Assumptions of Candle Sticks

 Buy strength and sell weakness 

 Be flexible with patterns (quantify and verify) –
 Look for a prior trend – If you are looking at a bullish pattern, the prior trend
should be bearish and likewise if you are looking for a bearish pattern, the prior
trend should be bullish.

Single Candle Patterns

 Moraboju
o A bullish marubozu indicates bullishness
 Buy around the closing price of a bullish marubozu
 Keep the low of the marubozu as the stoploss
o A bearish marubozu indicates bearishness
 Sell around the closing price of a bearish marubozu
 Keep the high of the marubozu as the stoploss
o An aggressive trader can place the trade on the same day as the pattern forms
o Risk averse traders can place
the trade on the next day after
ensuring that it obeys rules
o An abnormal candle lengths
should not be traded
o Short candle indicates subdued
activity
o Long candle indicates extreme
activity, however placing
stoploss becomes an issue.

 Spinning top
o The spinning top will have long upper and lower
wicks with small body (either are Green or Red)
o The pattern indicated the indecision from the
buyers and sellers
o Once a spinning top formed wait for the
confirmation
o No need to wait if the spinning top formed at
resistance or support zone
o Spinning top in sideways fails or no meaning

 Doji
o Gravestone Doji, DOji, Dragon fly and
long legged Doji
 o Dragonfly- has a long lower shadow and body finishes at top . This is
potential trend reversal. Dragonfly formed in downtrend that too at support
gives great confirmation. No validity if formed at uptrend.

 Hammer and Hanging man / Inverted Hammer & Shooting

Star
o The candle has to close above 70% of the wick is the major differ between
Hammer and spinning top
o Hammer is a bullish candle at downtrend and Hanging man is a bearish candle
at uptrend.
o We down trade at sideways market
o Hammer and Hanging man has a very long wick with a small body on top
o Inverted Hammer and Shooting Star is just reverse to the above, this have
a very long wick but the body close at bottom
o Hammer or inverted hammer should always be bullish
o Shooting star or Hanging man should always be bearish

 Bullish/ Bearish Engulfing

o Candle should be 150 times bigger than previous candle

 Morning Star & Evening Star

SINGLE
 Options
Options are derived from futures price not spot price

Bull Call Spread- outlook is moderately bullish or Bearish

 Covered Call
 Vertical Spread (Bullish or Bearish- Directional Bias)

 The Bull Call Spread

 Buy a ITM call option and sell
OTM call option same expiration
 Bullish View
 Debit Spread
 The Bull Put Spread
 Buying a Put Option and selling a
Put Option at different strike
prices, same expiration
 Buy OTM Put Option and Sell
ITM Put Option.
 Bullish View
 Credit Spread

o Put Vertical Spread

 The Bear Put Spread
 The Bull Put Spread

 Butterfly spread
 Calendar spread
 Iron condor