Module 2 Technical Analysis

Chapter 10

Multiple Candlestick Patterns (Part 3)

407

The morning star and the evening star are the last two candlestick patterns we will be studying.

Before we understand the morning star pattern, we need to understand two common price behaviors –gap up opening and gap down opening. Gaps (a general term used to indicate both gap up and gap down) are a common price behavior.  A gap on a daily chart happens when the stock closes at one price but opens on the following day at a different price.

M2Ch10-title

10.1 – The Gaps

Gap up opening – A gap up opening indicates buyer’s enthusiasm. Buyers are willing to buy stocks at a price higher than the previous day’s close. Hence, because of enthusiastic buyer’s outlook, the stock (or the index) opens directly above the previous day’s close. For example consider the closing price of ABC Ltd was Rs.100 on Monday. After the market closes on Monday assume ABC Ltd announces their quarterly results. The numbers are so good that on Tuesday morning the buyers are willing to buy the stock at any price. This enthusiasm would lead to stock price jumping to Rs.104 directly. This means though there was no trading activity between Rs.100 and Rs.104, yet the stock jumped to Rs.104. This is called a gap up opening.  Gap up opening portrays bullish sentiment.

In the following image the green arrows points to a gap up openings.

M2-Ch10-chart1

Gap down opening – Similar to gap up opening, a gap down opening shows the enthusiasm of the bears. The bears are so eager to sell, that they are willing to sell at a price lower than the previous day’s close. In the example stated above, if the quarterly results were bad, the sellers would want to get rid of the stock and hence the market on Tuesday could open directly at Rs.95 instead of Rs.100. In this case, though there was no trading activity between Rs.100 and Rs.95 yet the stock plummeted to Rs.95. Gap down opening portrays bearish sentiment. In the following image the green arrows points to a gap down opening.

M2-Ch10-chart2

10.2 – The Morning Star

The morning star is a bullish candlestick pattern which evolves over a three day period. It is a downtrend reversal pattern. The pattern is formed by combining 3 consecutive candlesticks. The morning star appears at the bottom end of a down trend. In the chart below the morning star is encircled.

M2-Ch10-chart3

The morning star pattern involves 3 candlesticks sequenced in a particular order. The pattern is encircled in the chart above. The thought process behind the morning star is as follow:

  1. Market is in a downtrend placing the bears in absolute control. Market makes successive new lows during this period
  2. On day 1 of the pattern (P1), as expected the market makes a new low and forms a long red candle. The large red candle shows selling acceleration
  3. On day 2 of the pattern (P2) the bears show dominance with a gap down opening. This reaffirms the position of the bears
  4. After the gap down opening, nothing much happens during the day (P2) resulting in either a doji or a spinning top. Note the presence of doji/spinning top represents indecision in the market
  5. The occurrence of a doji/spinning sets in a bit of restlessness within the bears, as they would have otherwise expected another down day especially in the backdrop of a promising gap down opening
  6. On the third day of the pattern (P3) the market/stock opens with a gap up followed by a blue candle which manages to close above P1’s red candle opening
  7. In the absence of P2’s doji/spinning top it would have appeared as though P1 and P3 formed a bullish engulfing pattern
  8. P3 is where all the action unfolds. On the gap up opening itself the bears would have been a bit jittery. Encouraged by the gap up opening buying persists through the day, so much so that it manages to recover all the losses of P1
  9. The expectation is that the bullishness on P3 is likely to continue over the next few trading sessions and hence one should look at buying opportunities in the market

Unlike the single and two candlestick patterns, both the risk taker and the risk averse trader can initiate the trade on P3 itself. Waiting for a confirmation on the 4th day may not be necessary while trading based on a morning star pattern.

The long trade setup for a morning star would be as follows:

  1. Initiate a long trade at the close of P3 (around 3:20PM) after ensuring that P1, P2, and P3 together form a morning star
  2. To validate the formation of a morning star on P3 the following conditions should satisfy:
    1. P1 should be a red candle
    2. With a gap down opening, P2 should be either a doji or a spinning top
    3. P3 opening should be a gap up, plus the current market price at 3:20 PM should be higher than the opening of P1
  3. The lowest low in the pattern would act as a stop loss for the trade

10.3 – The evening star

The evening star is the last candlestick pattern that we would learn in this module.

The evening star is a bearish equivalent of the morning star. The evening star appears at the top end of an uptrend. Like the morning star, the evening star is a three candle formation and evolves over three trading sessions.

M2-Ch10-chart4

 

The reasons to go short on an evening star are as follows:

  1. The market is in an uptrend placing the bulls in absolute control
  2. During an uptrend the market/stock makes new highs
  3. On the first day of the pattern (P1), as expected the market opens high, makes a new high and closes near the high point of the day. The long blue candle formed on day 1 (P1) shows buying acceleration
  4. On the 2nd day of the pattern (P2) the market opens with a gap reconfirming the bull’s stance in the market. However after the encouraging open the market/stock does not move and closes by forming a doji/spinning top. The closing on P2 sets in a bit of panic for bulls
  5. On the 3rd day of the pattern (P3), the market opens gap down and progresses into a red candle. The long red candle indicates that the sellers are taking control. The price action on P3 sets the bulls in panic
  6. The expectation is that the bulls will continue to panic and hence the bearishness will continue over the next few trading session. Therefore one should look at shorting opportunities

The trade setup for an evening star is as follows:

  1. Short the stock on P3, around the close of 3:20 PM after validating that P1 to P3 form an evening star
  2. To validate the evening star formation on day 3, one has to evaluate the following:
    1. P1 should be a blue candle
    2. P2 should be a doji or a spinning top with a gap up opening
    3. P3 should be a red candle with a gap down opening. The current market price at 3:20PM on P3 should be lower than the opening price of P1
  3. Both risk taker and risk averse can initiate the trade on P3
  4. The stop loss for the trade will be the highest high of P1, P2, and P3.

10.4 – Summarizing the entry and exit for candlestick patterns

Before we conclude this chapter let us summarize the entry and stop loss for both long and short trades. Remember during the study of candlesticks we have not dealt with the trade exit (aka targets). We will do so in the next chapter.

Risk taker – The risk taker enters the trade on the last day of the pattern formation around the closing price (3:20 PM). The trader should validate the pattern rules and if the rules are validated; then the opportunity qualifies as a trade.

Risk averse – The risk averse trader will initiate the trade after he identifies a confirmation on the following day. For a long trade the colour of candle should be blue and for a short trade the color of the candle should be red.

As a rule of thumb, higher the number of days involved in a pattern the better it is to initiate the trade on the same day.

The stoploss for a long trade is the lowest low of the pattern. The stoploss for a short trade is the highest high of the pattern.

10.5 – What next?

We have looked at 16 candlestick patterns, and is that all you may wonder?.

No, not really. There are many candlestick patterns and I could go on explaining these patterns but that would defeat the ultimate goal.

The ultimate goal is to understand and recognize the fact that candlesticks are a way of thinking about the markets. You need not know all the patterns.

Think about car driving, once you learn how to drive a car, it does not matter which car you drive. Driving a Honda is pretty much the same as driving a Hyundai or Ford. Driving comes naturally irrespective of which car you are driving. Likewise once you train your mind to read the thought process behind a candlestick it does not matter which pattern you see. You will exactly know how to react and how to set up a trade based on the chart that you are seeing. Of course in order to reach this stage, you will have to go through the rigor of learning and trading the standard patterns.

So my advice to you would be to know the patterns that we have discussed here. They are some of the most frequent and profitable patterns to trade on the Indian markets. As you progress, start developing trades based on the thought process behind the actions of the bulls and the bears. This, over time is probably the best approach to study candlesticks.


Key takeaways from this chapter

  1. Star formation occurs over three trading sessions. The candle of P2 is usually a doji or a spinning top
  2. If there is a doji on P2 in a star pattern, it is called a doji star (morning doji star, evening doji star) else it is just called the star pattern (morning star, evening star)
  3. Morning star is a bullish pattern which occurs at the bottom end of the trend. The idea is to go long on P3 with the lowest low of the pattern being the stop loss for the trade
  4. Evening star is a bearish pattern, which occurs at the top end of an up trend. The idea is to go short on P3, with the highest high of the pattern acting as a stop loss
  5. The star formation evolves over a 3 days period, hence both the risk averse and risk taker are advised to initiate the trade on P3
  6. Candlesticks portray the traders thought process. One should nurture this thought process as he dwells deeper into the candlestick study

407 comments

  1. Nitesh sharma says:

    Hi Karthik
    Is this a Morning Star ?

    • Karthik Rangappa says:

      Yes Sir, you can treat this as a morning star. However I would have been happier if the prior trend (down trend in this case) was a bit more pronounced and the 3rd day candle a bit longer. But I guess with some about of flexibility, we can consider this as a morning star. If I were trading based on this, I would expose very little capital on this trade simply because of the two point I just mentioned.

      • Nitesh Sharma says:

        Hi karthik
        My Knowledge is very less infront of you , so if you say sir to me it looks lil bad pls call me Nitesh only . 😀

      • Sachin Kanchan says:

        You might want to update the pdfs. While reading I found some mistakes that are corrected here on the Website.
        A new mistake I came across is: “The long red candle indicates that the *buyers* are taking control. The price action on P3 sets the bulls in panic”.
        Should be – “*sellers* are taking control”
        btw, nice explanation. Thanks heaps.

      • Hemant says:

        I’m a little bit confused. In the image mentioned above in the comment you said that the pattern is a morning star. But the closing of P3 is less than the opening of P1. So how it could be a morning star?

        • Karthik Rangappa says:

          Sorry, I seem to have missed the closing bit. Nevertheless, as I have mentioned earlier, you need to have some amount of flexibility. Finding textbook definitions is not easy in real market situations.

      • Rakesh Hansalia says:

        My question is based on chart what Nitesh’s posted in above comment.

        1) Suppose if second day candle(P2) were formed as doji having BLUE short body then still we can consider as a morning start pattern ?
        2) Let’s assume conditions for P1 and P2 are satisfied then body color (blue or red ) of doji (for P2) does really matters in morning or evening start pattern ?

    • rohit.kumar4000 says:

      prior to your morningstar didn’t you see the bullish engulfing clear cut signal

  2. Gautham ks says:

    Hi Karthik
    what if a stock has complied with all the other requirements for an evening star,
    i.e —- prior trend is an clear uptrend ,
    day 1 is a long blue candle
    day 2 has a gap up
    day 2 closses as a doji/spinning top
    buy day 3 IS NOT A GAP DOWN opening….. still closes below or very near to day 1 opening.

    How important is the Gap up and gap down?

    • Karthik Rangappa says:

      I would treat this on a case to case basis. If such a pattern appears and all other checklist items comply i.e volume, S&R, Risk Reward Ratio etc…I would go ahead and trade this confidently on the merits of an evening star.

  3. jagadeesh says:

    Hello Sir,
    I am now comfortably able to trade single candlestick patterns and that increased my success ratio quite well these days. But coming to multiple candlestick patterns, 3 out of 5 trades that i take on multiple candlestick patterns are failing. Is that because i didn’t train my eyes and brain enough to identify them correctly?? Also, does the volume in the P2 and P3 must be higher than the volume in P1 to consider it as a valid pattern??
    Thanks in advance..

    • Karthik Rangappa says:

      Good to that you are comfortable with single candlestick patterns Jagadeesh. With regard to multiple candlestick pattern, please ensure the day you are taking an action i.e either buying or selling the volume should be above average. Also, one of the main things people miss is to validate the prior trend. So please make sure you are factoring this as well.

      • jagadeesh says:

        Yeah im not missing those two checklist points sir. I think i need to train myself in identifying support and resistance levels properly. The thing is, with the appearance of a candlestick pattern, i am totally biasing myself towards the trade direction and searching for the support around that area to support my decision. When the trade ended in loss, im realizing that area is not a major level.. 😀
        I think i need to change this behaviour. 🙂

  4. Ashwin says:

    Hi Karthik, First comment is to thank you for helping all of us with this. I have read through all the candle sticks over and over agin, but your explanations are state of the art.
    My question for these kind of patterns is, why can’t a risk lover can take the position at start of the day itself. Why would we wait for the confirmation till EOD. The same for the peircing and other patterns too. I am a bit confused here.

    • jagadeesh says:

      Hi Ashwin,
      Because you cannot cosider the pattern as valid until it completely appears on the chart. I think the main difference between the risk lover and the risk adverse is the former doesn’t need a follow through after the pattern appeared and the risk adverse guy need a follow through after the candle formation. But both these guys need a completed candlestick patter to appear on the screen which happens at the close of the day.

    • Karthik Rangappa says:

      Thanks Ashwin.

      Even for risk takers it would be prudent to wait for a confirmation. Think about it, the whole of candlestick patterns is actually based on price action and the markets reaction to it. We should give time for the price action to pan out. Hence for both risk takers risk averse traders it would make sense to wait proportionately (wrt to risk they want to take) ..before initiating a position.

      • Ashwin says:

        Thanks again Karthik! I completely understand and appreciate your statement ”Reaction of the market to the price action”,but sometimes due to market volatility and external factors affecting the market as a whole, there wont be any confirmation in the next day,it might become counterproductive for the risk lover,who has initiated the call only at 3.20 PM ,to get a loss the next. So, I am only trying to understand how early any breakouts like this can be capitalized.
        I have got the essence of both your point and the candle stick pattern, so may be with time and experience I might be able to answer it.

        • Karthik Rangappa says:

          Absolutely, with time, experience, and the knowledge you have gained you will develop your own techniques of identifying markets. In fact in the long run this manifests as your edge as a trader 🙂

          • manishdjk21 says:

            What kind of discipline you’re referring to. like being able to constantly monitor the stock price during the day, keeping your news channel on for any update news or any other livewire news online? I really want to know this because, I’ll tell you something about myself. After working for 6 years in corporate world I Ieft my job in 2014, since then I have been looking for a job but no luck. Now I’ve started to think about making trading as my full time career. Thants why learning TA so that I can make money everyday. My first goal is to earn an avg income of 1 thousand daily by investing 10000 and doing margin trading. please share your thoughts on the same.

          • Karthik Rangappa says:

            Many people quite their mainstream job to get into trading full time. The problem with this is, moment you put targets like Rs.1000/- per day then you are subconsciously adding a layer of stress on yourself, and when in stress, you cannot make rational decisions which is very crucial while trading. Frankly, the approach you are taking to markets is not correct. You will eventually come under a lot of stress and will find it very hard to benefit from markets. This may sound discouraging, but this is what happens to most of the people in your situation. How ever hard it is maybe, get a full time job, stabilize, and then trade without any sort of pressure (like making 1000 per day). This is when you will really start benefiting from markets.

          • manishdjk21 says:

            Hi Karthik,
            Thanks for the advise. On the contrary what I’ve experience in the past that it is very difficult and inefficient to do your day job in the office and place your trade, because once a person have placed the trade, then he/she tends to distract from his office work in order to keep a track on the trade and this creates a situation of see-saw where the attention is divided, which not good either. I did search for jobs a lot in the past two years, but no luck as of yet. That’s why I thought why not do trading full time, of course after getting a good understanding giving a time period of 3-6 months.

          • Karthik Rangappa says:

            True, juggling a full time job and trading gets distracting. But I do know people who manage this well….common trait across all these traders are that they place longer term trades. Something like a 1 week futures position or even equity position.

            Good luck and I hope you have thought through this well.

          • ZQ0852 says:

            Dear sir,
            Adding to the MANISH’s query (below), Is it possible to make money in market on daily basis and run your house, means Is it possible to generate a salary type income from trading.
            Regards

          • Karthik Rangappa says:

            I’ll be frank. Its tough.

            Have a steady source of income like a salary and trade with capital that does not hurt your family needs. When you trade this way, the stress to make a fixed amount via trading is reduced, which means you can afford to be highly selective and trade only when you are thoroughly convinced.

            Place your family first, markets next.

            Good luck.

  5. Harshad Salvi says:

    Hi Nitesh,
    How did you manage to copy the chart of “LT” from icharts?

  6. Harshad Salvi says:

    Sorry Nitesh, Got it.

  7. Harshad Salvi says:

    HI Karthik,
    I know you haven’t touched the Head & Shoulders Pattern. But still would like to know from you that in the Wipro chart, can we say Head & shoulders Pattern is forming ? I think it is in the stage of forming it’s right top & also volume characteristics seem to be satisfying..
    Your thoughts pls..

  8. DJ9425 says:

    Dear Karthik I have attach here a chart of HDIL .Please confirm is it a morning star & followed by bullish engulf. And can we initiate here a option trade.

  9. vishvendra89 says:

    The long trade setup for a morning *start* would be as follows:, correction – *star* 🙂

  10. vishvendra89 says:

    In 10.3-evening star , point 5. On the 3rd day of the pattern (P3), the market opens gap down and progresses into a red candle. The long red candle indicates that the *buyers* are taking control. The price action on P3 sets the bulls in panic,
    correction – *sellers* 🙂

  11. Ganesh Naik says:

    Hello sir, this is a chart of Dabur EQ.. Can that second circle (right one) be classified as morning star? It does not have either doji or spinning top precisely.. but other conditions of gap openings are observed.. even volumes are not very impressive, but not less and qualifies our requirement.. while RSI is near 30, MACD does not give signals as Signal line is above Macd line.. first circle, which is an evening star, satisfies almost all conditions.. therefore, what do I classify it as?? and How to determine support for stocks that are in continuous uptrend since past two years and no prior levels at this range are available?

    • Karthik Rangappa says:

      The doji/spinning top has a specific purpose in the star formation, hence it is mandatory for them to appear. Yeah, the 2nd pattern on the right looks like a morning start but I would be hesitant to call it the same. For stocks that are in a continuous uptrend S&R can be determined by drawing a upward sloping trend line. I have not spoken about in Varsity, but I guess it is necessary to do so considering there are many stocks displaying this pattern. Will do the same shortly.

      • Ganesh Naik says:

        Oh yes sir.. Did you observe? the above stock I did analysis yesterday, rose by around 18 rupees today.. my target breached within same day.. what might have led to such a spectacular growth of this stock in one day.. I had expected these targets within 3-4 days..

      • legend says:

        Hi Karthik, You are hesitant to call it so because of the less volumes?

  12. girish says:

    dear karthik ji…
    is this bullish sir…this is a paper umbrella indicator sir..?
    thank you sir…

    • Karthik Rangappa says:

      This cannot be called a bullish engulfing because there is no prior trend, which is mandatory. At best it can be treated as a marubuzo. Even then, the volume seems to be a bit low.

    • rohit.kumar4000 says:

      This is a bearish engulfing see the prior signals all indicate bearishness in market

  13. DJ9425 says:

    Dear Karthik Sir,I am posting here IDBI eod chart,confusing to read it. does it consolidation after breaking resistace of triple top,OR is it inverted H&S,OR a flag breakout , OR a dark cloud cover because it again closing around multiple resistance.

    Thanks
    Haridas

    • Karthik Rangappa says:

      This looks bullish for me for these reasons –
      1) It is a breakout with good volumes
      2) Also, in has take out a multiple resistance zone (triple top), again bullish
      3) After a brief run up, the stock has consolidates and moved up again…this is also a good sign.

  14. girish says:

    dear karthik sir.
    thank you very much for best tutorial ta… almost i 10 chapter going well with reading with practice, few weeks i’ll send you all my practice pics with details karthik sir…may i ask you your mail id sir, because lot’s of pics i have practiced, here it’s not possible to add all those ta pics….
    thank you sir…
    i’m very happy to fun this ta, i feel like i’m a one of the nasa team….ha ha ha ha….thank you
    it’s very interesting, amazing learning technical indicators….one day i’ll also find imagine through indicator…

    • Karthik Rangappa says:

      I’m glad you are liking the topics here Girish. Please upload 1 or 2 images here so that it can benefit others as well.

      • girish says:

        dear karthik sir.
        yes sir, others also must benefit of this ta indicators karthik sir…okay i’ll update one by one each related chapters.
        here i’m updating morning star indicator sir…but it’s looks like morning star, still i’m practicing…
        thank you sir.

  15. Charles says:

    Sir, Can the 3 day candlestick pattern formed in Nifty on 30th March be termed as Morning Star ?? Asking since the 2nd candle wasnt gap down opening nor a doji. Now even a spinning top has formed the next day. Thanks

    • Karthik Rangappa says:

      Charles, for the same reason that you have mentioned classifying this a morning star is a tough ask. However the fact that there is a spinning top right after a bullish candle is enticing for a long trade. However please make sure other variables are also suggesting the same. Good luck.

    • rohit.kumar4000 says:

      Leave morning start see it as a hammer in downtrend with bullish confirmation but hammer is in red color contradicting the confirmation so leave the trade or wait for more signals.

  16. Shainky says:

    Hi Karthik
    I have some doubts
    1. What is single vertical line in chart? What is meaning of this?
    2. If this single line comes in between 2-3 chart pattern (for both intra-day or day wise chart), should we consider that chart pattern?
    3. In moneycontrol chart, instead of taking open price as you mentioned in your chapters, they use previous day closing. This make any changes in chart pattern or any conditions?

    Some suggestions:
    1. Can you provide PI on web and mobile app also.
    2. Provide stable Zerodha app for Andriod 5 (Lolipop) version.

    I hope I am not bombarding you with too many questions.

    • Karthik Rangappa says:

      No you are not bombarding us with you questions, always a pleasure relying to queries 🙂

      1) The single vertical line could be to highlight a specific day. So if there are two single vertical lines in a chart, it is simply referring to the time period encapsulated between the two vertical lines. Also, please note the vertical line is just a highlighter, it can be used for many things…so always view this in the given context.

      2) I guess the above answer also gives you clarity on your 2nd query

      3) It does make some difference, for charts I would suggest you look at chartink.com, they are quite good.

      4) For queries related to Pi, I would suggest you email [email protected]

      • Shainky says:

        Hi Karthik
        Thanks for reply.
        I have one more doubt:
        As you are mentioned that bar should be more than 1% and less than 10%. what should be bar length in case of intra-day?
        Can you suggest some app for intra-day or website which can be opened on mobile?

        • Karthik Rangappa says:

          The same rule can be applied for intraday trading. Not sure about an app for intraday charting. Have you tried moneycontrol?

          • Shainky says:

            In intra-day there might not come candle of length more than 1%. For example, in nifty 1% is equal to approx 82 now. In 5 -15 minutes chart, I think one bar may never come of 82 or more. Then what should be bar size?
            Moneycontrol chart is simple line chart with no option.

          • Karthik Rangappa says:

            True. In such a case you should visually develop a sense of the average size of the candle. Have you seen chartink.com?

          • Shainky says:

            chartlink.com is also NOT for intra-day.
            I am basically interested in intra-day for future and option. If you can suggest some chart app/website, it will be very helpful for me.

          • Karthik Rangappa says:

            Have you tried http://www.chartnexus.com/ or http://www.icharts.in/? They provide intraday charts but for a fee I suppose.

  17. T RAMA DEVI says:

    Sir,
    Iam unable to understand this rule “As a rule of thumb, higher the number of days involved in a pattern the better it is to initiate the trade on the same day`. Is it to enter on day 3 i.e P3. Thanks

    • Karthik Rangappa says:

      It means, for example – a bullish engulfing pattern (2 day pattern) is more dependable than a hammer (1 day pattern) and a morning start (3 day pattern) is more dependable than a bullish engulfing (2 day pattern). So higher the number of days in a pattern the higher the conviction to trade. Please note this is just mu personal observation while trading.

  18. Kartikey says:

    How to interpret a Hanging man and a consecutive Bearish Harami after a prior uptrend? Thanks

  19. madhu nair says:

    is this what is called exhaustion?? multiple bear candles. do you see a recognizable pattern?

    • Karthik Rangappa says:

      Exhaustion is when the rally (be it upward or downward) starts to lose its momentum. This is bearish for sure, but no pattern as such.

  20. madhu nair says:

    there have been 4 attempts to breach 772 on this chart of century textiles, including yesterday. based on the 5 minute chart i went long at 773 yesterday and the price reversed. should the previous unsuccessful attempts to breach 772 been a signal for me not to enter the trade. also, yesterday the price of 773 was above R2 on pivot signals.

  21. madhu nair says:

    just that, the stock made four attempts to cross 772, as indicated by the blue line. my query was should that have been a signal not to go long at 773 as the price immediately reversed. on the pivot indicator for the day the price was way above R2.

    • Karthik Rangappa says:

      Well, Madhu that itself should not be considered as a valid signal. These are just daily swings without concrete patterns…I would always prefer to set up trades based on time tested candlestick patterns.

  22. SaikiranGarapati says:

    Hi,

    Can any body tell below pic (in last) has Morning Star in KPIT?

    • Karthik Rangappa says:

      Although the required gaps are missing, I would be flexible enough to classify it as a morning star.

      • SaikiranGarapati says:

        Thanks for Reply Karthik, But unfortunately stock down 20% to day…So from these type of situations how we have to escape? SL is the only way or is other options are there to survive in the market?

        • Karthik Rangappa says:

          Saikiran, I have mentioned this somewhere in the module, unfortunately I cant seem to track it. But anyway, here is the thing – whenever you expect any sort of fundamental news, please do not trade the same stock on the basis of technical analysis. So KPIT had the qtrly results announcement, and the trade was set up based on a technical pattern…which should not have been done in the first place. Unfortunately even I was not aware of this, else I would have flagged you. For all these reasons and more keeping a SL is mandatory.

  23. madhu nair says:

    Hi Karthik, can we classify the pattern as an evening star? the gap up with a spinning top and the gap down on the third candle fits the bill. my worry was on the length of the third candle in the pattern. the volumes were strong and the RSI in the overbought zone. the pattern formed above the resistance line. was it too high from the resistance line? the stock did correct thereafter.

    • Karthik Rangappa says:

      Exactly, the length is a bit worrisome, everything else seems fine to me. Also, the pattern has a good support below, which means tht could have served as a target for this trade.

  24. madhu nair says:

    Karthik, could have one gone short on the basis of the immediate black candle after an uptrend? it was formed with volumes too. can it be classified as a bearish marubuzo, albeit it had a lower wick. an other bearish formation with volumes was formed today. is it prudent to go short when you spot a bearish marubuzo with volumes anywhere on charts? thanks.

    • Karthik Rangappa says:

      Yes Madhu, whenever you spot bearish marubuzo with convincing volumes consider a short. However if you are not really certain or confident to short I would suggest you take a short exposure via options (buy a put option or sell a call option). If you have missed the short trade completely then I would suggest you wait for a low volume retracement (stock going up in this case) and again initiate a short. Good luck.

  25. madhu nair says:

    Hi Karthik, in this chart we have an evening star which satisfies all characteristics. As the pattern is formed at new highs can the zone be treated as new resistance as indicated by blue line? thanks.

  26. madhu nair says:

    Hi karthik, can we be flexible and call the formation on support the morning star? gap down with a spinning top though , the first and the last candles have a lower and upper shadow respectively. the volumes are strong. The stock did rally today. would like to have your view. thanks.

    • Karthik Rangappa says:

      In fact this is a fairly decent morning star pattern, I would be happy to set up a simple options trade on this 🙂

  27. madhu nair says:

    Karthik, can we classify the pattern formed at a new high as an evening star? the reason i ask is, the second candle is a black candle. should the second candle in an evening star always be bullish?

    • Karthik Rangappa says:

      The second candle in a star formation is either a spinning top or a doji. In both these candles (spinning top & doji) the color does not matter. The fact that the real body is so small in these candles suggest that the price action is not significant, hence the color does not really matter.

  28. madhu nair says:

    Got that …so would you say the formation was an evening star?

  29. Robin says:

    Hi Karthik,
    Thanks for these tutorials. Really enjoying it.
    Just wanted to confirm that I am reading the charts right. Attached is todays (13/5/15) NIFTY chart (2 months). Pls confirm …
    6th candle from right – Long red Marubozu…..signal to go short.
    5th candle from right – a gap down red Spinning top…. Uncertain markets (but it is a red candle which confirms the bearishness signal given by red Marubozu)
    4th candle from right – a gap up white candle.
    **Question 1**…Can these 3 candles be considered a Morning star pattern?…. doubt is regarding the 4th candle…even though it is a gap up opening, the length does not cover the 6th candle. Volumes are ok. (if I had gone long on the next day opening, I could have achieved my target of 50 to 60 points in intraday itself   )
    3rd cable from right – a normal white candle (confirms the bullish signal of Morning star pattern)
    2nd candle from right – a long red Marubozu… signal to go short.
    **Question 2 **… Can candles 3 and 2 be considered a Bearish Engulfing pattern? (Trend is minor uptrend in a general downtrend)… (if I had gone short the next day opening i.e today, I would have achieved my target of 50 to 60 points in intraday itself   )
    1st candle from right – a white Hammer…. Signal to buy. (general trend is down)
    **Question 3 **… Can candles 2 and 1 be considered a Bullish Harami pattern? (general trend is down).
    Please confirm if my reading of the candles are right…and also pls answer the 3 question.
    This has been a long posting… Thanks for reading this and thanks for ur time.
    ROBIN

    • Karthik Rangappa says:

      That’s a long list 🙂 But glad to know you are taking time to read up. My answers are as below –

      1) It cannot be considered as a morning star for reasons that you have stated yourself. The length does not justify. As far as the target goes (50 -60 points), your guess is as good as mine. It could be achieved on the same session or in few successive session. Cant really predict the same.

      2) Although the candle does appear to look like an engulfing pattern the lack of an uptrend prevents one to classify it as a Bearish engulfing. Again one cannot comment on the time for target.

      3) Yes, 2nd and 1st candle combined forms a bullish harami, you need to evaluate other parameters required for setting up the trade.

  30. Aditya says:

    Hello Karthik, Thank you for the usefule info. It helps to build confidence of a newcomer like me. Just one thing – When a gap is formed between closing of one day and opening of next, actually there was no activity happened in the market. But, the movement in market happend due to difference in demand and supply. Since market is closed, although sentiments might e high, but how did these sentiments got reflected in the closed market to pull (or push) it and made a gap?

    • Karthik Rangappa says:

      Thanks for the feedback Aditya.

      Well imagine this…you goto the vegetable market at 9:00 PM (assume you were the last customer) and buy a 1 KG of onions @ Rs.25. At 6:00 AM next day the truck drivers decide to go on an indefinite strike…therefore impacting the vegetable prices (because of the truck strike supply will get affected). Now imagine you goto the same vegetable market and same vegetable vendor (you are the 1st customer) to buy another KG of onions. Do you think he will sell it to you at Rs.25? Maybe not, he will sell it at Rs.28 or Rs.30/-. So the overnight change in sentiment has affected the onion prices and therefore the price of onions is said to have gapped up. Likewise in the stock markets!

      • civils.aditya says:

        Thanks for the prompt reply Karthik and the easy explanation. But one more question popped up. With your reply, I can now think that the sellers decided to go with the mood of market and accordingly decide price. But, there might be different sellers who are not even in contact with each other and might want to quote different prices at the opening of market yet the market opens with one price how this final price is arrived? Sorry to dig in so deep.

        • Karthik Rangappa says:

          Well, the markets are interconnected. Information flows easily…and if a seller does not have the latest information he obviously has a disadvantage. In case of stock markets, the quotes are electronically updated and with the help of market depth the traders can see and gauge the mood of the market…hence majority of the traders are kind of in sync.

  31. SUNIL KUMAR says:

    Hello Karthik,
    You are doing a great job by writing these modules. It’s really good for beginners as well as for those who have mastered the art. Keep up the good work. An average Indian is scared of the Stock Market as he has no financial knowledge. But your modules are really informative and easy to understand. It will encourage new investors. Request you to make all the modules available in PDF format for download. As of now, only the 1st Module and Ch 1-9 of the 2nd Module are available. Looking forward for the other Modules to be available for download.
    Thanks.

    • Karthik Rangappa says:

      Thanks for the kind words Sunil. Words like these encourage us to do better and better 🙂

      We are working on converting the chapters into downloadable PDFs. Please bear with us for sometime. Thanks.

  32. madhu nair says:

    Karthik, an evening star was formed at a new high which probably is a short term resistance. The day after the formation the price did fall but recovered to form a doji . ideally the price should have fallen and stayed low. do you think the uncertainty as shown by the doji day would lead to price fall the next trading day? would like to hear your view.

    • Karthik Rangappa says:

      Too tempting to stay short here – the presence of doji is conducive for a further fall in the stock. Good luck.

  33. madhu nair says:

    karthik, an evening star at resistance was formed a couple of days back. the fall though following that has been muted. do you think after a three candle bearish pattern the price correction should have been steeper? am i reading it correctly?

    • Karthik Rangappa says:

      Well the job ends after spotting a valid pattern and placing the trade 🙂

      Once you place the trade, you just hope that the stock moves in the expected direction. The same is applicable here – its a valid pattern (and assuming everything else is well aligned) – the expectation is that the stock price will correct – when and how is difficult to estimate !

      • madhu nair says:

        i agree. what do you think of the other alignments? the volumes were good. the RSI is at over brought , the MACD signal blue line though was still above the MACD red line. how strong were the indicators for a short trade?

        • Karthik Rangappa says:

          Both these indicators are good. But honestly my dependence on indictaors as such is low – especially for intrady trades. I prefer to emphasise more on candlesticks, volumes, and S&R levels…needless to the current news riding on the stock also matters to me.

  34. madhu nair says:

    secondly karthik, an other evening star at resistance with volume. my question is can this be considered as ES? the stock seems to be in a trading range. or, can it be treated as valid since it seems to be a part of secondary trend of the overall primary bearish trend. also, i am using a 14 day moving average for volumes and you have advocated a 10 day MA. hope that is fine.

    • Karthik Rangappa says:

      More than the ES pattern (which btw is not very convincing due to the lack of a proper uptrend)…the fact that it has formed a double top along with a ES is attractive.

      • madhu nair says:

        thanks. appreciate that. i am using a 14 day MA for volumes rather than a 10 day MA as you have advocated in the module. hope that is fine?

  35. Rishi Sekhri says:

    Hello Karthik Sir, I want to ask that 2nd candle in Morning Star needs to be a blue candle or it can be a red candle & 2nd candle in Evening star needs to be a red candle or can be a blue candle?

    • Karthik Rangappa says:

      The 2nd candle in the star patter is either a Doji or a spinning top. Hence it does not really matter if it is bullish or bearish colored candles. It can be anything.

  36. Rishi Sekhri says:

    Ok Sir. Thanx a lot.
    One more thing, the time showing in the questions or answers do not match the ones when we post it.

  37. DJ9425 says:

    Dear Karthik,
    1) Is there any classification of CANDLESTICK PATTERNS , as power or intensity of that pattern for trend reversal ?
    2)Since we are using EOD charts for trading , should we take stop loss as closing basis or to put in system in live session. Because several times SL get triggered in live session but closing gets below SL and then target also gets achieved.

    Thanks.

    • Karthik Rangappa says:

      1) People do classify candlesticks based on success ratio, but I dont really rely on it much. I think it makes far more sense to classify it based on your own experience of trading the pattern, adaptability, etc.

      2) SL is usually on closing basis…however dont wait for the close. In case the mkt closes below your SL, next day could be a gap down and you could lose far lower than what you had originally budgeted for. Hence watch the close and in case the price is your lower than your SL level by 3:20, close the position. Also, having said this also be aware that the next day could also be a gap up :). I’m not trying to confuse you, but just being aware of possibilities helps!

  38. Alok says:

    Hi Karthik
    I am bit confused with p1 as 1st day p2 as 2nd day and p3 as 3rd day, if one is doing intra day trading with 5 min graph, if successive 5 min graph making morning or evening star will be considered.
    Thanks
    Alok

  39. SaikiranGarapati says:

    Hi Karthik,

    Can i expect last three candles are formed a Evening star in Ashok leyland chart

  40. Aditya says:

    Dear Sir

    please check weather the attached chart of RS software is giving MORNING STAR SIGNAL,i feel it is following the 03rules(marked in circle) .
    1. P1 is red candle(13/11/15)
    2.With a gap down opening, P2 is doji or a spinning top(16/11/15)
    3.P3 opening is gapup, plus the current market price at 3:20 PM (should be higher) is little lower than the opening of P1 but if consider another rule BE FLEXIBLE ,QUANTIFY .
    can it be consider as morning star ??. if yes what should be the targets.

    • Karthik Rangappa says:

      Technically right, but I would not classify this as Morning Star….for a simple reason that P1 does not have convincing range for the day. It appears more like a hammer formation.

  41. Tanmoy says:

    Hi Karthik, At what time do we need to analyze charts for pattern confirmation in commodities & currencies trading? Adding to the above we have global economic events/news almost on a daily basis which impacts the movement so wouldn’t it be risky to take overnight positions if compared to equities

    • Karthik Rangappa says:

      I agree. Overnight risk for currency and commodities is quite high. Hence while trading currencies and commodities it is always advisable to have sufficient margins to accommodate for these swings and M2M movements.

      I would suggest you look at the pattern formation on a EOD basis.

  42. Rohan says:

    Hello Karthik & Team,
    Thanks for everything…This is really helpful..!
    I have a small doubt…all the candlesticks concept like engulfing,doji,star etc ..1) Can we apply all these concepts on any type of charts(specially Heikin-Ashi Candlestick chart)?

    • Karthik Rangappa says:

      No, candlestick patterns are best applied to Candlestick charting alone…best not to mix it with other charting techniques.

  43. Raja says:

    Hello Karthik Sir,
    First of all thanks a ton for your effort you have put in here, its really very very helpful. Could you please tell me which Candle chart pattern is best for PI Users between the normal Candle Chart and Heikin Ashi for 5 mints or 15 mints intra day trade. Thanks in advance.

  44. Raja says:

    Sir… for Nifty Fut Intra Day trading which are the best Technical indicators to follow like. EMA/MA, RSI, MACD etc. I mean which indicators are most suitable to comprehend the Nifty trend for intra day trading. Thanks in Advance.

  45. SUBHANKAR says:

    Is this marking area bearish engulfing pattern?

  46. Rachit says:

    Is nifty forming a perfect evening star in last three candles
    Does it means a sharp fall is coming

  47. RK kumar says:

    hi karthik, all analysts used to give stop loss and shirk away from the responsibility of their calls,on normal days which could work perfectly :), but my doubt is what an investor can do on occasions like august 24th kind of 400 points fall ,jan 2016 fall on account of china ,in such cases when the market open itself it would be in deep red and much lower than your otherwise stop, while making up your mind it shall down further….it hurts option buyers most, itm contracts can become virtually worthless, what strategy can be adopted? how overnight risk can be managed?is any methodology in order placing that your order will execute first when such situation by which can salvage what ever can be redeemed?

    • Karthik Rangappa says:

      As you evolve as a trader you will realize that a spread position is far better than a naked directional position, its probably the best way to deal with overnight risk. A spread position reduces your overall profitability but at the same time gives a greater visibility on risk. In my opinion this is a far better deal. We have bee discussing spread positions here – http://zerodha.com/varsity/module/option-strategies/

  48. RK kumar says:

    hi karthik,admit that send some comments, as i am really excited to see what i have been searching, feel pity that i have not realized such thing existed while i was searching on YouTube and elsewhere, how your material stands above others cause you are perfect blend of both,good teacher with vast knowledge in finance domain besides active trader,normally will not get that mix…kudos

    • Karthik Rangappa says:

      Thanks for the kind words Kumar. Zerodha is really committed to provide the best and most practical trader education at free of cost. Comments like yours keep us motivate to do even better! Cheers.

  49. RK kumar says:

    Hi karthik,Thanks for your prompt reply that is inspiring..one suggestion from my end …why can’t design the comment page desing like fb…like,share etc…it would give nice interface and social media kind of advantages…Thanks.

  50. Joe says:

    Reading all these modules I must say Karthik, you are simply outstanding! I had no idea of these candle chart stuffs before reading this module but can now confidently proclaim that I’m not getting this. As usual apologies for some silly questions that I have while I read all these modules(since I trade in commodity)
    1. What is your recommendation to choose a time frame (whether 5 minute, 10 minute, 15 minute etc…) for a day trader like me ?
    2. I don’t keep any overnight positions, in that sense does these stars(morning, evenings:)) applicable?
    3. Last but not least with so many indicators we have what indicators I should use for day trading( I normally trade 3 hours 6 PM to 9 PM).

    I think you should write a book Karthik that will benefit millions of retail traders in India! who knows you could be the next popular like Robert Kiyosaki for ‘Rich Dad Poor Dad’!

    • Joe says:

      some typo mistake in my first statement Karthik….please read as
      I had no idea about these candle chart stuffs before reading this module but can now confidently proclaim that I’m now getting this.

    • Karthik Rangappa says:

      Joe, I’m glad you Varsity is helping you 🙂

      1) For day trading I’d suggest you look at 10 or 15 mins data
      2) Yes, they do matter. For example assume last two days the stock has formed a bullish engulfing…then on 3rd day you are much better off doing long intraday trades rather than short intraday trades in other words you need to be buying on dips
      3) MAs are quite effective I suppose.

  51. SaikiranGarapati says:

    Hi,

    Can i consider the circled candles as a Morning Star?

  52. Suresh.ks says:

    Hi sr ,
    Double top,Double bottom,Flags,pennants,Cup and Handle, Wedging,Island Reversal,Head and Shoulder,
    Rounding bottom….these are important patterns?
    Do we need to learn these?

    • Karthik Rangappa says:

      The more you know, the higher is your conviction on a trade. The higher your conviction, the greater is your probability of making a profit.

  53. Suresh.ks says:

    Hi
    Could you include the patterns double top,double bottom,head and shoulder,flags,pennants ,wedging…in this module?

  54. Rohan Bhambhani says:

    Could you please explain the thought process behind ‘The Stick Sandwich’??

  55. tanmoy says:

    Hi Karthik, can we consider the below as morning star although gap down didn’t happen but it’s close considering flexibility.
    https://kite.zerodha.com/share/UG5FTYIN51.png

  56. Shafeeq says:

    Dear Karthik,
    In an multiple candlestick pattern, which day’s volume should be considered (as above average) for making a trading decision?
    Both the candles should be above average Volumes or the Last Candle should be above average volume?
    Thanks

    • Karthik Rangappa says:

      Preferably the candle that triggers the action to buy/sell…this means the latest (P2 or P3) candles.

  57. Abhijit Mazumder says:

    Karthik,
    Quick noob question? Is making new high or new low is necessary for evening start or morning star respectively? The reason I am asking today Nifty looks like forming an evening star; but it is not at a new high
    Thanks,
    Abhijit

  58. RAJIV says:

    Sir, for Morning star pattern – should the P3 candle close be higher than the P1 Open or P1 Close? please clarify

  59. Vishal Javakhedkar says:

    HI Kartik, In case of gap up opening, does previous trend matter. So for example if last 3 candles are red then suddenly a gap up opening and if last 3 are blue candle and suddenly a gap up opening, do we need to read both these cases differently.

    • Karthik Rangappa says:

      Yes, it would but the gap up should be significantly higher than the last 3 candles.

      • Vishal says:

        Sorry I didn’t understand your answer, trend will matter or not

        • Karthik Rangappa says:

          Gap will matter if the gap opening is much higher than the last few trading sessions. For example if over the last few session stock has declined by 5%, but today the stock opens gap up 5%, then I’d assign more importance to the gap up opening.

  60. SaikiranGarapati says:

    Hi Sir,
    IDEA Cellular formed a Morning Star Pattern right?
    It is at support level and Resistance is at 100 as per mine,Can you confirm it please?

    Last ten days avg Volume is 63,36,509 and to day’s Volume is 10044807.

    Regards,
    SaikiranGarapati.

  61. vighnesh B says:

    Hi Karthik,
    First of all thank you for all the knowledge sharing through varsity.
    Would like to know your perspective on the following 2 points
    1. For a day trader scanning for stocks to trade the next day, what time frame candle stick chart should be researched and at what time?
    2. Does Zerodha have a stock scanner to notify say buy or sell signals generated with supertrend indicator on a 5 minute chart of all nifty stocka at a particular point in the day.

    Regards

    vighnesh B

  62. sarbojitg says:

    What happens if a Evening Star formation appears in a downtrend ? If you look at the Tata Elxsi share, its showing a evening star formation in a downtrend.

    • Karthik Rangappa says:

      An evening star by definition requires a the market/stock to trend higher as prior trend, absence of which it does not qualify as an evening start. So an evening star at down trend is not really an evening star.

  63. Divy says:

    Would a pattern be classified as Evening star if instead of 1 doji, there are 2 dojis ?

  64. Divy says:

    I want to ask you though. What made you write this module and who else are involved in creating it ? When will module 9 be ready ?

  65. Divy says:

    Hey, if a stock on P3 opens marginally lower than P2’s close and goes on to form a long green candle will that qualify as a Morning star ? Can you please check HUL daily for Morning star and do you think on the weekly chart its forming a bullish harami ? Thanks again.

  66. Divy says:

    What does it mean when a hammer and a inverted hammer are formed next to each other ? This is quite common and confusing as well. I cannot paste links here for some odd reason.

    • Karthik Rangappa says:

      I know what you are talking about. Usually these formations occur when there is no trend in the market…very typical of a sideways market.

  67. Manish Agarwal says:

    I am just astonished, the quality information you have provided on TA. How come I could not come across VARSITY FOR SO LONG. I am constantly on internet.

    I have just read twice the TA till candle stick and have a query.

    You presented the idea of the presence of Doji in the Bullish/Bearish Engulfing pattern. My question is that can this be combined with other single candle stick patterns or double stick patterns or this theory should only be applied with Bullish / bearish engulfing patterns.
    For example
    1) what if a doji is preceded by a Bullish/Bearish Marubozu pattern.
    2) what if doji is preceded by a Bullish / bearish harami

    Other General risk related questions:

    1) You suggest that one who is new in trading should start with swing trading as opposed to Intraday. But I think swing trading can be riskier than the intraday. Because what I have observed is that market is very dynamic and is being affected by global news actions and stock markets like dow jones, etc. so keeping a trade overnight can be affected by the news action after the close of the market.

    what do you think about my thought process?

    • Karthik Rangappa says:

      Manish – yes, you can combine dojis with other patterns as well. No problem with it.

      Intraday trading requires great amount of discipline and technique, you can nurture these qualities with swing trading.

  68. seemapv says:

    Dear Karthik, I read your TA both modules. Hats off!!! Thank you. One small correction that I noticed..(I know it is a typo error..) Under “10.3 – The evening star” just below the image, under point no. 5. of “The reasons to go short on an evening star are as follows,” ………red candle indicates that the SELLERS (it is printed as buyers) are taking control……….. Kindly, do the needful. Thank you again for such a magnanimity to share your wisdom! Warm Regards…

    • Karthik Rangappa says:

      Thanks for pointing this out, will look through and me the corrections 🙂

      Also, happy to know you liked the contents here! Good luck and happy learning!

  69. Rajiv says:

    Hi Sir, Thanks for a great article. very useful. My query is: Has Maruti on Jan 13 formed a evening star pattern on Daily charts. Please clarify. Thank you.

  70. Rahul says:

    Hi Karthik,

    Thanks for all you are doing for novice traders like me . At many places, you have mentioned that you will trade a particular stock using options. I want to know in what situation, you trade a stock using option.

  71. AMIT KUMAR PANDEY says:

    sir suppose (from the Point of view of intraday) we found a Bearish Engulfing Pattern on EOD chart,and found a overbought stocastic crossover on EOD CHART and the TREND on Hourly and daily chart both are UP and if i follow 10 Min chart so whether should i look for long or shorting opportunity ?
    here if i go short i will be against trend and if i go long then i m ignoring the EOD bearish pattern?

    • Karthik Rangappa says:

      I’d avoid trading the scrip if there are opposing views. Look for opportunities where there is more clarity.

  72. ALOO says:

    Hello, I’ve a few queries.

    A.
    1) In this BPCL chart, as you said the 1st curve is a down trend. Can we call the 2nd curve marked with question mark an uptrend ?

    2) Also the last 3 candlesticks, does it form a morning doji star ?

    3) Lastly, if the volume is almost near average line but not touching it, can we take it as a yes ?

    Link – https://drive.google.com/file/d/0B0bePrdjZCDoVFBiRTlrTkZ2SUZHUEFqT3VyVHlKMnphdkI4/view?usp=sharing


    B.
    1) In this INFY chart, has it formed a double bot dow pattern ? And the point which it is at right now can lead to either a breakout or back to in range ?

    Link – https://drive.google.com/file/d/0B0bePrdjZCDoVFBIQnFyWjRReERmNGtCUlkyc3VvaDFBTXFv/view?usp=sharing

    2) A doji/spinning top after any candlestick pattern catalyses it ?

    C.
    1)In the chart below of Ambuja Cement
    Its a downtrend and further 2 hammer forms following a doji with good volume yet it didn’t go bullish. Why

    Link – https://drive.google.com/file/d/0B0bePrdjZCDob0JKbWxvci1QV0U/view?usp=sharing

    • Karthik Rangappa says:

      1) Yes, you need at least 5 trading sessions to confirm a trend
      2) Yes
      3) Yes
      4) Yes – its a double bottom
      5) TA only increases the probability – does not give you guarantees.

      • ALOO says:

        Thank you for the reply.
        1) So, we can say that there could be a downtrend/uptrend in between of a overall uptrend/downtrend ?
        2) In the BPCL chart you said that it is forming a Morning doji star but in the chapter above, you’ve mentioned that the P3 must close above opening of P1 which is not the case in the chart then why is it a morning doji star ?
        3) So if the volume is little below the average volume it is ok and can be considered as a yes for trading checklist?
        4) Does a doji/spinning top after any candlestick pattern catalyses its effect ?

        • Karthik Rangappa says:

          1) Yes – these are called primary and secondary trend

          2) No harm being a bit flexible. It is hard to find textbook patterns in real markets.

          3) Just below average is still ‘ok’. Maybe 5%. Not drastically below.

          4) Yes. I’ve discussed this in the chapter.

          • ALOO says:

            Thank you for replying, as you’ve suggested earlier that above average volume signifies a strong pattern. So the patterns in which there are 2 or 3 candlesticks(like star and engulfing), are all of the candlesticks in the pattern
            are required to have above average volumes to be a strong pattern ?

          • Karthik Rangappa says:

            Yes, higher the volume, the better it is.

          • ALOO says:

            😀 Thank you for all the replies! Could you please tell me how do I build up confidence even when trading in CNC that what I’ve figured out by lookin at the charts and matching it with the checklist is correct ? Because sometimes some patterns that are fulfilling everything doesn’t work but some patterns where volume or some other factor is quite less it still works and goes per the pattern..

            Also how much money should I start with as per a newbie

          • Karthik Rangappa says:

            The only way to build confidence is by actually placing trades and executing your ideas. Start with capital that you are not scared of losing.

  73. aravindt says:

    Hi can these candle-stick patterns be used in forecasting the market for intraday trading using 5 mins candlestick??

  74. ALOO says:

    Thank you for the advice! I’ll definitely try to place the trades by overcoming the fear.

    Is this an uptrend ?
    Because after a correction it made a new high
    https://drive.google.com/open?id=0B0bePrdjZCDoR0F0YklXa091X00

  75. Madan says:

    Thanks Karthik for really useful content. I have one basic question. I know how to place intra-day short trade. But, How do we short shares of a company at 3:20 using Kite without having those shares in demat ?

    • Karthik Rangappa says:

      It is the same way as you’d short intraday…except that you need to cover the position before 3:29 PM. I’d suggest you avoid doing this as it can get quite risky.

  76. Ayush says:

    Who sets the gap up opening & gap down opening price.

  77. Shyam says:

    Hi Kartik,

    At the outset let me thank Zerodha for starting this initiative to spread knowlede on stock markets. This is truly a masterpiece.You surely have the flair for explaining such complex subjects in clear and lucid way. I have not come across any materials on technical analysis on web that is so simple and easily understood. Truly this is amazing!!!
    Coming back to technical anaysis, I request you to download the below link of Nitin spinners chart for your ref.

    https://drive.google.com/file/d/0BxpxOUxrE_YbSE9wa2h3WG53cGs/view?usp=sharing

    I see a spinning top at top indicating a possible fall in price. But today I see that this stock has made a breakout abv 125 and is at a all time [email protected] Can you please help in aanalysing what went wrong?

    • Karthik Rangappa says:

      Thanks for the kind words, Shyam.

      Spinning top does not convey a change in trend. It just tells you that the current trend has paused. It may or may not continue. Expecting a fall solely based on ST is not justified.

      • Shyam says:

        Hi Karthik,

        Thanks for reverting. Though ADX is strong and even the +DI is way above -DI I exited my position after seing ST and even volumes were falling. Now that it has given a breakout at 125 ,i am thinking of re-entering this stock at current level and go long . Can you confirm if this is ok?

  78. Shyam says:

    Hi Kartik,

    Noted Parameters are diff for each pattern. For the above pattern if nitin spinners what shd be the parameters?

  79. Pankaj says:

    Hello sir,
    I am learning about stock market from this platform and i must say the work you have done to make it possible to feel stock market easy is incredible….
    sir, I wanted to ask you that is Harami pattern is exactly opposite to engulfing pattern????

    • Karthik Rangappa says:

      It is another pattern, similar to engulfing. The parameters are different, but works similar to the engulfing pattern.

  80. Ashwin says:

    Hi Karthik,

    Firstly I would like to thank you for amazing tutorial. I wanted deeper insight into the components of a single candlestick (Upper shadow, real body, lower shadow). I was able to describe the meaning of only some of them and it is as below. It would be very helpful if you can verify if the meaning of candlestick components mentioned below is correct and give the meaning of components I was not able to define.

    The meaning of the candle components individually without taking into consideration other parts of candlestick:
    1. Long upper shadow: The bulls tried to push the price higher but were not successful.
    2. Long lower shadow: The bears tried to pull the price lower but were not successful.
    3. Short upper shadow:
    4. Short lower shadow:
    5. Long blue body: The bulls tried to push the price higher and were successful.
    6. Long red body: The bears tried to pull the price lower and were successful.
    7. Thin body (color does not matter):

    • Karthik Rangappa says:

      1) Yes – they tried to push the price higher, but the high point wan not sustained
      2) Yes – they tried to push the price lower, but the low point was not sustained
      3) Means that the high was near to the close/close
      4) Means that the low was near to the open/close
      5) Yes
      6) Yes
      7) Yes

  81. Rajiv says:

    hi Sir, on Apr 28 2017 close, has TVS formed a bearish evening star pattern on daily charts. My concern is P3 is a green candle but still the p3 close is near to p1 open. please share your thoughts. Thank you.

  82. gauravbhandari says:

    Hi Karthik,

    Request you to please look at TCS chart today….is it forming a valid Morning Star…I see that there is no gap down on P2 but can we consider it..Does it look good to place a trade?

    I’m not able to upload images here…can you help me with that also?

    Thanks

    • Karthik Rangappa says:

      Not a MS for sure. You will have to validate the pattern and make a fair assessment 🙂

      • gauravbhandari says:

        Thanks Karthik. I have one doubt – how do you identify a uptrend or downtrend…should it be a steep slope…or variations are allowed. What if I calculate percentage for uptrend or downtrend…what is a good value to consider it…like 10% downtrend or uptrend starting from the 1st day I identify the trend till the most recent candle.
        If there is any other method that can be used please let me know.

        • Karthik Rangappa says:

          For all CS patterns, prior period trend should be at least 5%, but yeah something like 10% is great. I’d look at only the percentage basis. Slopes can be a little misleading at time.

  83. Rahul Sihara says:

    Hi Karthik, these modules are amazing thanks for them.
    My question is where to use these technical analysis? i mean for equity in CNC or MIS?

  84. Amit Aggarwal says:

    Hello Karthik, had a question regarding the candle stick pattern. Are these pattern valid for 5 min candle stick pattern also.

    your early response will be highly appreciated.

  85. I am not able to grasp the pattern ONGC is following this days… please help me explain

  86. Valentine Gerard Edward says:

    Could you explain in detail why is the reason for stop-loss being the highest of high for bearishness and lowest of low for bullishness… With an example if possible…?

    • Karthik Rangappa says:

      The highest point in case of bearish patter represents the level at which the bears managed to push the prices lower. Hence its perceived that this level will hold for the next few trading sessions. Likewise for the bullish patter with its low as the SL. Have included many examples in the chapter and the entire module.

  87. PrasanthG says:

    Hi karthik, I have a doubt. All these chapters ask me to initiate a trade at 3:20 .But Zerodha doesnt provide margin for trades that carry for next day.So how to go about this. Will zerodha give margin for 5 days like many other brokers do(although the charges are very high).If not how to make a profitable trade without that option?

  88. balaji says:

    karthick how is fortis health care in charts ?
    is it good or shall i sell?

  89. ram says:

    can we use this patterns in intraday (5mints & 10 mints )charts also ? it gives same results

  90. Pavan says:

    Hi Karthik,
    You were telling that a trader can go long when it is morning star etc. Do you mean that the trader have to buy normal CNC stocks to keep with him for more days and not intraday buy or sell stocks? Is my understanding correct?
    Please advice

  91. Rajinder says:

    Dear Sir,
    I have read yours so far single candle pattern only. There is one doubt if risk taker initiate call at 1520 hrs and on next day unfortunately call goes unfavorable to him, then on next he supposed to round off with minimum loss. But on the other hand there is some technical difficulties for next day selling.
    Now what he is supposed to do? whether he should wait for T+2 days and avoid technical problems with more losses?

  92. Aman kabra says:

    In Points for thought process of a morning star the point 7 states that P1 and P3 is forming Bullish Engulfing. i am not getting how it is forming Bullish Engulfing. Condition for formation of Bullish Engulfing is P1 is red candle with P2 engulf P1 real body. but here P2 is not engulfing P1.

    • Karthik Rangappa says:

      Bullish Engulfing in the sense that P3 covers up the losses on P1. You need to look at this from a very generic sense here.

  93. Ash says:

    Hi Karthik,

    1. I think then candle stick trades can’t be fully utilized in cash trading and there will always be a loss if the pattern goes wrong somehow in the next two days after we make a trade, since the stock won’t be in our demat account (to sell off) in 2-3 days, correct?
    2. So It is always recommended to trade in stock futures?
    3. Also I don’t think we can play in options because we are looking at the stock price for patterns and not the option premium price, correct?

    Thanks,
    Ash

    • Karthik Rangappa says:

      1) You can always opt for a futures or options trade instead of cash
      2) Maybe, it really depends upon your risk appetite
      3) You can. Premium is a function of the price in the spot market.

      • Ash says:

        For your reply to point 3, Are you saying these same candlestick patterns can be applied to option premium price too and trade options contract same way? Asking since I don’t think options price is just derived based on the price of the stock but also on other factors like time to expiry, demand etc. Let me know.

        • Karthik Rangappa says:

          1) No, what I mean to say is that you can look at Candlestick pattern on the spot data to make deductions…you can act upon this in the options market.

  94. Sai Pramod says:

    Hi karthik,

    In the morning star pattern why should we wait for P3 when we have already know that formation of P2 is a trend reversal from single candlestick pattern. I think a risk taker would trade on P2 close when he himself understands it to be a doji or spinning top and expecting a trend reversal.

    • Karthik Rangappa says:

      It really depends on how much risk you are willing to take. Also, A morning star is considered a morning start only upon the formation of P3, P1 & P2 forms nothing really.

  95. Sudipta says:

    Sir, when we look at prior trend, should every candle form higher high and higher lows (for uptrend) and lower high and lower lows (for downtrend)?

  96. RISHABH says:

    Is this all technical analysis studies also works for commodity?

  97. om says:

    In the candlestick chart there are 1 min ,5 min ,1 hr etc view and each one of the view make different pattern. which one should be consider for our technical analysis ?

    • Karthik Rangappa says:

      It really depends on the time frame you opt to trade upon. For example, a 1-day chart works best of swing trading. Minute charts for day trading. If you want to place 1 or 2 trades in a day opt for 15mins charts…for a higher frequency of trades you can choose lesser time frames. But do remember, lesser the time-frequency, higher is the noise.

  98. Kanika Agarwal says:

    Hello Karthik,
    There are thousands of stocks listed in the market. Obviously, it is impossible to use TA on all of them and then pin the few where one actually goes ahead for trading/investment. Any suggestions on how to narrow down the search for the stock? And if possible, can you tell this separately for short-term and long-term investment?

  99. Om Sharan says:

    Hi Karthik,
    To observe morning star which view of the candlestick would be suitable (1D, 5D)? This is a 3 day consecutive phenomena so in which view do we get the consecutive candlestick of three days?

  100. ARUN says:

    Hi karthik,
    Do technical analysis works on Nifty future??
    Plz share ur experience..

  101. KNV says:

    Don’t you think we should also look at traded volumes for any conclusion on Gap up or Gap down. Unless the preceding volumes are high & volume on the Gap up day is atleast 50% more than average volume isn’t it premature to conclude that Gap up is leading to a bullish trend. On many occasions I have seen gap ups & downs to be a passing feature. Pl clarify

    • Karthik Rangappa says:

      Gaps (either up or down) is just a reflection of sentiment on price for the given moment. Really don’t think the previous day’s volumes will have an influence.

  102. Anonymous says:

    Sintex industries is forming bullish engulfing Or half morning star… Will it go up monday also volumes are high?

  103. Himanshu modi says:

    Hi, karthik sir

    The above all and previous module was based on candle stick pattern. But what about other chart pattern like:-
    Flags & pennant
    Triangle
    Cup with handles
    H&S ,etc.

    What difference do they provide?? Will it be worthy to learn those?

    And thanks for varsity programme , enjoying great learning…!!!☺

  104. Karthik S says:

    How one can position himself as a bull or bear?

  105. Sachin Singh says:

    Slightly off topic but is there any site where the LTP of each day for Nifty might be available? Most sites have the closing price, not the LTP.
    Thanks!

  106. Rajesh says:

    How much percentage is considered as a gap ?
    Suppose a stock closes at 767.79 today and opens at 767.89 tomorrow… we canconsider it considered as a gap?an
    Kindly reply
    Thank you

  107. Prateek kumar jaiswal says:

    Hi Karthik,
    What a way to summarize candlesticks patterns with “What next?” section
    “As you progress, start developing trades based on the thought process behind the actions of the bulls and the bears. This, over time is probably the best approach to study candlesticks.” By far it looks one of the best lines to me. Still hard to believe such contents are easily accessible to us.

    Well I have one doubt related to Volume, what role volume will play here in morning/evening star patterns in entire setup, say p1, p2 and p3 candle, how much should it be. would be great if u could throw some light on volume?

  108. Paresh says:

    Hi Karthik
    Very nice and interesting content.
    I have following questions.
    1) is there any priority among different candle pattern?. I.e. two different stock trade conform with different candle pattern, which one is better?
    2) which indicator is used to detect fast momentum
    3)how to decide target(sell), is it always always equal to resistance?

    Regards

    • Karthik Rangappa says:

      1) No, not really. You will have to experiment with patterns and estimate whats good for you over time.
      2) Maybe use a leading indicator like RSI
      3) No, not really – S&R gives you a good spot to identify targets and SL points. But this changes on a case to case basis.

  109. BKP says:

    Is the multiple candlesticks are equally useful in intraday or only meant for positional?
    Pls clarify.

  110. Aishwarya says:

    Hello Sir,
    1)For intraday trading, in 15 min chart, how many candles define the uptrend or downtrend??
    2)For intraday trading, to plot support / resistance, lookback period is 90 days??
    3)While plotting support / resistance, should we consider only the long moves (peak and trough) or the smaller ones can be considered??
    Thank u so much for all your efforts.

  111. Rajesh solaskar says:

    Dear Karthik sir… I’m studying all this modules very deeply. It’s very very useful. Actually come before varsity I was thinking to join any TA course. But now It seems needless. You are explaining it in very simple language. Thanks thanks thanks for it. Now coming to my query : In candle stick patterns which type of candlesticks we should use on chart to confirm the pattern?
    For example : On 17th Feb 18 there is a evening star on reliance capital Feb future chart. It clearly appears in heikin ashi type candlesticks chart but not in standard candlesticks type chart. Why so? Please explain…

    • Karthik Rangappa says:

      I’m so happy to note this Rajesh! I’m glad we could help and save you some money, which you would have otherwise save on a course 🙂

      Heikin Ashi is a different thought process altogether. Just like how a line chart differs from the candlestick, Heikin Ashi is different from the candlestick. I’d suggest you stick to candlesticks.

  112. Manu says:

    What should be the time frame window we should select to generate pattern. For e.g 1 minute, 15 minute or 1 day. I am asking is because for different different candlestick pattern is different. Candlestick pattern generated with 15 minute window refers we should sort market. Whereas 1 minute or 30 minutes candlestick pattern refers that we should buy.

    pls advice.

  113. chintan says:

    Hello Mr Rangappa, if you look at the module 10.3 (the morning star) line 7 which says “In the absence of P2’s doji/spinning top it would have appeared as though P1 and P3 formed a bullish engulfing pattern”

    Here if you look at the chart for the above mentioned reference, i dont think it should have been Bullish engulfing pattern as P3’s opening is higher than P1’s closing.

    By the way, the Varsity is amazing and very helpful, good work…CONGRATULATIONS!

  114. Varun Dhupar says:

    Hi Kartik,
    Could you please explain what exactly is booking profit. Is it similar to Shorting?
    Moreover, in the charts above 3-4 candlesticks have been encircled together which looks more or less like spinning tops. Does this imply that few spinning tops will always appear together over the period of trading sessions?

    • Karthik Rangappa says:

      You buy an apartment at 1 Crore and after 3 years you decide to sell it at 1.5Cr. You have essentially made 50L profit on your investment or in other words, you have booked a profit of 50L. Booking profit is just a term used to convey the fact that you have made a profit and pocketed the same.

      Shorting is a trading technique where you sell first and buy later. More on shorting here – https://zerodha.com/varsity/chapter/shorting/

      No, there is no guarantee of spinning tops appearing anywhere in the chart. In fact, there are no guarantees for anything in the market.

  115. Mayank Bansal says:

    Hi Karthik Sir,

    Your notes are wonderful, i am in the learning phase right now and these notes really helped me in improving.
    My question to you is, Is it advisable to enter into the market just after analyzing 2 or 3 five minutes candles after the market opening for intraday trade ?

    • Karthik Rangappa says:

      Glad to note that, Manyank 🙂

      Yes, that should be possible, as long as you look at it along with the previous day’s 5 mins candles. Btw, its best if you stick to 5 or 10 mins candles.

  116. Siva says:

    Hi Karthik,

    According to the below statement
    The stoploss for a long trade is the lowest low of the pattern. The stoploss for a short trade is the highest high of the pattern.

    I assume “short trade” indicates – Sell and Buy.

    Corrections Appreciated.

    Thanks –
    Siva

  117. Kumar says:

    Hi Karthik,

    Just for my curiosity and to understand whether i am in the right direction ,Can you confirm whether evening star was formed in Bank Nifty Jun Future on May 14 to May 16.
    a)Market was in uptrend.May 14 was bullish.
    b)May 15 was a gap up,not considering whether it was a green or red candle.
    c)May 16 was a gap down and a evening star.

    Thanks
    Kumar

  118. Kumar says:

    On the similar lines has my above question ,Can we consider evening star was formed in Bank Nifty Jun future on April 9 to April 11.
    If yes why wasnt it bearish? Is it because the red candle on April 11 was not within the body of April 9th?

    • Karthik Rangappa says:

      Yes, April 9-10 is more like it, but still not very convincing. Candle patterns only enhance the probability. No guarantees, Kumar 😉

  119. Kumar says:

    I am going thru ur chapters and learning a lot of things and also coming up with a lot of questions.I learnt about a pattern named ” Three outside up” which generally suggests a bullish reversal.

    The description for “Three outside up” is as below

    a)This pattern is a more reliable addition to the standard Engulfing pattern.
    b)A bullish Engulfing pattern occurs in the first two candles.
    c) The third candlestick is confirmation of the bullish trend reversal.

    Now am bit confused since Engulfing pattern suggests Bullishness whereas depending upon the third candle it reverses the bullishness. How do we decide in such case.

    Example is KOTAK BANK (1D chart ) for 23-25th May.
    a)24th a Bullish Engulfing pattern was formed
    b)25th was a bullish reversal according to “Three outside up” and next two days bears took control.

    How do i decide upon this situation if am doing intraday in options?

    Thanks in Advance
    Kumar

    • Karthik Rangappa says:

      What he means by a bullish reversal candle is that the bullish candle on the 3 day confirms the bullish reversal of the engulfing pattern, hence termed bullish reversal.

      • kumar says:

        Hi Karthik,

        Am still confused.The 3 rd candle is always bullish,So how can i decide whether the trade is going to be in uptrend or reversal of bullish reversal?

        Can you please elobarate?

        Thanks
        Kumar

        • Karthik Rangappa says:

          3rd candle may or may not be bullish, in case its a red candle, then you may not want to take the trade as there is no confirmation of the trend.

  120. Ketaki says:

    Infinite thanks to you, Sir for presenting the knowledge in such a lucid way. You are adding to your good karma 😉 coming to my basic question, I mostly get into swing or positional trades(very small positions since iam just starting), so is it better to trade 3day candlestick patterns over 2day patterns?

    • Karthik Rangappa says:

      Ketaki, thanks for the kind words!
      The number of candles which form a pattern does not really matter. When matters really is how well you know these patterns and the kind of conviction develop to trade the pattern.
      Good luck!

  121. Shyam says:

    Hi,

    https://drive.google.com/open?id=1lZYBB6TC3EXij0wC1P9GoTK_d3RSJE5p

    In tata motors chart can we say that this pattern is a morning star pattern?

    It has found support at trend line and price reversal has happened in 3rd candle? Im just waiting for confirmation from MACD crossover and ichi moku indicator before taking the trade.

    Also is that a bullish MACD Bullish divergence ?

    Seems good for swing trading

    • Karthik Rangappa says:

      Yes, it seems to me like a morning star. Make sure things like volume also confirms. Good luck, Shyam.

  122. Ranil says:

    Hi,

    I am a beginner. In the candlestick pattern disussed we are entering against the trend. How we can take trade with the stock trend direction. Please correct me if i am wrong.

    • Karthik Rangappa says:

      In fact, we are anticipating a trend reversal. All the candlestick patterns discussed here trend reversals.

  123. Vijay says:

    Hi Karthik,

    could you please provide check list for TA ?

    It will be helpful for me to trade..

    Thanks

  124. Saurabh says:

    Hello Sir,

    What is the meaning of below line:-

    ”As a rule of thumb, higher the number of days involved in a pattern the better it is to initiate the trade on the same day.”

  125. shishir kumad das says:

    sir how many books you have study before making this chapters…
    and plz give us some book name also.

  126. Kaustubh says:

    Sir Please help me for intraday which patter i need to follow a single stick or multiple stick

  127. Siddharth says:

    Team Zerodha,
    thank you so much for this primer, the content and the examples so very well structured and easy to understand.
    I did have two questions though:

    1) In long trades, the settlement cycle works on T+2 basis but would we be able to exit a position within two days? The shares would not have hit our Demat account in this time so would someone be allowed to sell something they do not have in their demat account?

    2) In the context of Indian markets, are traders allowed to keep a short position for more than a day? I might short a stock expecting it to dip significantly over (let’s say) 3-4 days. Wouldn’t my broker force me to square off my short positions at the end of trading day?

    Sorry if these have already been answered somewhere else in the course or user questions 🙂

    Regards,
    Siddharth

  128. Amanpreet Singh Singh Chadha says:

    Hello Team Zerodha,

    Can you please tell me why there is no 2 Min time frame, we have 1 Min or 3 Min but why not 2 Min ?

    i wont mind if 3 Min is replaced by 2 Min !!

    Please share your thoughts.

    Regards,

    Amanpreet Singh

  129. S V Prasad says:

    Thanks for explaining the different candle stick patterns and en-lighting us. I have basic doubt, does chart software are capable to encircle and inform it is Morning star or evening start or Bearish or bullish engulfing patterns rather than looking manually. Once it highlights then we can confirm manually.

    Regards,
    Prasad

  130. Rohan Velhal says:

    I have went through all the lessons. But I need some more explanation on Candlestick patterns. If we change the time period (say 1 min to 1 month) each time the pattern that we get is different so how am I derive some conclusion out of it?

  131. Gaurav says:

    Dear Karthik Sir,
    I searched your profile on wiki but didn’t find. I think it is the high time your profile should be on Wikipedia.

  132. RAGHU says:

    is there any way to use Steve Nison candle scanner software in Zerodha?

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