZING :).
Happy learning, Shilpa!
Hye sir,can you provide any intraday strategies module?
Working on it in the current module on Trading systems. Meanwhile, you can use all the candlestick patterns for intraday as well.
tq
“Strength is represented by a bullish (blue) candle and weakness by a bearish (red) candle. Hence whenever you are buying ensure it is a blue candle day and whenever you are selling, ensure it’s a red candle day.” If we buying at blue candle day means market will be good and stock prices will be higher and as well if we are selling red candle day means we are selling at lesser price. Please clarify this.
We are essentially buying strength on a blue candle day and selling weakness on a red candle day – this is with an expectation that the markets will continue to move in the direction of the sentiment indicated by the candle’s color.
Can someone tell me how do we determine that it is a blue candle day or a red candle one?
By look at the candle – they are colour coded.
is it possible that if we trade in very small time frames like 1 min then the consistency of profitable trades increase since our targets are very small?
No, not really. Remember the shorter the time frame, the higher is the noise component. I’d suggest you stick to longer time frames while trading, at least 15 mins.
I am still not able to understand the logic behind ” Buy strength and sell weakness”……please give me an example so that I can understood this.
Shekhar, it is straightforward – Buy strength means you buy on a blue candle day. Sell weakness indicates you sell on a red candle day.
Yes you are correct but my question is that like if I want to trade then I should buy on a bullish trade an sell on a bearish day.
Yes, that is how it should be done. Good luck.
by sell do u mean short sell?
If its a fresh position then yes, it refers to shorting. Else it could also mean you are selling an existing long position.
Dear Karthik Sir,
I have one query .
The statement which states that selling on bearish candle means selling a stock which we already bought or starts a trade by selling stock which we dont have in our hand ??
It means the short sell or not ??
Sorry for bothering you with same kind of questions which you mostly answered.
Yes, that is referring to a short trade, Anish.
Hi Karthik,
When you say “whenever you are buying ensure it is a blue candle day and whenever you are selling, ensure it’s a red candle day”, what does blue candle day mean? on the daily chart the candle should be bullish/blue?
Blue means bullish, and red means bearish.
Also on the third point, looking for a prior trend, what if the trend is continuing over few days? Will the above-said patterns hold good in such a scenario?
Yes, as long as the trend continues, the patterns hold good.
Hi Kartheek, I have newly started trading in the stock market and while reading through this chapter I did not understand one point i.e. Buy strength and sell weakness. If we do so don’t you think one will be in loss ? I mean I always buy when the share price is in red (down) and sell when the share is bullish. Please clear my doubt.
Thanks,
Shantanu
Not really, you are essentially participating in the same direction of the trend here.
How do we decide before buying/selling during intraday that it’s a blue candle day or red candle day?
I mean, how it is possible before end of the day (before 03:20 PM)?
Or
Does it mean that “the moment” we buy/sell during inyraday should be blue/red!
If you are looking at EOD charts, then I do understand that it is not possible. However, at 3:20, you will be able to make an estimate because the price does not change much between 3:20 to 3:30 PM. So using this data, you have a conclude the colour of the candle and assume positions.
Thanx Sir!
You are fun-stock-tic !!
Keep learning 🙂
You are the best sir!!!! Keep building knowledge of your fellows 😀 Cheers!!!
Keep learning, Keval 🙂
I am observing that most of the time the closing price of every stock is not same in chart & watchlist.
Why this happened?
Not really, Aditya. Markets close at 3:30 PM and it holds true for every stock listed on the exchanges.
Hi,
Which is the best screener for candlestick pattern analysis..
Like how do we get to know like which stock has formed Marubozu etc. please suggest
Thanks
I haven’t used any for candlesticks, Kishore. So not really sure 🙂
How much time it would take to complete zerodha varsity completely as it contain many modules and chapters?
Thanks a lot.
There are 10 modules for you to choose from!
Hi , Just one basic question – in candlstick graph for one day – open and close remains constant for previous day right. I mean open and close price is the static value right or how we define the open and close in 15 minutes graph.If it varies then what does it define?
Open is fixed, but the close depends on the CMP.
hey I have heard about tick charting and its utility over time bars
Whats your personal opinion regarding tick charts and can they do any better then normal candlestick charts .
Tick charting? You mean the frequency is every tick? Guess that would be too much noise and very little information 🙂
I just started my carrier in stock market.
Studing TA to understand the right time to buy and right time to sale in both the condition of shirt term and long term buy.
Simulaneously alao studing fundamental analysis.
Good initiative by Jarodha
Good luck, hope you like all the content available Zerodha.
Kathik Ji,
Thanks for this tuotorials.
You have explained the topics very well. If you could add some exercise or a case to practice so as to cover complete chapter or module.
Or sir, if you can suggest an exercise/case solving book or website to practice your modules/chapters.
Thanks again.
Viplav, I understand. We are trying the enhance the module, hopefully, this will be available soon. Thanks.
I am little confused in “look for a prior trend “, by saying that if i am looking at a bullish pattern ,you are trying to say that i expect that share price will go up in future
Am i correct or i misunderstand it ?
BTW you have done great job Sir by providing all this information,Thank you
Yes, Vinay, when you are looking for a bullish pattern, the expectation is that the stock price will go up over the subsequent trading sessions.
So sir if presently there is downward trend in share price ie. bearish situation ,why i will think that the share prices are gonna go up ?
You are looking at a reversal from the bearish phase, so essentially a bounce back is what you are looking for.
Karthik,
Super interesting and the way you explain things, I am getting the interest to read more. I just wanted to ask you, since I am little Old School boy, I like reading from books or hard copies. Would it be possible to get the pdf format of this material so that I can print them and read? Actually I like marking the imp points while reading..
You rock!!
Suvajit, thanks for the kind words, I’m old school too 🙂
PDFs of all modules are available at the end of the module, just scroll all the way down – https://zerodha.com/varsity/module/technical-analysis/
Thanks a lot.. Reading is becoming more interesting. 🙂 Cheers.
Happy to note that, Suvajit 🙂
Hi Karthik,
I have some basic issues and confusions and at this point of time only one. Going forward I know there will be many more.
Q: Short or Sell in an Intraday is fine. Could you please help me How to Sell and Hold? How many days we can Hold a Sell Call? How to make profit on a Sell Call? I understood your “Mi” Phone example however need a little bit more guidance on the SELL side specially. I only do Buy which is sad. 🙁
By the way do you provide any classes?
Thanks,
Suvajit
Suvajit, to short and hold, you’d need to sell in the futures markets. More on that here – https://zerodha.com/varsity/chapter/shorting/
Thanks for all your valuable information on Stock Market and Analysis. I have started trading more confidently after reading all the stuff on Technical Analysis. Else, I might have dropped the idea for trading after few losses when I started with no information.
I have started my own blog for Technical Analysis and Stock tips.
Sensibletrades.com
Good luck, Ashish!
Thank you for your kind wishes.
Thank you for this valuable knowledge share with us 💐
Happy reading, Tejas!
Hi, Candlestick Pattern recognisation tool is available on trading view or not?
Candlestick charting is available, Balwan. But the recognition tool is not.
Crisp n crux is what needed today and you guys are gem into this.
Happy reading, Raghav!
Hi Karthik
Great initiative! Thank you for sharing your knowledge and experience with us and educating us.
I have one lingering doubt and hope you will be able to clarify it.
Several times I have witnessed a bearish trend followed by few sessions (4-5 sessions) of sideways movement and then followed by a bullish candle pattern resulting in bullish trend for the next few sessions.
So, my question is how should we view the trend prior to the bullish candle pattern? Should we view them whole as a bearish pattern, ignoring the sideways movement?
Hope I have clearly defined the problem.
Thanks!
Ashutosh, yes, you can include the sideway moment to get a bigger perspective. However, ensure that the prior trend is bearish for any bullish outlook.
Thanks Karthik!
Your prompt replies are really commendable!
Happy trading, Ashutosh!
in the assumptions for candlesticks, what does look for prior trend mean? i didn’t get that point?
The prior trend check simply involves checking how the price has moved over the last few trading sessions.
in bullish candle open price is at base of body and in bearish candle open price is at top of body is it correct
Yes, Pankaj…thats correct.
Are all things that discussed in Technical Analysis were backtested? (i.e candlesticks,dow theroy,etc )
Nope, these are theories based on observations. You need to backtest to figure if this works well for you.
Dear Karthik,
There is lot of confusion regarding “buy on bullish candle day and sell on bearish candle day” and the other saying “Buy low and sell high”. I think people are confused because former strategy is related to “trading” where we follow the trend so as to make profits in shorter span of time. Analogy – to reach our destination earliest, we board a bus going in the same direction. Is it ok? And the latter strategy is for “Invesing” where we adopt an entirely different approach. So please clarify this once for all in detail. Persons posting question must first decide if at the moment for a particular trade if they are trader or investor. : PK Singh, Bhopal
Sort of, having clarity on your own position i.e if it is a trading position or investment is the key for sustainable success in the markets. While you can apply both the techniques you mentioned to both the aspects of the market. However, the difference is in how long your position stays in the market.
Dear Karthik,
This is not directly related with this module and therefore excuse me for raising it here.
While checking basket of stocks NSE website for Nifty 50 and Nifty Midcap 50, there is a list of 50 stocks each but Nifty Smallcap 50 has a long list of around 145 stocks and I presume that NSE cannot commit a mistake so kindly explain the reason for it. Also can there ever be an overlap of stocks in Nifty 50, Nifty Midcap 50 and Nifty Smallcap 50. I am a bit confused because when I check PNB and Bharat Forge on Zerodha stock information page, they are Largecap but they are not as per NSE. Kindly clarify the issue because such discrepancies defeat the very purpose of benchmark indices.
Clearly, this is not a mistake 🙂
The number of stocks in each index is determined by the company managing the index. You can find the information here – https://www.niftyindices.com/
The nested list looks like a normal list and is confusing!
Hope This helps.
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Thanks, the feature was disabled for some reason. Guess this is fixed.
Hi Karthik,
Thank you for good guidance.
My question is ” does buy on green candle day and sell on red candle day apply for intraday trades also? Because sometimes what happens is that we have bullish point of view of a stock BUT WITH buy on dip strategy. So when we buy at dip, daily candle turns red by then. So the above question.
Kindly reply.
I’d suggest you follow that, but I do understand it will be tough to implement 🙂
Thank you Karthik 🙂 got your point.
Good luck, Sunil. Happy reading 🙂
Good morning Karthik,
I have realised that there are many e books on trading on Amazon Kindle; strategies of which are not time tested. It seems everyone who acquires little experience becomes Mark Douglas and writes a book on trading. (I myself thought of writing so ,low thinking I know).
I take your words and advice very seriously and I haven’t been duped ever by it. SO MAY I REQUEST you to suggest 5 books on trading which one should read apart from zerodha varsity. I am a regular reader of Varsity but also fond of reading books. I read Steve Nison Japanese Candlestick recommended by you. So please suggest me more books. I aspire to become intraday trader.
Here you go Sunil –
1) When the genius failed
2) Option pricing and volatility by Sheldon Natenburg
3) Thinking fast and slow
The last book is not related to trading, but helps!
Thank you for timely reply. I came across Thinking Fast and Slow .. Now you have recommended so I ll read.
Cya
Please do, Sunil. Good luck and happy reading!
Hi Karthik,
I’ve noticed that the closing price of last candle of the day in shorter time frame (5m,15m etc) is different from the closing price of the daily candle. Could you help explain this. Since the smaller time frame candle is the last candle for the day shouldn’t the close price of the last candle for smaller and Daily time frame match?
This is happening for both indices as well as stocks.
The closing price of the EOD chart is the average traded price of the last 30 mins and not really the last traded price (as you’d see in a non – EOD chart like 5 or 15 mins). Hence the difference.
your materials are fabulous .but I little bit confusion on time frames for 5and 10 mins with candlesticks.
Thanks, Sumanth. Please do let me know your queries, will be happy to explain.
Great way of teaching.The author should probably write/publish a book on this.Kudos!
Happy reading, Kunal 🙂
Thank you so much sir , i am a fresher in share market and gain lots of knowledge from Varsity study materials.
Happy reading, Ashi!
Hi Karthik,
Is there a tool that can help me back-test if a particular candlestick pattern works for a stock or not? If there is no tool, how do I go about doing it manually?
Also, how strictly should I take the outcomes?
Let’s say, if by back-testing, it is found that Hanging Man pattern has never worked for SBI in the past. So, should I completely ignore this pattern for SBI in the present, even if all other items in the checklist are supporting this?
Thanks,
Nikhil
I’m not really sure of a tool exists for this. However, I think you should take the outcome seriously. It is quite useful…and yes, if your backtest reveals that hanging man has not worked for SBI, you are better not to initiate trades based on that pattern for that stock.
hello sir, can you please elaborate look for a prior trend assumption.
Look back period is basically the number of trading sessions you are referring back to, to make a call on the pattern which has formed today. For short term trading, i.e. for trades extending anywhere between a day to a few weeks, I’d suggest you look at the last 14 days at the least as the lookback period.
Hi Karthik,
First of all, thank you for the wonderful work you are doing here.Varsity has been a revelation for me..
When I trade in currency ( USDINR), what is the ideal time frame for identifying a candlestick pattern? For eg, if the daily candlesticks are not showing any particular pattern and the weekly one is showing a bearish engulfing pattern ( as it is now), can I go ahead and sell usdinr or wait for a particular daily pattern?
Thanks again,
Sujith
Glad you liked Varsity, Sujith 🙂
Yes, you can do that. By the way, personally I’m more comfortable trading based on EOD charts as opposed to weekly or monthly charts.
Thanks for the reply..By EOD charts, do you mean charts with daily candlesticks?
Sujith
Yes, EOD means the daily chart.
Thank you..
Happy reading!
where can we find theses candlestick patterns
You can use any charting platform for this, including Kite.
Sir,
OHLC data on each candle on chart which I used to see is missing now.
I tried to reach [email protected] to get answer as suggested by you on previous occasions as and faced. But, it suggested to open support.portal to put querry. And when I opened I am not able to choose relevant topic from the listing matching my querry.
Hence, querry could not be placed. Please suggest me to get OHLC data back.
Thanks in advance
Umapathi Rao Nama
VO8892
Can you please call our support desk for this? They can quickly resolve your query.
Sir,
Thanks for quick reply.
how candle is categorized as bearish or bullish when no close price is not available ( during mid of a day )
If you are looking at the EOD candle, then the close is not know yet. However you can always look at the % change for the day and get a sense of market direction.
I am little confused about the support and resistance levels. When I look into the charts of some stocks such as YesBank, It is not consistent enough to draw a line as it has different levels of Ups and Downs. In that case what should be my look back period ( For both swing trading and Long term ) ?
Hmm, try loading EOD data for last 2-3 years. You will get the long term S&R levels.
Sir kya zerodha varsity se TA sikh ker market me trading ker sakate hai,ya phir bhar se kuch aur sikhne ki jarurat hai.
Just this much is good enough for you to star with, Vikas.
Hi Vikas, हमने अपने वर्सिटी चैप्टर में हर संभव चीजों को कवर करने की कोशिश की है, यह अधिक उपयोगी होगा यदि आप वर्सिटी के सभी मॉड्यूल को पढ़ें। लेकिन ट्रेडिंग अप्रत्याशित हो सकती है, इसलिए बेहतर होगा कि आप एक निवेशक के रूप में अपना उचित परिश्रम करें।
Kindly elaborate what did u mean by Look for a prior trend
I guess that’s done in the chapter itself.
Is there a plan to add a feature whereby the candlestick patterns are identified by the charting software on the Kite itself, without us trying to identify it manually ?
Nope, this is not possible on Kite.
Iam a 22 year-old undergraduate,i have been looking for the good resources to learn TA & FA . Iam really spell-bound after coming across your teachings, you teach very simplisticly in an exquisite way and the examples you cite to emphasize the concept makes it ridiculously easy to understand.
—–can’t thank enough Karthik
Happy to note that, Koushik! Hope you continue to enjoy reading Varsity 🙂
Karthik,
I am quite new to the market, i don’t understand how to use a stop loss while selling shares. Can you please explain it by citing an example.
The module on S&R will give you some insights into this, Koushik.
If any trader wants to create any position (Long or short), one has to take based on last candlestick pattern but that last candlestick pattern can give opposite signals if prices are set on different time frames.
What would be the best possible solution in this scenario ?
In that case, dont take the position as its not justified.
here assumed to buy in bullish market and sell in bearish market
i didn’t get it buying in bullish market leads to spent more and selling in bearish will be a loss one
This is based on the philosophy of moving in the direction of the trend.
Sir , as u said if we sell it on a red candle day , since trading is best suited at 3:20 pm ( to know whether it’s a blue or red candle day ) , even if its a red candle day and we thought of selling the share, dont u think its the last price of the stock for that close which can even be closing price and next day it might go positive again?..In that case we will be selling for the worst price right???
By the way Thank you for such wonderful content sir.Im really enjoying it reading.
The idea is that the bearishness will continue and therefore you can profit from it.
Hi Kartik,
A quick question
In Intraday trades
– When we spot a bullish trade, isn’t it possible that some/single trader/s is manipulating the trend by buying in bulk quantities ? And plans to sell before the bull trend reaches its peak for profits ?
If this case is possible, then what stand should a trader take to avoid losses ? And prevent falling prey to this manipulation ?
No, this is unlikely. As long as you avoid trading penny stock/illiquid stocks, you are good.
This is in context of “Buy strength and sell weakness” concept.
Noted. Posted my reply.
Hi Kartik,
One more question. Please clarify my doubt.
Taking the factor example, stated above – let’s say…Factor 1 and Factor 2 are repeating themselves today. I am currently on the 4th day or 5th day and am witnessing stocks in a bearish trend for past 4 days.
Going by ‘Buy strong, sell weak’ concept, I shouldn’t be buying on the 4th or 5th day with a holding period of 1-2 days.
However, going by the history repetition assumption, it is evident that the stock will rally up from 6th day onward.
Then shouldn’t I go against the ‘Buy strong, sell weak’ concept (as all the factors are same as in the past)…and in fact place a ‘buy order’ for the stock today and hold it for the 6th day to book profits ??? If not, why so ?
I’d suggest you read through the chapters on patterns, the answer will reveal itself 🙂
Thanks for the replies Kartik !
Much Appreciated.
Happy reading!
This manual is just WoW!!..for many years I was confused with the market trends analysis and many Alpha, Beta ….Trends.
Zerodha simplified the markest to everyone!!..just simply Awesome!!!!!!!!!! ….-:)))
Happy reading, Venkat!
Sir,
If you are looking at a bullish pattern, the prior trend should be bearish and likewise if you are looking for a bearish pattern, the prior trend should be bullish
i couldn’t get it,
can you plz help me
Its just that when you are taking a long position, the previous trend should be bearish. This is conducive for a reversal. Likewise for short positions.
Referring to the section: “Buy strength and sell weakness – Strength is represented by a bullish (blue) candle and weakness by a bearish (red) candle. ”
You mentioned that :
Consider this, a stock moves from 100 to 160 in 3 months, this is a 60% move. Buying this at 100 and selling this at 160 is easier said than done. You cannot time is unless you have luck favoring you. So instead of trying to time and aspiring to catch the entire 60% move, I’m happy buying at 120 (after ensuring the trend has established) and selling around 145-50. So in a sesnse, you catch a portion of the big move, which is completely fair enough.
Ask: Isn’t this opposed to what you have mentioned earlier and following Buy weakness at 120 and sell strength at 145~150?
PS: I am just a beginner and would like to get it clarified.
Thank you for the amazing content.
There are two things here –
1) Capture a portion of the upmove – this is the larger part of the overall strategy
2) Buy Strength sell weakness – This is the technicality of when (or which day) to buy and sell. This is more to do with the timing part.
So the two are different.
DEAR SIR,
I HAVE READ YOUR ALL 3 MODULES,AND I AM AMAZED BY KNOWING THAT BOOK WAS PUBLISHED IN 2014 AND STILL COMMENTS ARE OPEN AND GETTING REPLIED. I HAVE WATCHED MANY YOU TUBE VIDEOS ON STOCK MARKET. ALSO SUBSCRIBED TO ONE OF THE PAID ONLINE COURESE. BUT I WOULD LIKE TO THANK YOU MR KARTIK THAT YOU ARE ABLE TO TEACH IN MUCH EASIEST WAY THAN ANY OTHER VIDEO. VERY CANDID. THE LANGUAGE IS VERY FLOWING AND IT SEEMS LIKE YOU ARE TEACHING STANDING IN FRONT OF ME.
THANK YOU VERY MUCH SIR!
Thanks for the kind words, Dr.Rahul. Happy reading 🙂
I HAVE READ ALMOST ALL 3 MODULES OF YOURS. I WAS UNAWARE OF I CAN ASK QUERIES TO YOU. NOW THAT I KNOW THIS FACT, I HAVE MANY QUERIES THAT POPPED UP IN MIND WHILE READING OTHER MODULES (ESPECIALLY FA) WHICH ARE NOT IN CONTEXT WITH THIS CHAPTER. KINDLY PROVIDE OTHER PLATOFORM SO THAT I CAN CLEAR MY DOUBTS!
THANK YOU.
You can ask your queries here itself, do ensure the queries are relevant to the chapter.
1) while calculating ‘FREE CASH FLOW’ you have substracted ‘PURCHASE OF TANGIBLE FIXED ASSETS’ from ‘ CASHFLOW FROM OPERATING ACTIVITIES’. FEW Few times ‘SALE OF THE PROPERTY’ is added into it. Which is correct method?
2) I found that there is a difference between amount of FCF on ‘moneycontrol’ and ‘original annual report itself. What to do in this scenario as producing original annual report of each year and sorting it is cumbersome.
3) Can difference in amount of FCF in above cases cause any major difference in ‘TERMINAL VALUE’ AND NET PRESENT VALUE’?
It would have been nice if you had asked the queries in the Fundamental Analysis module. There is no context for other readers here 🙂
1) Purchase is cash going out of the company while sale bring cash in, so you have to add and deduct respectively
2) I’d suggest you look at the AR itself, I’m not sure about MC. Btw, are you sure this data is present in the AR?
3) Yes
Hi, the newly introduced Candlestick pattern indicator is very helpful. But I would like to bring to your notice that the candlestick patterns don’t appear in multiple chart view. They are visible in pop out chart but in 2 or 4 multiple chart view the indicator is shown as added in studies but it’s not visible on chart. Kindly resolve the issue.
Passing on the feedback. This will come up in the future.
Hello sir,
I want to know (how) can we apply candle stick pattern in positional trading because shares takes T plus 2 days to get in account . And if target is achieved with in those days can we sell the shares (supposed its Long position).
In such cases, you will have to work with Futures or Options.
UX improvement suggestion : Adding next/previous button at the end of the article would help the user to avoid scrolling up to go to next article.
Noted, will pass the feedback to the team, Rajat. However, we do have the chapter index on the left right?
UX Improvement suggestion : Add next/previous button at the end of the article would help the user to avoid scrolling up to go the next article.
in short sell we do both action( buy and sell). How its possible to finish both between 3:20 PM to 3:30 PM.
You can set up multiple trades in a day, that wont be an issue.
Sir,
Thank you for this wonderful blog Sir. If someone is doing intraday it means he has to buy and sell within same day. If around 3:20 PM if you ascertain that market is bearish or bullish, when we will do the trade ? We need sometime to buy then price change and then sell , isn’t it ? My question is based on your below comment.
o Karthik Rangappa says:
December 29, 2014 at 5:25 am
Exactly – so if you notice throughout the module I have suggested buying/selling only around 3:20 PM which is towards the close of the day. Around 3:20 PM you will be able to ascertain if it is a blue/red candle day with conviction…and hence take the required action
Thats right. You ascertain the type of candle and then initiate the trade accordingly.
Sir,
It is true that the textbook patterns are not perfect on the ground level. How flexible should one be while evaluating a candlestick pattern?
Is a two percent error good enough?
Yes, between 1-2% is good enough.
Hi Karthik, sorry my question wouldn’t fit this chapter but wanted your view on Technical analysis using Candle Stick Charts vs Point & Figure.
I’ve never used P&F, so won’t be able to comment on that 🙂
Thanks for your response Karthik!
Good luck, Tyagraj!
So Karthik sir this is my 4th session and its nice. Tell me, sir, you are short term investor or long term investor?
I was a short term trader, now, I’m both long term trader and investor 🙂
If we are looking for a bullish pattern, then why should the prior trend be bearish and vice versa?
That’s how CS patterns are defined, prior trend is mandatory 🙂
How risk averse investors should trade is not clear SIR
I’ve explained this across all patterns.
Superb tutorial found it really helpful for learning the basic concepts. Big Thank you!
Glad, Arun. The content covers basic to advance 🙂
Sir I watched your 2017 webinar last week you have mentioned of doing webinar on making financial modelling expecting that as I read full module of fundamental analysis but still I don’t have idea how to do it in excel
I still need to do that module, will do that after the module on personal finance.
Do you offer courses?
Everything we have to offer is available on Varsity 🙂
Buy strength and sell weakness – Strength is represented by a bullish (blue) candle and weakness by a bearish (red) candle. Hence whenever you are buying ensure it is a blue candle day and whenever you are selling, ensure it’s a red candle day.
Shouldn’t we buy when it’s a red candle day and sell when it’s a blue candle day?
You can. But buying on strength day implies you are buying along with the trend, likewise for red candle day.
Hi Kartik Sir,
I have already read entire TA module and recently started revision. I have a question regarding to below point :-
o Look for a prior trend – If you are looking at a bullish pattern, the prior trend should be bearish
Lets say a stock is rallying upward for last 4-5 session with continuous green candles. Then it form a perfect BullBozu today with good volume. Tomorrow should i go Long or Short or I shouldn’t take the trade at all ?
Thanks in Advance Sir
Regards
Ishwar
You don’t have to look for a prior trend when dealing with either bullish or bearish marubuzo.
Please also add “view all chapters” link at bottom of page.
Where exactly do you want this link?
I personally think that if you are confident on a bearish stock that it will bounce back then we should buy during the bearish time, and sell when the stock is bullish enough. What do you think sir?
Of course, trading is also about how well your instincts guide you in the market.
Can I configure Candlestick patterns to include or exclude some patterns in Zerodha chart? I can do so in https://in.tradingview.com/. I am a Zerodha customer.
No, unfortunately, you cannot do this.
“Buy strength and sell weakness – Strength is represented by a bullish (blue) candle and weakness by a bearish (red) candle. Hence whenever you are buying ensure, it is a blue candle day and whenever you are selling, ensure it’s a red candle day.”——-This is absolutely in contradiction with the basic principles of investing as I read in THE book of investing-“The Intelligent Investor by Benjamin Graham”.
True, the school of thought here is very different, cannot be compared.
Hello Sir,
How to calculate 50% of candlestick for piercing line pattern or dark cloud cover pattern? Is there is any formula to calculate it? Please tell me. Please do reply to my query. Thanks.
No formula as such, Nikhil. You need to e sure that check the range of the candlestick and calculate the 50%.
Pls resolve some questions
1. For EOD 10-15 days average volume for Volume sma, so how many candles for 15 mins chart.
2. For trade based on volumes what should be prerequisite, like if I’ve found an opportunity on 15 mins chart at 5th candle based on candlesticks formation. What is important for trade (I) all 4-5 candles have average volumes or more than average volume (ii) or that 5th candle at least have average or more than average volume.
1) You can look at 5-8 sessions
2) At least average volume across all candles.
Karthik sir, will you please elaborate on the third assumption (Look for a Prior Trend assumption)? I did not get what exactly you want to say from that.
For the bullish trend, the prior trend is bearish and vice versa. Have discussed this in detail in the subsequent chapters.
Buy strength and sell weakness
Sir can you please explain it with example I’m getting confused how it is .
Vishal, please do check the queries, have explained it a few times.
Sir
“Dark candle may be an indication of trend continuation”
Is this correct ?
Not really, Franklin.
Sir, when you mean a bullish trend is followed by a bearish trend is that very likely or just an assumption,
and how right is it?
thank you in advance.
What is the apt candle selection period? 1 candle per day or 1 candle for 3 hours or 1 candle per week? how should one decide?
Depends on your trading style. If it’s intraday, I’d be comfortable with 10 minutes candles.
Hi,
First time i go through u r content and its so useful and easy to understand. Referred to all my friends and family.
I have question, for positional trading which time frame for candle stick pattern i have to consider??
Positional trading for 1-2 weeks i mean.
Thanks in advance.
Happy to note that, Vaishali. Glad you liked the content 🙂
I’d suggest you use the end of day timeframe for positional trading.
IS it all ok ,if i go with one day time frame…
if you are asked to choose between one day and 15 mins time frame, what would you choose? in the context of intraday trading
Yes, thats absolutely fine.
Really great to learn new things in simple language and easy to understand with classification
Happy leanring, Selvam!
Thanks for this amazing content
My question is that I think opening price of a share in new trading session should be equal to the closing price of previous trading session, but I have observed that this is not the case why is it so ?
YEs, that’s true. The stock will go through demand-supply pressure at pre-open hence, the prices will be different.
What does “buy strength and sell weakness” mean? Shouldn’t it be “buy weakness and sell strength”?
Have explained this in the comments section, please check thanks.
Can u explain what is look for a trend?
You just need to figure how the prices are moving, Pavan.
What is meant buy blue candle day and red candle day can you elaborate a little
I’ve explained this in the chapter itself, in fact, the first thing that’s explained. Please do look at it again. Thanks.
My first day effort to understand TA gained tremendous confidence to leverage it…
So simple and fine elaboration made by you…
Regards;
Happy learning, Anil!
Here Images aren’t available so its going hard to understand
How can i identify when it is the right time to buy and when its time to sell.im a total noob .iv gained my knowledge through youtube and versity .i even dont know that when the market will be bullish should i only focus on the news or the statement made by a company or there are more factors?
It is nearly impossible for even the most seasoned trader/investor to time the market, Aryan. Instead of timing the market, you can focus on the price at which you’d be comfortable to buy and sell. YOu can do this by developing a point of view, for which you can use TA or FA as your main analysis tool.
What is meant by “the stock is falling on relatively lower volumes”
It means there is not much activity in the market, hence volume is low.
Thanks for wonderful article. one question -: In section “Look for a prior trend” – If you are looking at a bullish pattern, the prior trend should be bearish” .
if we follow above then why do we said “Trend is the friend” OR “Go with Market trend”.
If trend is bearish then someone should plan to short or buy ? As in this example trend is bearish and a person is looking to buy then “Look for a prior trend” will work in this case ?
This is to identify trend reversals and stay with the trend which is about to begin (or expected to start).
sir can your history repeats itself assumption strategy be identified by candlesticks patterns in any stock or index ?
Yes, that’s the purpose of candlesticks, to identify patterns 🙂
As i’m here New to the Market. Basically my Question is that – Is this Modules are enough to get into the Market. Obviously i’m doing more Research. but Is it OK to Go with it.??
Yes, this will help you kick start your journey.
Thanks to Zerodha Team. This is the simplest way anyone can understand.
Happy learning!
Could you plz explain Blue candle Day & Red Candle Day in “Buy strength and sell weakness” assumption.
Have done that in the comments section, Tapas.
where in this chapter had everybody seen any candlestick pattern they are talking about?🤔
Sorry, dint get that query. Can you share more context?
“If you are trading long term, I’d suggest you don’t really look at TA. How would it matter if you bought a stock at 100 or 103 in the longer run?” So sir how are supposed to decide that at which point to enter in a fundamentally strong company and at which point we should exit?
Can we please add next and back buttons at the end of chapter read, it will be easy to navigate to next lessons.
We have the chapter index on the left-hand side right?
Need fine-grained explanation on inside candel and it’s formation on the chart.
Elaborate in prior trend more…ty🙂
The prior trend is the immediate trend in the market leading to the current candle.
sir, I didn’t understand the first assumption.
1. Market Discount Everything.
can you give a small example or any reference?
Lets say that a company is announcing results on Wednesday, but the stock price declines on Monday and Tuesday. The company’s result on Wednesday is average, which means to say that the market had already discounted the average results in advance.
Can we use EMA crossover for shorting ???? As it is not mentioned anywhere.
Yes, you certainly can.
Is Candlestick Price Action really Works,can we master the Candlestick
I’d suggest you backtest and get a sense of how it works 🙂
Nice presentation, thanks.
Happy learning!
i have heard that accrding to warren buffet buy at low and sell at high ,buy when every one fears(bearish) and sell when every one is greedy(bullish), so how it relates with buy strength and sell weakness according to you.please explain
Thats where you find opportunities, Neeraj 🙂
I think may that warren buffet sayings is according to fundamental analysis when to hold for long is it right?
Absolutely, no short term vision there.
sir, i know the site for back testing the TA like streak tech or TV ,but don’t know how to do back testing TA ,and actually what is backtesting, and how to do it on site, could you please explain with some example what is it actually and how to do this in charts to analyze.
Hey Neeraj, I’d suggest you spend some time on Streak.tech; they have everything related to backtesting.
ok sir, please correct me if i am wrong that i think back testing means use that indicators or pattern or strategy on chart and check and observe at past that is it actually working in past trends and fit there is it right ?
That’s right, Neeraj. Basically, to test your hypothesis on how it has performed on historical data.
means to put indicators in some look back periods and test there whether they fit there or not is it correct way to backtesting manually
Yes, that is one way of doing it.
sir can you suggest me any certified course with how much fees, which i can do for F&O and other trading only not investing, i heard that in youtubes and other platform which provide courses also ,they dont provide deep and some perfect strategy practically in free pplatform,
And also want to ask that is it necessary to do course for trading to become some percentage of perfectable trader,may be with doing that course i will minimize my losses.is there any need or i may get into the market without doing courses,
is there any difference in paid courses or in free platform learning like youtube tutorials etc, is there any need to do that courses than please suggest some course which are valuable for trading. is there any diffrent tricks in paid courses.thankyou
I’m not really sure about any paid course. Have you checked out our youtube channel? Otherwise, I’d suggest you do – https://www.youtube.com/channel/UCQXwgooTlP6tk2a-u6vgyUA
second query – if taking trade and there is recognizable bullish candlestick pattern formed but there is not much volume or may be volume less than last 10 day average, then should i go long or ignore the trade.
You should check all other parameters and figure how compelling the trade is. If it is, then maybe give less weightage to volume (although I’m kind of not so comfortable with it).
oh so this is your’s youtube channel – https://www.youtube.com/channel/UCQXwgooTlP6tk2a-u6vgyUA right, I was not aware of that. thanx a lot.
anyway sory for one more personal question, how you have learnt about trading and investing, have you done any course / or you have learnt by your own or any other sources.
I’ve continuing to learn, Neeraj 🙂
Some people say,” buy stocks at the dip but in TA the assumption is to buy stocks in bullish market and sell it in the bearish market”.Why?
The problem with buy stock at the dip advice is to figure where the dip is 🙂
Its impossible to do that.
Sir, last assumption in candlestick of look for prior trend will kind of violent the assumption of price move in trend assumption, right?…..
Can u explain the last assumption on candle stick in detail if possible.
Sir by buying strength selling weakness means we are buying stocks when it’s green candle and Selling stocks (short sell) if its red candle? As this concept keep confusing me coz in buying we r just buying stocks but with selling we r just selling stocks which we don’t even have…. So does it means if it’s a Red candle day we are short selling but not exiting our position if stock if we already own the same stock
Yes, if its a red candle, then we are essentially shorting the stock.
On app while taking quiz (in Hindi) most of the questions are incomplete like no diagrams / chart . Please suggest what to do?
I am checking on this, Pravin. Is there any particular module you are referring to?
Super
Happy learning!
Should we use the inbuilt candlestick study in Zerodha platform to find out the familiar candlestick pattern or should we analyse ourselves?
You can start with whats available in Zerodha and build over it.
Could you briefly elaborate on the third point, “Look for a prior trend”?
By this, do you mean that we shouldn’t buy a current bullish pattern if it has been bullish in the near past?
CS patterns are mainly based on reversals. Looking at prior trends helps you understand if the current pattern that you are looking at is effective in terms of reversal or not.
I want nifty 50 & Bank nifty live chart
You can check that on Kite.
very useful information and entertaining also.
Sure, thanks for letting us know!
Hii
Is it necessary to look upon on multiple time frame , while doing for intraday to confirm the best outlook of the market.
Best to look at the EOD chart to get the overall perspective and then maybe 15 mins to get the day’s trend.
Which time frame follow for become a successful swing traders?
Please start with end-of-day candles.
hello , i am a beginner in the trading world and yet to make my first trade. my interest lies in intraday trading. can u please guide me which trading style will be better for me as a beginner
If you are new to markets, I’d suggest you start with longer time frame, not intraday.
sorry but by longer time frame do u mean swing trading (for like weeks or month) or do u mean very long term investment?
Yes, longer time frame is swing trades. Anything more than 2-3 days.
Does wick/stick represent the price of the realized trade/transaction of share(s)?
or
Does wick/stick only represents the price of the negotiation (bid & ask) of share(s)?
The wick represents the price points at which a trade has occurred.
Thanks… Karthik
Happy learning 🙂
It would be a great experience if we could navigate to the previous/next module from this existing page, instead of having to go back to main menu. Please enable this.
Noted, we are working on this. Will fix this shortly 🙂
Teaching TA at its best. precise, concise, clear. thanks to zerodha team.
Happy learning 🙂
what is the meaning of ‘Be flexible with patterns’? sir can you please elaborate this point?
Check this – https://www.youtube.com/watch?v=z0Rwoz6PduM&list=PLX2SHiKfualEyD05J9JsklEq1JFGbG6qJ&index=3
what time frame needed to look for a prior trend information
At least 6 months, Suresh.
If the piror trend is bearish .how we can consider this a strength buy
The play is on strength reversal here, Ashwani.
What is a blue candle day and a red candle day? I see this used in the definition of rule 1.
I’ve explained that in the chapters ahead, request you to kindly read through it. Thanks.
How do I look at a daily parttern on the candlestick chart. I am unable to understand which time frame to select so that I can view a day to day pattern for the last 1 month.
You can look at daily charts, Shruti. That is a great starting point.