Module 2 Technical Analysis

Chapter 6

Single Candlestick patterns (Part 2)

268

M2-Ch6-title

6.1 – The Spinning Top

The spinning top is a very interesting candlestick. Unlike the Marubuzo, it does not give the trader a trading signal with specific entry or an exit point. However the spinning top gives out useful information with regard to the current situation in the market. The trader can use this information to position himself in the market.

A spinning top looks like the candle shown below. Take a good look at the candle. What observations do you make with regard to the structure of the candle?

M2-Ch6-D1a

Two things are quite prominent…

  • The candles have a small real body
  •  The upper and lower shadow are almost equal

What do you think would have transpired during the day that leads to the creation of a spinning top? On the face of it, the spinning top looks like a humble candle with a small real body, but in reality there were a few dramatic events which took place during the day.

Let us follow these events:

  1. Small real body – This indicates that the open price and close price are quite close to each other. For instance the open could be 210 and the close could be 213. Or the open could be 210 and close at 207. Both these situations lead to the creation of a small real body because a 3 point move on a 200 Rupee stock is not much. Because the open and close price points are nearby to one another, the color of the candle does not really matter. It could be a blue or a red candle, what really matters is the fact that the open prices and close prices are near to one another.
  2. The upper shadow – The upper shadow connects the real body to the high point of the day. If it is a red candle, the high and open are connected. If it is blue candle, the high and close are connected. If you think about the real body in conjunction with the upper shadow ignoring the lower shadow what do you think had happened? The presence of the upper shadow tells us that the bulls did attempt to take the market higher. However they were not really successful in their endeavor. If the bulls were truly successful, then the real body would have been a long blue candle and not really a short candle. Hence this can be treated as an attempt by the bulls to take the markets higher but they were not really successful at it.
  3. The lower shadow – The lower shadow connects the real body to the low point of the day. If it is a red candle, the low and close are connected. If it is a blue candle, the low and open are connected. If you think about the real body in conjunction with the lower shadow ignoring the upper shadow what do you think had happened? This is pretty much the same thing that happened with the bulls. The presence of the lower shadow tells us that the bears did attempt to take the market lower. However they were not really successful in their endeavor. If the bears were truly successful, then the real body would have been long red candle and not really a short candle. Hence this can be treated as an attempt by the bears to take the markets lower but they were not really successful.

Now think about the spinning top as a whole along with all its components i.e real body, upper shadow, and lower shadow. The bulls made a futile attempt to take the market higher. The bears tried to take the markets lower and it did not work either. Neither the bulls nor the bears were able to establish any influence on the market as this is evident with the small real body. Thus Spinning tops are indicative of a market where indecision and uncertainty prevails.

If you look at a spinning top in isolation it does not mean much. It just conveys indecision as both bulls and bears were not able to influence the markets. However when you see the spinning top with respect to the trend in the chart it gives out a really powerful message based on which you can position your stance in the markets.

6.2 – Spinning tops in a downtrend

What if the spinning tops were to occur when the stock is in a down trend?

In a down trend, the bears are in absolute control as they manage to grind the prices lower. With the spinning top in the down trend the bears could be consolidating their position before resuming another bout of selling. Also, the bulls have attempted to arrest the price fall and have tried to hold on to their position, though not successfully. After all, if they were successful the day would have resulted in a good blue candle and not really a spinning top.

So what stance would you take considering that there are spinning tops in a down trend. The stance depends on what we expect going forward. Clearly there are two foreseeable situations with an equal probability:

  1. Either there will be another round of selling
  2. Or the markets could reverse its directions and the prices could increase

Clearly, with no clarity on what is likely to happen, the trader needs to be prepared for both the situations i.e reversal and continuation.

If the trader has been waiting for an opportunity to go long on the stock, probably this could be his opportunity to do so. However to play safe he could test the waters with only half the quantity. If the trader wants to buy 500 shares, he could probably enter the trade with 250 shares and could wait and watch the market. If the market reverses its direction, and the prices indeed start going up then the trader can average up by buying again. If the prices reverse; most likely the trader would have bought the stocks at the lowest prices.

If the stock starts to fall, the trader can exit the trade and book a loss. At least the loss is just on half the quantity and not really on the entire quantity.

Here is a chart, which shows the downtrend followed by a set of spinning tops. The stock rallied post the occurrence of the spinning top.

M2-Ch6-Chart1

Here is another chart which shows the continuation of a down trend after the occurrence of spinning tops.

M2-Ch6-Chart2

So, think about the spinning top as “The calm before the storm”. The storm could be in the form of a continuation or a reversal of the trend. In which way the price will eventually move is not certain, however what is certain is the movement itself. One needs to be prepared for both the situations.

6.3 – Spinning tops in an uptrend

A spinning top in an uptrend has similar implications as the spinning top in a down trend, except that we look at it slightly differently. Look at the chart below, what can you see and what would be the inference?

M2-Ch6-Chart3

An obvious observation is the fact that there is an uptrend in the market, which implies the bulls have been in absolute control over the last few trading sessions. However with the occurrence of the recent spinning tops the situation is a bit tricky:

  1. The bulls are no longer in control, if they were, spinning tops would not be form on the charts
  2. With the formation of spinning tops, the bears have made an entry to the markets. Though not successful, but the emphasis is on the fact that the bulls gave a leeway to bears

Having observed the above, what does it actually mean and how do you position yourself in the market?

  1. The spinning top basically conveys indecision in the market i.e neither the bulls nor the bears are able to influence the markets.
  2. Placing the above fact in the context of an uptrend we can conclude two things..
    1. The bulls could be consolidating their position before initiating another leg of up move
    2. Or the bulls are fatigued and may give way to bears. Hence a correction could be around the corner.
    3. The chances of both these events taking place is equal i.e 50%

Having said that, what should you do? The chances of both events playing out are equal, how are you going to take a stance? Well, in such a situation you should prepare for both the outcomes!

Assume you had bought the stock before the rally started; this could be your chance to book some profits. However, you do not book profits on the entire quantity. Assume you own 500 shares; you can use this opportunity to book profits on 50% of your holding i.e 250 shares. Two things can happen after you do this:

  1. The bears make an entry – When this happens the market starts to slide down, and as you have booked 50% profits at a higher price, and can now choose to book profits on the balance 50% as well. Your net selling price will anyway be higher than the current market price.
  2. The bulls make an entry – It turns out that the bulls were indeed taking a pause and the rally continues, at least you are not completely out of the market as you still have the balance 50% of your holdings invested in the markets

The stance you take helps you tackle both the outcomes.

Here is a chart which shows an uptrend and after the occurrence of spinning tops, the stock rallied. By being invested 50%, you can continue to ride the rally.

M2-Ch6-Chart4

To sum up, the spinning top candle shows confusion and indecision in the market with an equal probability of reversal or continuation. Until the situation becomes clear the traders should be cautious and they should minimize their position size.

doji6.4 – The Dojis

The Doji’s are very similar to the spinning tops, except that it does not have a real body at all. This means the open and close prices are equal. Doji’s provide crucial information about the market sentiments and is an important candlestick pattern.

M2-Ch6-D2a

The classic definition of a doji suggests that the open price should be equal to the close price with virtually a non existant real body. The upper and lower wicks can be of any length.

However keeping in mind the 2nd rule i.e ‘be flexible, verify and quantify’ even if there is a wafer thin body, the candle can be considered as a doji.

Obviously the color of the candle does not matter in case of a wafer thin real body. What matters is the fact that the open and close prices were very close to each other.

The Dojis have similar implications as the spinning top. Whatever we learnt for spinning tops applies to Dojis as well. In fact more often than not, the dojis and spinning tops appear in a cluster indicating indecision in the market.

Have a look at the chart below, where the dojis appear in a downtrend indicating indecision in the market before the next big move.

M2-Ch6-Chart5

Here is another chart where the doji appears after a healthy up trend after which the market reverses its direction and corrects.

M2-Ch6-Chart6

So the next time you see either a Spinning top or a Doji individually or in a cluster, remember there is indecision is the market. The market could swing either ways and you need to build a stance that adapts to the expected movement in the market.


Key takeaways from this chapter

  1. A spinning top has a small real body. The upper and lower shadows are almost equal in length
  2. The colour of the spinning top does not matter. What matters is the fact that the open and close prices are very close to each other
  3. Spinning tops conveys indecision in the market with both bulls and bears being in equal control
  4. Spinning top at the top end of the rally indicates that either the bulls are taking a pause before they can resume the uptrend further or the bears are preparing to break the trend. In either case, the trader’s stance has to be cautious. If the trader’s intent is to buy, he is better off buying only half the quantity and he should wait for the markets to move in his direction
  5. Spinning top at the bottom end of the rally indicates that either the bears are taking a pause before they can resume the down trend further or the bulls are preparing to break the trend and take the markets higher. Either case, the trader’s stance has to be cautious. If the traders intent is to buy, he is better off buying only half the quantity and he should wait for the markets to make the move
  6. Doji’s are very similar to spinning tops. Doji also convey indecision in the market. By definition dojis do not have a real body. However in reality, even if a wafer thin body appears it is acceptable
  7. A trader’s stance based on dojis is similar to stance taken when a spinning top occurs.

268 comments

  1. kashish shambhwani says:

    one suggestion..why not upload a test for entire module with various set of questions having 4-5 options(cleverly constructed questions)such as
    1. theoritical question
    2. questions on a particular graph etc etc

  2. HAWWA says:

    Dear sir,
    What do u mean by Red candle day or Blue candle day.
    If there is a gap up opening, is it Blue candle day?
    And if it Gap down opening iS It a Red Candle day?.
    Pls explain

  3. HAWWA says:

    Thanks for the information.

  4. Durgesh kumar says:

    Sir, do we have any software for chart,volume study

  5. N S Rana says:

    does upper & lower shadow in doji need to be equal

  6. vak_arijit says:

    Are these material enough for a regular trader or do I need to study more to dig deeper into the topics?

  7. @Karthik,
    Hats off for your great work. 🙂

  8. Anoop says:

    Doji tells the direction to be reverse in next session

    • Karthik Rangappa says:

      Dojis and spinning tops basically convey indecision in the market. Both the bulls and bears have equal strength, hence markets stay flat.

  9. kalaiselvan says:

    sir, is it possible to set macd like the attached one in PI. if so could you plz advice me the steps to do so this one gets changed automatically as per the time frame and to the different stock selection (below snap taken from bazaar trend site)

  10. Yash Verma says:

    Sir, i would like to know more about dragonfly doji and how reliable it is?

    • Karthik Rangappa says:

      Dragonfly Doji is somewhat similar to to a paper umbrella – you can apply the same trading logic to it.

  11. RU0271 says:

    All examples are on shares/ stocks but no example on commodities i.e on metals or crude etc.

  12. prakash kumar says:

    heloo sir

    could you please provide these all with a “virtual trading platform ” so that we can test these all before entering in real trading market

    and after getting trained and understandimg all these concepts and minimize our losses

  13. prakash kumar says:

    thank you
    sir

  14. RAJIV RANJAN KUMAR says:

    Great work sir…i learnt a lot.

  15. Harish says:

    Hi Karthik,
    Any stoploss suggestion for Doji/Spinning Top for bullish/bearish trend?

    • Karthik Rangappa says:

      Doji/Spinning tops are not really a trading candle, they only indicate that the market is in a state of confusion with equal push by both bulls and bears. Hence tough to call SL levels for these patters. For every other candle use candles high (for short trades) and low (for long trades) as stop loss.

      • Ankit Kumar says:

        Can you please elaborate a little on why the stop loss is selected as the low(or high) of that day’s candle.

        • Karthik Rangappa says:

          Low is the SL for all long trades – this is the default price point in candlestick patterns. Perhaps because at this price the sentiment changed. Likewise for the high point, which is the SL for all short trades.

  16. Aditya says:

    can TA be used for shortterm(3-6months),medium term(6-12months) or long term (>1year)??.if yes what should be the frequency of chart(1day,1week)?. does it also mean trading frequency will decide the trading days . i mean if we take frequency of 1week ,i can only trade after that week?technically.
    @thanks to zerodha team &kartik for great piece of knowledge. I suggest to add new successful methods & technique of TA as an examples for better understading.

    • Karthik Rangappa says:

      Yes, TA can be used for any time frame you wish. Irrespective of the time frame always look at at least 1 year data.

  17. Dear Sir, You have a talent of teaching people in a very lucid language .Kudos to you on that. You can think of educating others as your alternative career. I am not understanding , when i look for charts, trends whatever ,it will present the charts as of date or will it give me patterns predicting future?

    • Karthik Rangappa says:

      Thanks for the suggestion Prattham 🙂

      The idea is that the past patterns help up identify patterns to trade. Back testing is the key.

      • Suppose i am looking for candlestick chart of Axis bank or xyz.ltd on 1 nov. The chart will be as of that date and of course the past data or it will predict the future patterns for the next week as well. If it will give for the future as well what analysis I am going to do . I will simply believe the charts and place my trade. Apologies for being so naive

        • Karthik Rangappa says:

          Prattham – Although all the charts display historical performance, I do believe (i have only heard of such things, not seen myself) there are few charts that give out future predictions…not sure how reliable they are.

  18. willam says:

    u are a great teacher u make every thing simple. lucky now i hv started with zerodha. thanks karthik

  19. Abhilash says:

    Hi Karthik, most of the time when DOJI present on the chart. It shows a trend reversal. what about your opinion.
    I just wan to get an answer from an expert .

  20. romi says:

    Hi,
    For GM Breweries, Hanging man formed on 1st and 2nd was a red candle day, as per the analysis done, one should have booked the profits by shorting. but as can be seen today, that price is on a higher side. Can we assume that this pattern doesnt work in this case or i should wait for some more time, to see if it turns out to be a red candle day?

  21. romi says:

    thanks for the quick response Karthik.
    So, if the pattern is formed on Day 1 and if the closing price of Day 2 is higher than the HIGH of Day 1(even if its a red candle day), hanging man analysis stands void.. please confirm.

  22. Shyam says:

    Hello,
    In order to confirm that a prior trend is DOWNWARD(or UPWARD), for how many trading sessions does the stock need to trade BEARISH(or BULLISH)

  23. ABHISHEK kumar sah says:

    hi, in case of the hanging man chart2(BPCL), though the market behaved as wanted, we would make a loss as the high of next day more than the stop loss of the hanging man??

    • Karthik Rangappa says:

      Well, it really depends on the trader. Some traders like to wait till the close (3:15 or 3:20 PM) to estimate of the SL is breached (or not). In such cases you would not make a loss, otherwise you would.

  24. ABHISHEK kumar sah says:

    the chart..

  25. Shafeeq says:

    Hello Sir,
    Could please explain in brief the meaning of “consolidating their position”.
    Really need help or example on this “Consolidation”.
    Thanks in advance.
    Regards.

    • Karthik Rangappa says:

      Consolidating loosely refers to the act of averaging. For example – if you have a previous position, then you add to the existing position.

  26. Shafeeq says:

    Thank You for the simple & lucid reply Sir. Truly appreciate your active reply gesture, it really helps me a lot. May God Bless You with lots of Bounties in life !
    Regards.

  27. Vishal Saini says:

    In some of the comments above “Hanging Man Pattern” has been discussed….Could you explain what exactly is that????
    And Thank you Sir for educating all of us…:)

  28. Aditya says:

    Acknowledge the fact that a lot of efforts have been put into getting these modules ready. A very good platform to get ourselves educated before taking any blind leap 🙂

  29. George says:

    Sir, am i right in saying that the rule “Buy when strong………” applies only in the case of Marubozu and that it is not a general rule ?

  30. yoti shrama says:

    if we saw a bearish marbuzo in the middle of the day…..thn what strategy should be use for the next day for intra day trading…..time frame is 5min…..

  31. srikantheswar says:

    Hi Karthik,
    Nice articles, appreciate your time to reply to all the queries & keep Varsity an engaging experience.
    1. You have compared Doji to a spinning top(equal shadows) with small real body.I assume that in the case of Doji O=C & hence the authenticity of it is more as the degree of indecision is greater than a regular spinning top. I mean if I have to choose between two trades one with regular spinning top & other with a Doji , I favour Doji more. Are my assumpitons right?
    2.Spinning top in presence of any of the other trend reversal candles add more value to the pattern ( Eg: Spinning top & a hammer) means a major chance of trend reversal?
    3.In Pi , if right click on chart & select Pivot lines it draws S1,S2,S3 & R1,R2 ,R3 & a Pivot line, are these automated support & resistance lines alternate to the process of S & R that we identify manually . Are there any advantages of using automated over manual in terms of accuracy?


    Thanks

    • Karthik Rangappa says:

      1) Yes, for the simple reason doji’s convey indecision with conviction 🙂

      2) Yup, so would doji

      3) These levels are identified by a ‘pivot formula’. I personally prefer the manual version.

  32. Will The Spinning Top & Dojis patterns will work with 1 min, 3 mins , 5 mins or 10 mins charts?

  33. Jashank says:

    Hello Karthik,

    Your material is a gold mine for many budding investors like me. Appreciate your efforts in this!

    1. Is there a good website that provides stock data on companies along with candlestick charts and other charts taught in your materials?
    2. What other materials do you recommend studying through, before I make a foray into the trading world?

    Thanks!

  34. lakshmi says:

    If TA has to be treated as authentic, why is it not possible to list (predict) the top gainers and losers in an automated manner? Why I am asking this is everybody does some TA if they are into short term trading but none of them are consistently successful. So what is the basis for considering TA as authentic or scientific? Can you tell me what is the percentage success you have in this and whether you don’t take news into consideration at all? I hope percentage success is not confidential.

    • Karthik Rangappa says:

      TA is not really a science, its more of an art form. This is exactly why TA is not really taught in finance academia. Each person’s experience is different while trading using TA. I never really measured percentage success – but I can tell you this, my losses were contained and TA never let me lose my capital. Over time, I moved away from active trading (owing to a full time job) …but I still continue to invest in markets.

      • lakshmi says:

        Thank you sir.

      • Debjit Roy says:

        Above in the section “Small real body”
        “Both these situations lead to the creation of a small real body because a 3 point move on a 200 Rupee stock is not much”

        I guess the price is 207 then why do you refer to 200 rupees?
        I can understand its close but what about if the price was 295. I mean the open price of day should be considered as the price.

        Earlier in a reply you said
        “TA is not really a science, its more of an art form. This is exactly why TA is not really taught in finance academia.”

        I am a student of physics ,I have no idea of this market or how financial stuff works so my questions may be very naïve or stupid so sorry in advance.

        TA is not really a science why? Yes definitely its not an empirical one but I see its based on Probability and Statistics, a lot of science is based on it say weather science ,quantum mechanics and a lot. Or there is something I am missing about TA.

        You said
        “Over time, I moved away from active trading (owing to a full time job) …but I still continue to invest in markets.”

        Does it implies trading cant be taken as a full time job, there is no future.

        Thank you so much for all your efforts. Its only because of you I am able to understand about equity market looking forward to go through all the modules. And sorry for any stupid question and long post.

        • Karthik Rangappa says:

          200 is a generalization here, Debejit. More for a conversational convenience. If it was 295, I would probably call it 300 Rupee stock. Yes, TA has probability and some amount of stats…but no science backed theories.

          Trading requires you to invent/discover new trading techniques. I’ve not had that kind of time off late, hence I’ve been investing.

          Good luck!

  35. Nishanth Krishnan says:

    What could be stoploss for spinning tops?

  36. Keshav Deshpande says:

    Hello Karthik,
    Is rule no 2 ‘be flexible, quantify and verify ‘applicable to spinning top and doji? If yes, then what should be the tolerance in terms of percentage?
    Thanks and regards.

    • Karthik Rangappa says:

      Yes, it is a general rule applicable to everything in TA. I’m afraid, I dont have a % number for these patterns. But if I were to guess, it would not be more than 0.3%.

  37. Gyan says:

    Dear KARTHIK sir…COuld you please check BHEL’s chart for last 10 days(since 27th Dec 2016). Its primarly in downtrend. there is small bounc since 27th Dec. On 5th Jan, it created a DOJI signaling nervousness. Next day, it went down. I thought that these 2 signs should be enough to bring bull on down foot. So it shoudl now go down. But today, it went up. Could you please help me where i went wrong?

    • Karthik Rangappa says:

      Yes, BHEL is in a down trend (primary). Every pattern needs time to evolve, I would not be surprised if BHEL cools off further, eventually.

  38. Prabhu says:

    Hi Karthik, So it is not suggested to buy stocks when it is “Spinning tops in uptrend”, right? In case we have already bought, we can sell some and watch the market?

  39. AMIT KUMAR PANDEY says:

    sir pls clarify my doubt-
    1) most of the action in market happens within 9.30 AM, so how should i time the entry?
    2)suppose a stock is in downtrend and on the day opening the stock is UP by about 2% ; so whether i should look for buying oppotunity or shorting opportunity?
    3)how should i confirm that Nifty is bullish or bearish because many time i pick stock which is in uptrend and nifty also bullish But after sometimes Nifty comes in bearish zone , so whether should i pick a downtrending stock or continue with my pick? Should i confirm the NIFTY trend in daily chart and pick stock based on NIFTY trend?

    • Karthik Rangappa says:

      1) Not true. Its a myth.
      2) Depends on what the charts suggest
      3) Its always best if your stock and Nifty are trending in the same direction. Give you more conviction on the trade.

      Good luck.

  40. Biku says:

    1.sir am i want to ask, what time frame is good for intraday trading with these TA.
    2.whats EOD

    • AMIT KUMAR PANDEY says:

      #biku- intraday traders usually prefers 5,10 and 15 min charts for entry and exit. but for determing trend they focus on highers time frame like hourly and EOD(END OF DAY/DAILY CHARTS). EOD shows the high,low,open and close of the whole day.

    • Karthik Rangappa says:

      1) If you are starting, stick to EOD
      2) EOD = End of day.

      • Biku says:

        I should stick with EOD? by that do you mean i should take delivery rather then intraday trading

        • Karthik Rangappa says:

          No, if you are starting out fresh, I’d suggest you look at EOD charts to set up intraday trades. Once you are comfortable, you could switch to looking at intraday charts to identify opportunities.

  41. Ram says:

    why don’t you make videos of all this material? 😉

  42. srikanth reddy says:

    hey hi,
    I don’t know whether others have asked this question, but please do consider and clarify
    when you guys say “prior up trend” or “prior down trend” what is approx. no.of candles we should consider?

    • Karthik Rangappa says:

      Hi Srikanth, I guess this has come up in the past. If you are looking at end of day chart (and looking for a overnight position), then I would look at at least last 5-8 trading session, which should constitute at least 5-8% movement.

      • srikanth reddy says:

        Thank you & sorry as the list of comments consists of last 2-3 year comments couldn’t go through all…
        My main concern was that in the charts above some time the marked “prior up trend” consists of both up and down trend , but if we look at on a broader scale it would look as UP TREND only.
        Correct me if my Understanding is wrong- the PRIOR TREND need not be continuous blue or red candles but when we have a broader look it should be UP TREND OR DOWN TREND ..right?

        • Karthik Rangappa says:

          Srikanth, this depends on the time frame you are looking at. Trends can change based on the time frame. For example a 6 month chart can look completely different from a 1 year chart, which an look totally different from a 5 year chart.

  43. Ayush says:

    Does small real body means that there low trading of a securities in a particular day?

  44. sarat says:

    rule 1 says that buy strength and sell weak, but if that happens i will end up in loss isn’t it. Did i miss anything here, please drop me a quick reply karthik sir

    • Karthik Rangappa says:

      Sarat, buy strength and sell weak helps you stay on track with momentum. Apply this couple of time to experience it.

  45. shabaz says:

    Am i right if i am saying that most of the times when dozi pattern or spinning top formed, it is the reversal of the trend. Mostly or in 80% situations, it shows a trend reversal.
    Is it true?

  46. Gaurav says:

    I would really like to appreciate the efforts that you have put for this exhaustive material Karthik. Kudos to you!!
    I have a couple of doubts –
    1. If I’m looking at EOD charts that means I’ll be able to place an intraday/positional trade the next day right?
    2. If I plan to enter a trade, is looking at past 3 months data(with weekly candles) sufficient or should I increase the time frame and/or no. of candles?

    Thanks!!

    • Karthik Rangappa says:

      Thanks Gaurav.

      1) Yes, you can use EOD data for both intrday/swing/BTST positions
      2) Take this on a case to case basis. There is no hard and fast rules ard this. If you get a convincing outlook on EOD data, then great. Typically, the longer the time frame, longer should be your holding period.

  47. Rajiv says:

    hi Sir, if we encounter a doji or spinning top in daily chart, then can we go for STRADDLE strategy? preferring a long straddle by buying ATM CE and ATM PE? (Assuming we are in the first 15 days of the series). Please share your thoughts. Thanks.

  48. Rahul Kumar says:

    Please allow for pictures to open in popup with zoom in/out option to clearly understand the candlesticks.

  49. gauthamk20 says:

    Great work! The time-frame of the above discussion is 1 day, are these strategies applicable to lower time-frames? like 15mins, 10mins and 5mins

  50. Sunil Dutt says:

    Thanks you Karthik for providing this knowledge. It was a great learning.

  51. Aditya singh says:

    Sir,hats off to your work.This material is really helpful and written in very simple language.i was searching this type of tutorials on internet.i want to ask that is there any platform which can tell thatvin which stocks doji,spinning top,hanging man or any other formation has formed.because we cant see each stock everyday..

  52. kabir says:

    hello everyone pls Guy’s simple word’s mai kouch bolna chahta hu zerodha is one of the Best’s stock market broker and zerodha q.a and varsity program very in formative for newbies but trading is not a easy in real market .first you learn everything about to TA and fundamental analysis and than start Paper trading okhy friends

  53. Inderjeet Patwal says:

    Hello,

    The Charts shown in the module are for 1 day or for 1 week what is the duration of these charts.

  54. Mayank Agarwal says:

    In the charts that are used for examples and also if we would do the analysis, what time duration or time frame should we select for intraday analysis? We have options of viewing charts for 1 minute, 3 minutes, 5 minutes to 15, 30 and an hour. Which is best suited?

  55. Rinkesh Ahuja says:

    It is difficult to interpret the prior trend. As you have instructed that you see 3-4 recent candles to find a pattern, I got a spinning top on Apollo Tyres. Now just looking at 3-4 candles it seems downtrend but I am not convinced as the looking broadly I seems to be a sideways trade.

    Also, there was a inverse hammer (long upper shadow and ‘no’ lower shadow) in a downtrend. As per you explanation the candlestick is a shooting star which appears in Uptrend. So, how to intrepret this one? Thanks 🙂

    • Karthik Rangappa says:

      Well, spinning top on a stand alone basis may not be the best candlestick pattern to trade on. The prior period trend should be at least 5-6 sessions with an at least 5% price movement.

      In the absence of a strong prior trend, this may not be a good pattern to trade on.

  56. Nayan raj says:

    Hello Karthik,

    Thanks to your TA and the varsity concept in whole i have now started to do understand TA much better and sorry to keep buggging you with questions.
    I have a doubt while analyzing Nifty50 stocks i found that in case of appearance Doji or Spinning top in many cases the volume are not high(not above or equal to 10 day EMA on vol). In this case can i overlook volume and proceed with analysis as per the rest of the checklist or should i not enter this trade.

    In general too does volume need to confirm each and every time or can it be overlooked in certain cases/candlestick patterns and if yes what would be those scenarios.

    Regards,
    Nayan

  57. sivashunmugam says:

    Hey Karthik,

    To be a spinning top, what is the min and max value of the range body?

    In the example it given as 3 and what can be the maximum value.

    Cheers,
    siva

  58. Aditya Pathak says:

    Bearish spinning top and bullish spinning top have any significance of they appear in up trend and down trend.
    For example if a blue spinning top appears in down trend then it may indicate that more chances of reversal than if the red spinning trend come in a down trend

    • Karthik Rangappa says:

      There is nothing like a bearing and a bullish spinning top. Spinning tops indicate a pause in the market which could lead to continuation or reversal…the chances of which are both 50%.

  59. Shirshendu Bhowmick says:

    Thanks for making these tutorials available for free.

  60. Vikram Prajapati says:

    Dear Sir ,
    I trading in options daily. I heard that above 2crore turnover in option trading per annum is chargable or restricted ?

  61. V Vivek says:

    Hi,
    How to find the resistance of stocks like titagarh wagon -dt. 27.11.17, NRB bearings-dt27.11.17, where they are breaking previous numbers? They are forming bullish marubuzo. How do we identify resistance for such stocks ?

  62. TUSHAR says:

    which study pattern would be good for intraday trading along with candle stick charts ? and how to incorporate in kite this study i dont understand kindly help me i am new investor

    and i like varsity it provide me a different view to see the market .

    thank you sir and zerodha team

  63. ansh says:

    In the above chapter in intervals i came across range (range 1.7%, range0.8%). My doubt is of what value the 1.7% is?

  64. Chethan says:

    Dear Karthik
    Thanks for all your efforts in preparing this module its really helpful like a beginner to me.
    How important it is to see the trading volume while i am referring to either spinning tops or Doji??
    Do we really have to look into the trading volume or not??

  65. invest_novice says:

    Hi, Is there a free backtesting software. Or is there a place from where we can download freely data of various stocks for backtesting. My understanding is that data for live stocks is paid but not sure for historical data.

  66. invest_novice says:

    For spinning top you mentioned there is 50% probability to go either way. If we initiate a trade it seems to be more like a blind guess since it is 50% chance even if it involves only 50% of the principal we wish to use. Won’t it be prudent then to avoid trading using spinning tops? On the other hand Doji you mentioned is similar to spinning tops but it is more strong. Hence Dojis lean towards trend reversal. Hence I felt it is ok to take calculated risk on Doji. Am I missing something here?

    • invest_novice says:

      I agree with the fact that if we already have long position and we see a spinning top we can initiate 50% sell(book some profit) and wait and see how the trend progresses. But if we don’t have any position to start with then I don’t see an urge to go long since it is like blind guess(a flip of a coin since you mentioned 50% probability).

    • Karthik Rangappa says:

      You do have a point. But with 50%, you are actually prepared for any move. Think about it.

  67. invest_novice says:

    And by spinning top having small real body I guess it means that both the shadows should be atleast equal to the length of the real body. If the length of shadows are more then it is better.

    There is a typo. The subheading 6.2 is repeated twice.

    • Karthik Rangappa says:

      Yes, the equal shadows is desirable, but the whole point is about price action – a lot of intraday volatility, resulting in no meaningful change in prices.

      I’ll check the typo. Thanks for pointing it out.

  68. karan says:

    This is amazingly educative content and very simple to kickstart learning path in TA. It would be great though if you guys can add tests/quizzes/assignments. People would be happy to pay for the course I am sure!

  69. Kailash says:

    Hi,

    How would we know that a particular day is bullish or bearish?

    • Karthik Rangappa says:

      You can always look at the chart to know what happened during the day. If you want to know this in advance, then your guess is as good as mine.

  70. Rakesh Hansalia says:

    Karthik,

    There are separate descriptions for Spinning Top and Doji formations. What is the REAL(practical) difference between the two? I can only think of the Doji having the exact same opening and closing price, while with the Spinning Top the price might have altered slightly throughout the session.

    • Karthik Rangappa says:

      The only real difference is in the size of the real body. A spinning top has a very small real body whereas the doji has a no or a wafer-thin real body.

  71. Gopalan says:

    Amazing and clear explanations. The various questions and your replies have made this materials very informative and useful. Thanks

  72. Daniel says:

    Dear Sir, As a doji or a spinning top points out the indecision in the market, you have pointed out many times to proceed ahead with just 50% of the capital for trading but Why not stay away from the trade?

    (This question striked my mind)

  73. Sanjay Khandelwal says:

    Karthik, How is price of a share a given point decided?

    Ex: if price of Justdial Ltd at 10 am is 450 and at 2 Pm is 475. How exactly did the price change fro 450 to 475?

  74. Dhaval Patil says:

    Does it matter in spinning tops, the color of candles?

  75. Dhaval Patil says:

    Also tell me where i can practise these on charts individually.

    • Karthik Rangappa says:

      Look at the charts on Kite. When you do so, try and identify patterns and use that to construct trades. This according to me will be a great start before you start trading with real money. Good luck.

  76. ravinder singh says:

    sir, does all these patterns gives same indications while trading in options

  77. ravinder singh says:

    sir, does all these candlestics patterns gives same indications while trading in options

  78. Xuvo says:

    in 6.3
    1. Bears make an entry
    2. Bulls make an entry

    I think concepts written in alternate places.

  79. J says:

    Hi Karthik,
    Great Material and huge gratitude for being approachable.

    How does one set the buy/ sell price and stop loss when encountering a spinning top or doji?

    Regards

    • Karthik Rangappa says:

      Both these patterns i.e doji and spinning tops are not patterns which give you a stand-alone buy sell signals. They are best looked at in the perspective of the larger trend.

  80. Avidinvestor says:

    What is the meaning of shadow as used ‘spinning top’ material? Does it mean the arrow (line) above or below the body?

    • Karthik Rangappa says:

      It just means the line connecting the open/close to the low/high of the candle. It gives a visual representation of the pullback or retracement of the day.

  81. Jeevan says:

    Hello Karthik,
    I had a question on choosing a stop loss price.
    I want to give you a hypothetical data of OHLC 60, 69, 55, 58 for a bear candle.
    I would use the high as the stop loss to sell the stock right ?
    What would be the entry price for the trade. ?

    • Karthik Rangappa says:

      I would hesitate to short this candle, Jeevan because my entry would be around 58-55 and SL would be at the high ie 69…which is nearly 25%.

      • Jeevan says:

        Thank you for the response Karthik,
        I dint understand the 25 %, I assume it to be the difference between the high and the close, what should be the qualifying percentage to trade for the same ohlc data and how do you calculate it ?

        • Karthik Rangappa says:

          The stoploss here would be nearly 25%. Considering the entry @ 55, SL at 69 i.e 14 points. So 14/55 is nearly 25%, which is quite steep for an SL for a trading position.

          • MayankQ says:

            Sir, Around How much should be the SL and entry % be?

          • Karthik Rangappa says:

            The best part of the candlestick pattern is that the SL is inbuilt, which is usually the low of the candle for long trades and high of the candle for short trades. Entry too is defined based on your risk appetite.

  82. Vinod says:

    Hi Team,

    Kindly provide above detail in Hindi

  83. Venkat says:

    Does a Doji on day 1 followed by a green/red candle on day 2 qualify as an engulfing pattern?

  84. Sudipta Chakraborty says:

    Sir, I have a doubt regarding the prior trend. Suppose, a stock was in a uptrend for 10 days and in the next 4 days it retraces back upto 38.2% of fib level and forms a ‘paper umbrella’. Now, what should we consider as ‘prior trend’ in this case and what should be our interpretation of this formation (Hammer or Hanging man)?

    Please forgive me if I sound stupid. Thanks in advance.

    • Karthik Rangappa says:

      Sudipta, this is a perfectly valid point. In this case, I’d look for buying opportunities because I know the general direction of the trend is upwards. This goes well with this situation because the immediate trend is down plus the larger trend is upwards. So buying makes sense.

  85. Kiran Raj says:

    Hello Kartik, to start off, Hats off to your explanation. I have praised your work in every comment that I have posted, but I still feel the urge to do the same again. Let me share a real life experience of how effective your work is. I’m working for BPCL, as part of our corporate training, we are given a training module named “Kalpvriksh.” I remember a trainer who made an excel presentation, seeing which, I was amazed and was drawn into Share markets. Yesterday, I was trying to watch your webinars, to my amusement, I have found out that the trainer had presented the same stuff that you made a video on. It is, “How much money do you need the day you retire? ” Every single word he uttered while making that particular presentation was totally copied from your content.

    Secondly, I have a doubt regarding the charts. For Intraday, what timeframe is best? Is it 15 min ?
    I also wanted to know if this strategy works. Alligator indicator combined with Momentum indicator with Pivot points plotted to find out the S&R (only after recognizing a standard pattern). Kindly assume that I’m a risk taker. Could you please help me on understanding what are the Odds of winning the trade ?

    • Karthik Rangappa says:

      Kiran, thanks for the kind words. I’m really glad you liked the content here and finding it useful 🙂

      As far as the trainer is concerned – well, he is helping spread the right message, so we will leave it at that. But I hope he at least gave some credits to Zerodha 🙂

      I’d suggest you use at least 15 minutes chart for intraday trading. Remember, the higher the lower the frequency (like 1 mins, 5 mins), the higher is the noise component in the charts. Hence 15 mins is better than for intraday.

      I’d suggest you start with momentum indicator, use it and experience it. You can start calibrating it with other components to improvise your strategy.

  86. Sharmil says:

    Thanks for details.

    Can you please tell us graph setting of above?
    We have to check one month or one year graph with 30m or 10m measure?

  87. Aditya says:

    Hi,

    Assuming Rs. 100 as the open price what should be the maximum / minimum closing price for a candle to qualify as having a small body? Similarly, what should be the MINIMUM length of the upper & lower shadow sticks to be qualified as a ‘Spinning Body’?

    Thanks!

    • Karthik Rangappa says:

      A movement around 0.2 – 0.3% is considered as small candlestick aka spinning top. Always think of it in % terms, will be much easier.

  88. Kishore says:

    Hi Sir,

    These lessons are really useful. Thanks for that.

    Should we look at intraday charts like 5min,10min etc or look at 1 day charts to analyse the candlestick patterns. Which one would be more accurate.
    Thanks

  89. Mangesh Baxi says:

    It appears that Doji or Spinning top should not be used to take a fresh position (buy or sell new stocks). It is useful if you have some existing stock.

    • Karthik Rangappa says:

      Yes, these patterns in isolation do not convey any information, but when looked at in the context of other patterns surrounding, then probably you can make sense of it.

  90. Mangesh Baxi says:

    Shouldn’t it be generally true for “spinning top” candle stick that, if wick is longer than tail then the candle would be bullish & if it is other way round the candle would be bearish. Logic being longer wick suggests stronger bull forces & longer tail stronger bear forces. Moreover wick & tail need not be necessarily equal?

    • Karthik Rangappa says:

      The emphasis is on the closing with respect to the opening price and not really on the range of the candle, Mangesh.

  91. Aadil says:

    Thanks for the article but I have one doubt.

    We already know at any point, irrespective of downtrend or uptrend, there is always an equal chance of price moving in either direction. Spintop and Doji tell us that price can move in either direction. So aren’t they basically useless?

    • Karthik Rangappa says:

      They can move in any direction – this is true. But how do you know at which point? When the stock is trending, the probability is more for a move in the direction. Doji and spinning tops kind of tell you at which point the chances become equal.

      • Aadil says:

        If we toss a coin 9 times and every time head comes up then one would say that the probability of 10th toss being head is high but In reality, it is 0.5. Shouldn’t the same thing apply to stocks?

  92. Ram says:

    Thanks for the content and when are we gonna get the question system as you said you were gonna implement it?

  93. Mayank says:

    Do spinning tops and Doji always occur in cluster or 1 candlestick is enough ?

  94. Kuldip rai says:

    What is the time frame for candles

  95. Jinal says:

    In the spinning top occurring in downtrend section- you said that one can test waters by buying half qty and if market reverses then exit trade ab book loss, so what should we keep the stop loss as?

    Thank you

  96. Bharath says:

    Thanks for succinctly putting up the content for non finance guys.
    Please validate my understanding based on the excerpt from this chapter.

    This is w.r.t to Spinning Top candle during the uptrend,
    “Assume you had bought the stock before the rally started; this could be your chance to book some profits. However, you do not
    book profits on the entire quantity. Assume you own 500 shares; you can use this opportunity to book profits on 50% of your
    holding i.e 250 shares”
    Does it mean i already own 500 shares (bought) way even before the spinning top formed and riding the uptrend until the spinning top and decided to bet on the spinning top that prices will go down. So i sell 50% of the holdings to book profits made upto the spinning top formation.
    Later when it turns in favor of my bet, then i sell the remaining 50% holdings and make profits (however in this case it might be little lesser than the previous profits made)
    However, If it turns out against my favor, i.e. the prices tends to continue going up, then at least i would have the remaining 50% holdings to continue riding uptrend.

  97. Vinod says:

    Hi Karthik, really appreciate for your patience to answer all questions in a fantastic way.
    Just one thing I want know. Some brokers started Stop Loss system for one year validity. I heard that Zerodha also planning for the same. Is it true?

    • Karthik Rangappa says:

      Vinod, I’m not sure about the one-year validity thing, these orders are called ‘Good till canceled’ aka GTC. Yes, we do plan to introduce this, hopefully sometime soon.

  98. Manish says:

    Hi Karthik,

    If we have to do positional Trading with time frame of 1 to 2 days or BTST/STBT , then what time frame we need to select for our candle stick graph.

    Thanks Manish

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