1. - NUS Investment Society

Report
NUSInvest Workshop Series
Session Two
Candlesticks Patterns
NUS Students’ Investment Society
Workshops Syllabus – Sem 1
LT18, 6-7PM
Week
Lesson Topic
Week 4
Introduction to FA & TA
Week 5
Japanese Candlesticks & Charts (E-learning Week)
Week 6
Annual Reports
Week 7
NIL (Mid-terms Week)
Week 8
Support & Resistance
Week 9
Valuation Methodology
Week 10
Week 11
Week 12
Exams Preparation
PROFILE
• NUS Invest Research Analyst, Acting FA Director
• Year 2 BBA (Finance)
• First trading experience in 2010
• Does both FA & TA, mostly FA
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information purposes, it does not constitute an advertisement and is not to be construed as a
solicitation or an offer to buy or sell any securities or related financial instruments.
No representation or warranty, either expressed or implied, is provided in relation to the
accuracy, completeness or reliability of the information contained herein. The research material
should not be regarded by recipients as a substitute for the exercise of their own judgement.
Any opinions expressed in this research material are subject to change without notice.
Background
Japanese Candlestick
• Stresses relationship between open and close prices
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Candle Anatomy
•
Body: Distance between open and closing
•
Tip of upper wick/shadow: Highest price of
Bearish
Candle
that period
•
Bottom of lower wick/shadow/hair: Lowest
price of that period
•
Range (length) of candle stick indicates
volatility
•
Upward candlestick usually
or green
or blue
•
Downward candlestick usually black or red
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Bullish
Candle
Gaps/ Windows
• Gap: Current open is not the same as
prior closing price
• No price and no volume transacted
hands between the gap (area on price
chart where there is no trades)
• Effect of news after stock market closed
for the day (e.g. earnings report)
• Psychology: Can act as resistance/
support (news that sparked the gap is
still in play)
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Gaps
Daily Chart – Wal-Mart (WMT)
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
1-Price Bar Patterns
1-Bar Pattern
•
Long Lower Shadow
-
Bullish signal
-
Lower shadow must be at least the size of the real body
-
Longer lower shadow: more reliable that it is a bullish
trend
•
Long Upper Shadow
-
Bearish signal
-
Upper shadow must be at least the size of the real body
-
Longer upper shadow: more reliable that it is a bearish
trend
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Marubozu
• White Marubozu
– Long white body, no wicks
– Bullish candle
– Open equals low, closing equals high
– Indicates buyers in control during entire period
• Black Marubozu
– Long black body, no wicks
– Bearish Candle
– Indicates sellers in control during entire period
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Hammer
•
•
•
•
Found in downtrend
Short body at the top of price range
Little to no upper shadow
Lower shadow must be at least
twice the length of real-body
• Signals: Reversal pattern when
found in a downtrend
• Short-term outlook indication
• Real body can be black or white
(white: stronger signal)
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Hammer
• Low reliability, requires confirmation
– Bullish gap for next session
– Subsequent session shows white real body above that of
the hammer’s real body
Buyers drive prices back up
to close near the highs
• Significance/ Strength:
– Length of Lower Shadow
– Colour
Long lower wick indicates initial selling prices
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Hanging Man
•
•
•
•
Found in uptrend
Short body at the top of price range
Little to no upper shadow
Lower shadow must be at least
twice the length of real-body
• Warning of a potential downward
trend
• Short-term outlook indication
• Also requires confirmation
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Hanging Man
1. Uptrend
2. Gap Up
3. Lower Shadow at
least twice as big as
Real Body
4. Real Body Bullish or
Bearish; better if
Bearish
5. Confirmation
Candle
Greater gap: Higher likelihood of reversal
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Shooting Star
• Found in uptrend
• Short body at the bottom of price
range
• Little to no lower shadow
• Upper shadow must be at least
twice the length of real-body
• Signals: Reversal pattern
• Short-term outlook indication
• Real body can be black or white
(black: stronger signal)
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Shooting Star
• Low reliability, requires confirmation
– Bearish gap for next session
– Subsequent session shows black real body below that of
the shooting star’s real body
• Significance/ Strength:
– Length of Upper Shadow
– Colour
Long upper wick indicates
initial buying prices
Open
Bears were able to reject
bulls completely (or push prices even
lower by closing below open)
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Shooting Star
1. Uptrend
2. Upper shadow at
least twice as big as
real body
3. Real body bullish
or bearish (bearish:
stronger indication)
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Inverted Hammer
• Found in downtrend
• Short body at the bottom of price
range
• Little to no lower shadow
• Upper shadow must be at least
twice the length of real-body
• Signals: Reversal pattern
• Short-term outlook indication
• Real body can be black or white
(white: stronger signal)
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Inverted Hammer
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Spinning Top & Doji
• Short body in the middle of two long
wicks
• Market closed relatively unchanged
• Indicates indecision (‘standoff’ after
significant price movement)
• Trend losing momentum; possible
turning point
• Doji/ Long-legged Doji: stronger
signal
• Open and close are the same
• Insignificant in sideway markets
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
Buyers in control
Sellers in control
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
More Doji Patterns
Dragonfly Doji
• Long lower, no
upper
BACKGROUND
1-BAR
PATTERN
Gravestone Doji
• Long upper, no
lower
2-BARS
PATTERN
3-BARS
PATTERN
Four Price Doji
• Same upper,
lower, open & close
• Very rare
• Low volume
situations
PRICE TRADING
STRATEGIES
2-Price Bar Patterns
Bullish Engulfing Candle
When found in a downtrend:
• Bullish candle opens lower than
previous candle’s close, closes
higher than previous candle’s open
• Potential sign that trend is reversing
• Indicates control has shifted from
sellers to buyers
Gap down
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Bullish Engulfing
1. Downtrend
2. Bearish Candle
3. Gap Down
4. Bullish Candle
5. Close above
previous Bearish
Candle
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Bearish Engulfing Candle
When found in a uptrend:
• Gap up: Bullish sign
• But: Bulls only push prices up
slightly before bears take over and
push prices much lower
Gap Up
• Potential sign that trend is reversing
• Indicates control has shifted from
buyers to sellers
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Bearish Engulfing
Greater size difference:
Increased significance
1. Uptrend
2. Bullish Candle
3. Gap Up
4. Bearish candle
5. Close below
previous Bullish
Candle
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Dark Cloud Cover
Gap Up
• Bullish candle closes below the
middle of previous candle
• Rejection of Gap: Bearish sign
• Retracement: Additional significance
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Piercing Line Pattern
• Bearish candle closes below the
middle of previous candle
• Rejection of Gap: Bullish Sign
• Retracement: Additional significance
Gap down
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Harami
• Bearish Harami
– Large bullish, followed by small bearish
– Gap down, unable to retrace
 Uncertainty entering the market
• Bullish Harami
– Large bearish, followed by small bullish
– Gap up
 Reversal Pattern
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Harami
In an Uptrend
1. Uptrend
2. Bullish Candle
3. Gap Down
4. Small Bullish
Candle
In a Downtrend
1. Downtrend
2. Bearish Candle
3. Gap Up
4. Small Bullish
Candle
Tweezer Top & Bottom
• Bearish Tweezer Top
– Day 1 Close about equal to Day 2
Open
– Occurs during an uptrend (closes
near the high)
– Sentiments reverses completely the
next day
• Bullish Tweezer Bottom
– Occurs during downtrend (closing the
day near the lows)
– Sometimes eliminates entire gains
from previous day
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Tweezer Bottom
1. Downtrend
2. Bearish Candle
3. Day 1 Lows about
equal to Day 2 Lows
4. Bullish Candle
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Tweezer Top
High of Day 1
Resistance Line
High of Day 2
(Bulls rejected)
High of Day 3
Gap Up to Prior Highs;
Bulls rejected again
3-Price Bar Patterns
Morning Star
• Consists of 3 candlesticks
• Bearish Gap: Bears are in control
during opening
• Day 2: Prices are not pushed much
lower (small / neutral candlestick)
– Bullish: stronger sign
• Day 3: Bullish gap up
• Prices pushed further upward,
sometimes eliminating all Day 1 losses
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Morning Star
1. Downtrend
2. Bearish Candle
3. Gap Down
4. Small Bullish/
Bearish Candle
5. Gap Up
6. Bullish Candle
Evening Star
• Consists of 3 candlesticks:
- Bullish, Small/ Neutral, Bearish
• Presence of bullish gap & bearish gap
• Day 2: Prices are not pushed much
higher
– Bearish: stronger sign
• Day 3: Large bearish candlestick
• Prices pushed further downward,
sometimes eliminating all of Day 1’s
gains
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Evening Star
1. Uptrend
2. Bullish Candle
3. Gap Up
4. Small Bullish/
Bearish Candle
5. Gap Down
6. Bullish Candle
Powerful bearish
reversal pattern!
Morning Star Pattern
Price Action Trading
Strategies
Pin Bar Setup
• Pin bar: middle of a 3-bar formation
• Open and Close of pin bar is within (or very close)
price range of bar 1 and 3
• Shadow of pin bar sticks out
Bullish Pin
Bar
– Longer, more significant
• Pin bars occurring at important support/
resistance level can be very accurate
Bearish Pin
Bar
• Can be taken as counter trend if well-defined and
protrude significantly from surrounding price bars
– Indicates strong rejection occurred
– Preferably on daily chart time frame
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Pin Bar Setup
• Pin bars occurring the context of a trending market
Obvious bullish pin bars with the overall
uptrend
Two large bullish pin bars bring
an end to the previous downtrend
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Inside Bar Setup
• Inside bar: Bar (or series of bars) completely
contained within preceding bar
• Not the same as harami
• Inside bars in strong trending
markets breakout plays in
that direction (‘pauses’)
Two inside bars contained
within range of mother bar
Mother bar
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Inside Bar Setup
Inside bar setups traded with the
near-term momentum often give rise to
large moves.
Daily AUDUSD chart
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Fakey Setup
• Inside/Harami bar + False break, then closes
back within range
Fakey setup
• Fakey entry: triggered as price moves back up
past the high of the inside bar (or the low in the
case of a bearish fakey)
• Amateurs tried to pick market top, pros stepped
in and flushed out amateurs in a flurry of buying
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Fakey Setup
Substantial push higher after false-break to
the downside
False-break / Fakey setup
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Summary
• Background
– Candlestick Anatomy
– Gaps
• 1-Bar Pattern
– Hammer/ Hanging Man
– Shooting Star/ Inverted
Hammer
– Spinning Top
– Doji
• 2-Bars Pattern
–
–
–
–
Bullish/ Bearish Engulfing
Dark cloud cover/ Piercing Line
Harami
Tweezer Top/ Bottom
• 3-Bars Pattern
– Morning/ Evening Star
• Price Trading Strategies
– Pin Bar Setup
– Inside Bar Setup
– Fakey Bar Setup
Resources
• Babypips.com
• Forexfactory.com
Ask Research!
Do email us at
[email protected] if you
have any questions!
Thank You! 

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