Technical Analysis Training : What is technical analysis?

Technical Analysis Training :
What is technical analysis?
Technical analysis is all about studying stock price graphs and a few momentum oscillators derived thereof. It must be understood that technical studies are based entirely on prices and do not include balance sheets, P&L accounts (fundamental analysis), the assumption being that the markets are efficient and all possible price sensitive information is built into the price graph of a security / index.

Therefore, technical analysis supports the efficient market theory as against the "random walk theory" which supports the belief that stocks can be bought / sold on random events like flipping a coin!!! Technical analysis is more dynamic as compared to fundamental analysis based on one simple argument - fundamental analysts depend on corporate events like quarterly results and special announcements like earnings guidance and policy changes in operations to generate a buy / sell recommendation.

If fundamental analysis was the single most reliable indicator of trends, prices would predominantly fluctuate only 4 - 5 times a year - around quarterly results and special announcements like mergers and acquisitions etc!! Why would prices fluctuate almost daily? If the prices fluctuate ever so often, is there a way to forecast them? Yes according to technical analysis!!

Technical Analysis Training : What is Shooting Star: Bearish Reversal Pattern?

Technical Analysis Training :
What is Shooting Star: Bearish Reversal Pattern?
Shooting Star is a bearish reversal pattern, appearing at market top. Its a small real body with long upper shadow and no lower shadow, which gaps away from the previous candle. This pattern appears in an uptrend. A white candle is seen on first day. Next day, gap up opening happens. This candle appears as a small real body, with upper shadow at least twice as long as the real body. It has no lower shadow.

The pattern indicates that the uptrend is near to an end. Colour of the real body is not important. Gap is not always necessary.

Strategy: A confirmation is required on next day to ensure that uptrend has reversed or closer to the reversal. This confirmation can be in the form of a black candle, a large gap down or a lower close on next trading day.

Technical Analysis Training : What is Relative Strength Comparative?

Technical Analysis Training :
What is Relative Strength Comparative?
Technical analysis offers a few wonderful tools with the help of which, we can check out the Relative Strength Comparative, RSC. As the name suggests, it is a comparative measure of strength vis-à-vis a benchmark or a share or a sector. The best way you can put the RSC to use before initiating a trade is to check out how your scrip has performed historically. It can be against the indices, it's peers in the same sector and or a separate asset class like say, commodities. To that effect, RSC helps in determining which scrip would be the most profitable investment.

Highly volatile scrips rise or fall faster than the indices, but may not make large net moves in any single direction. On the other hand, high RSC scrips will rise faster than the indices but fall slower than the indices in a downturn. To that extent, they are solid market outperformers and have unidirectional upward movement. Needless to say, buying scrips with the highest RSC reading among the available choice of stocks will ensure a greater probability of capital appreciation.

Technical Analysis Training : What is Piercing Line: Bullish Reversal pattern?

Technical Analysis Training :
What is Piercing Line: Bullish Reversal pattern?
It is a bullish reversal pattern. It occurs in a downtrend and is comprised of two candlesticks. The first candlestick is a long black candle, accompanied by high volume. The next candlestick makes a lower low, but then rallies to close above the midpoint of the first candlestick, but not above the opening of that candle. This pattern is one of the first signs that a potential bullish reversal is in play.

Strategy: Traders should wait for the high of the first candlestick to be exceeded prior to taking a long position. Stoploss can be placed below the low of the first candlestick. The more the second candle closes above the mid-point of the first candlestick, the greater the odds of a successful pattern. The potential buyers start thinking that new lows may not hold and perhaps it is time to take long positions.

Technical Analysis Training : What is Opening Marubozu?

Technical Analysis Training :
What is Opening Marubozu?
Opening Marubozu has no shadow extending from the opening level. It means, if the stock ended up, there would be no lower shadow, and if the stock ended down, then there would be no upper shadow.

It is not a powerful signal like closing marubozu, as closing level is important than opening. It is important to confirm that the primary trend is in place. One should wait for the high or the low of the candle to be exceeded before initiating a position in the direction of Opening Marubozu.

White Opening Marubozu is a long white single candlestick, having an upper shadow, but no lower shadow. It is considered to be a strong bullish pattern.

Black Opening Marubozu is a long black single candlestick, having a lower shadow, but no upper shadow. It is considered to be a strong bearish pattern.

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Technical Analysis Training : What is One White Soldier: Bullish Reversal Pattern?

Technical Analysis Training :
What is One White Soldier: Bullish Reversal Pattern?
One White Soldier is a bullish reversal pattern. It appears on charts after a clear downtrend. In this pattern, first candle is a long black candle. Next candle opens above the closing level of previous candle, and closes near the high level of the day. The closing is also above the high of the previous day. Criteria for this pattern is that both the candles should be "long".

Long positions can be entered into once high level of the white candle is exceeded.

Technical Analysis Training : What is One Black Crow: Bearish Reversal Pattern?

Technical Analysis Training :
What is One Black Crow: Bearish Reversal Pattern?
One Black Crow is a bearish reversal pattern. It appears on charts after a clear uptrend. In this pattern, first candle is a long white candle. Next candle opens below the closing level of previous candle and it closes below the low level of the white candle. Criteria for this pattern is that both the candles should be "long".

Strategy: Short positions can be entered into once low of the black candle is exceeded.

Technical Analysis Training : What is Long-legged Doji: Bullish Reversal, Bearish Reversal?

Technical Analysis Training :
What is Long-legged Doji: Bullish Reversal, Bearish Reversal?
Long-legged doji is a candle with long upper and lower shadows and a small real body. The pattern shows that there is an indecision between the buyers and the sellers, and that the market is approaching transition period.

Long positions can be taken in case of Bullish Long Legged Doji, once high of the candle is exceeded.

Shorts can be initiated once the low of the candle is broken, in case of Bearish Long Legged Doji.

Bullish:

Bullish Long Legged Doji has very long shadows on both the ends. The patterns shows indecision of buyers and sellers. It is a bullish reversal pattern. In this pattern, market is in a bearish mood and is in downtrend. Then, a Long Legged Doji appears, which gaps in the current trend.

This pattern requires confirmation by way of opposite move to the prior trend on next day.

Bearish:

Bearish Long Legged Doji has very long shadows on both the ends. The pattern shows indecision of buyers and sellers. It is a bearish reversal pattern. In this, market is in a bullish mood and is in uptrend. Then, a Long Logged Doji appears, which gaps in the current trend.

Technical Analysis Training : What is Ladder Top: Bearish Reversal Pattern?

Technical Analysis Training :
What is Ladder Top: Bearish Reversal Pattern?
Ladder Top is a bearish reversal pattern and it appears at the end of uptrend. It consists of 5 candles. The pattern gives early signs of deterioration of uptrend.

First three candles of this pattern are three long white candles, which resembles the three white soldiers formation. Fourth day candle closes higher, but with a long lower shadow, which goes into the body of the third candle. Fifth day candle is a long black one which opens below the body of the fourth day candle.

Strategy: Short positions can be entered into once low of fifth candle is exceeded.

Technical Analysis Training : What is Ladder Bottom: Bullish Reversal Pattern?

Technical Analysis Training :
What is Ladder Bottom: Bullish Reversal Pattern?
Ladder Bottom is a bullish reversal pattern and it appears at the end of downtrend. It consists of 5 candles. The pattern gives early signs of deterioration of downtrend.

First three candles of this pattern are long black candles, which resembles the three black crows formation. Fourth day candle closes lower, but with a long upper shadow, which goes into the body of the third candle. Fifth day candle is a long white one which opens above the body of the fourth day candle.

Strategy: Long positions can be entered into once high of the fifth candle is exceeded.

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Technical Analysis : What is Kicking pattern: Bullish Reversal, Bearish Reversal pattern?

What is Kicking pattern: Bullish Reversal, Bearish Reversal pattern?
Kicking pattern is a two-candle reversal pattern. On the chart, it seems as if price is kicking away the current trend, hence the name, Kicking.

Bullish kicking pattern is comprised of a black marubozu followed by a white marubozu. This pattern is seen when

a) a marubozu of white follows a marubozu of black, and
b) a gap between these marubozu

Strategy: In bullish kicking pattern, long positions can be entered into once high of the white marubozu is exceeded
Bearish kicking pattern is comprised of a white marubozu followed by a black marubozu. This pattern is seen when

a) a marubozu of black follows a marubozu of white, and
b) a gap between these marubozu

Strategy: In bearish kicking pattern, short positions can be entered into once low of black marubozu is exceeded.

Technical Analysis : What is Inverted Hammer: Bullish Reversal Pattern?

What is Inverted Hammer: Bullish Reversal Pattern?
Inverted Hammer is a bullish reversal pattern. This pattern is characterized by a long upper shadow and a small real body, appearing after a long black real body. It resembles with Bearish Shooting Star.

This pattern appears in a downtrend. In this pattern, a long black candle appears on first day. On second day, a small real body appears, which forms at the lower end of range. Second day's candle has upper shadow, which is at least twice as long as the real body and does not have lower shadow. Colour of the real body is not of much importance.

Strategy: A confirmation can be seen in the form of next day opening above hammer's body of a white candle with higher prices. Long positions can be initiated post confirmation.

Technical Analysis : What is Homing Pigeon: Bullish Reversal Pattern?

What is Homing Pigeon: Bullish Reversal Pattern?
Homing Pigeon is a bullish reversal pattern. It comprises of two black candles. The pattern appears after a clear downtrend. First candle is a long black candle. Second candle is an inside bar, which is also a black candle. Second candle closes inside the body of the first candle.

This pattern is a sign that current trend may be losing steam.

Long positions can be entered into after the high of the first candle is exceeded. Stop loss can be placed below the low of the first candle.

Technical Analysis : What is Hanging Man: Bearish Reversal Pattern?

What is Hanging Man: Bearish Reversal Pattern?
Hanging Man is a bearish reversal pattern, which occurs at the top of a trend. This pattern appears after or during an uptrend. It is a single candlestick pattern. It resembles with Bearish Dragonfly Doji. The only difference is doji has same opening and closing while Hanging Man has a small real body at the upper end. Colour of Hanging Man is not important. However, it is considered as more potent, if its colour is black. Lower shadow of Hanging man should be twice as long as real body. There should be very little or no upper shadow.

Strategy: Hanging Man indicates end of an uptrend, hence, short positions can be initiated post confirmation by way of gap down opening or a lower close or a black candle the next day of Hanging Man day.

Technical Analysis : What is Hammer: Bullish Reversal Pattern?

What is Hammer: Bullish Reversal Pattern?
Hammer is a bullish reversal pattern, which occurs at the bottom of a trend. This pattern appears after or during a downtrend. It is a single candlestick pattern. It resembles with Bullish Dragonfly Doji. The only difference is doji has same opening and closing while Hammer has a small real body at the upper end. Colour of Hammer is not important. However, it is considered as more potent, if its colour is white. Lower shadow of Hammer should be twice as long as real body. There should be very little or no upper shadow.

Strategy: Long positions can be initiated if there is a large gap up or a higher close the next day of Hammer, which is considered as a confirmation of reversal of trend.