Technical Analysis

Types of Traders:

1. Scalper: 1-2 minutes.

2. Intra-Day Trader: 10-15 minutes.
3. Swing Traders: They take delivery and then exit within 3-4 days.
4. Positional Traders: Long-term.

Commodity channel Index is used along with Camarilla Pivot Points.

Types of Volume Shockers:

 Dead Cat Bounce: Temporary recovery of volume of a stock that’s almost dead due to being
battered by bears. Indicated by long-term down trend and barely any volume followed by a
sudden spurt of volume.
 Turnaround/Trend Reversal: Recovery is not temporary and the high goes higher than the
previous highs.

Price Patterns:

 Head and Shoulders: As a result of fight between buyers and sellers. High of the head has to
be higher than the shoulders’ highs. Never breaches the neckline/support level which
connects the shoulders and the head. The right shoulder’s end breaches the neckline means
it will go down. At this point, go short and set the stop loss at the top of the right shoulder
itself. The target will be at the same distance below the neckline as the top of the head has
from the neckline.

 Inverse Head and Shoulders: Neckline acts as resistance. If the right shoulder’s end breaches
resistance, then it will go higher.

 Double Tops and Bottoms/M-Tops and W-Bottoms: These are range-bound patterns. The
first one is basically like two shoulders but there is no higher high or head in it. The
shoulders meet similar resistance and the bottoms have similar support and the latter are all
connected by the neckline and the last one has a break out which implies going short. The
difference between the top number 2 and neckline is the target and top 2 will be the stop
loss. The second one is the inverse. The neckline is the resistance line and the breach
indicates a rally which implies going long. The difference between bottom 2 and neckline will
be the target and bottom 2 itself will be the stoploss.

There is a variation of this called double bottom breakout which after breaching the
resistance will go up and after going long at the breach you can book your profit. This will
always be followed by a trend reversal and the price will fall again and this time the previous
resistance line will act as the support line and the price will bounce back and this time it will
be a long-term rally and you can make money here. So, this is a multi-buying strategy.
 Triple Tops and Bottoms: These form when double tops and bottoms fail so you book a
small loss and go short or long again to make money from the third bottom or top.

 Triangles:
- Ascending Triangles: Higher lows get formed (Sellers are not willing to sell at lower
prices so buyers are forced to buy at higher prices) and meet a resistance level.
Eventually after 3 or 4 patterns there will an upward breakout. Implies a buy call.
- Descending Triangles: Lower highs get formed (buyers are not willing to buy at higher
prices so sellers are forced to sell at lower prices) and meet a support level and
eventually after 3 or 4 patterns it will breakout downwards. Implies a sell call.
- Symmetrical Triangles: It is a sideways pattern where the highs and lows keep getting
smaller to converge towards the vertex in the middle.

 Cup and Handle: This works for a longer chart like 3-6 month. It is a bullish continuous
pattern. There will be a downward trend and strong recovery happens which pauses and
reverses for a while and then continues further upwards. The inverse cup and handle
happen to be a bearish continuous pattern. A downward trend pauses for a while and then
continues downwards.

 Rounding Bottoms and Tops: It starts like cup and handle and does not pause and continues
the trend.

Candle Stick Patterns

 Hammer: It is formed after a downtrend. It can either be red or green. It is the indication of
a trend reversal irrespective of the colour and it shows the onset of an upward trend. The
lower point of the hammer is the stoploss. The width of the head of the hammer or the
rectangle or body of the candle should be comparatively narrow, like the gap between open
and close should not be that much, the handle should be longer. The target can be the top of
the previous candlestick but that is subjective. There can be a small upper wick also whose
interpretation and implications are subjective as well. For inverse hammer also all rules are
same and the only difference is the handle will be on the upward side instead of down. Both
are one-candle charts.

 Engulfing: This is a two-candle chart. Either the buyers engulf the sellers or the sellers engulf
the buyers. When the body of a candle completely engulfs the body of the previous candle,
this pattern is formed. This means that the open and close of the previous pattern is within
the range of the open and close of the next candle. When it comes from a downward trend,
a red candle gets engulfed by a following green candle and the sellers are engulfed and
converted into buyers and the chart goes up. When it comes from an upward trend, a green
candle gets engulfed by a following red candle and the buyers get engulfed and converted
into sellers and the chart goes down.

 Harami: It is the opposite of engulfing where a bigger candle will be followed by a smaller
one and will indicate a trend reversal. If the second candle is green then it is a bullish
 harami. The target will be the red candle’s upper wick and the stop loss would be the lower
wick. If the second candle is red then it is a bearish harami. The target would be the lower
wick of the green candle and the stop loss would be the upper wick as you are going short.

 Morning Star: This is a three-candle pattern. It has to come from a downward trend. There
have to be two substantially big candles ideally with a red one first and a green one later. In
the middle of these there has to be a small candle of any colour which is either a doji or a
hammer and the trend reversal happens here. This is called the gap down candle and should
ideally be a little away below from both the candles with a gap, but can also somewhat be a
part of the body of the two candles. The stoploss will be the lowest low which is the low of
the middle candle. The target can be the upper wick of the red candle. This pattern happens
over 3 days usually with each candle indicating a day.

 Evening Star: This is a three-candle pattern. It has to come from an upward trend. It usually
indicates that a stock has reached its peak. There have to be two substantially big candles
ideally with a green one first and a red one later. In the middle of these there has to be a
small candle of any colour which is either a doji or a hammer and the trend reversal happens
here. This is called the gap up candle and should ideally be a little up away from both the
candles with a gap, but can also somewhat be a part of the body of the two candles. The
stoploss will be the highest high which is the high of the middle candle. The target can be
the lower wick of the green candle as you go short. This pattern happens over 3 days usually
with each candle indicating a day.

 Three White Soldiers: It is more applicable for an intra-day or minute to minute chart. It is a
bullish pattern, followed by a downtrend. If you see this pattern in an intra-day chart then it
indicates trend reversal. If you see this over 3 days then it indicates either a pause or a
continuation of rally. It consists of consecutive long green/white candles with small wicks,
with open and close progressively higher than the previous day or candle. This can be
followed by a small red candle indicating a pause, continued by an uptrend, or it can be
followed directly by further green candles. You enter the market after the three candles
have been formed and you will enter at the closing price of the third candle. The stoploss
will be the open price of the third candle. The difference between the open and close of the
third candle will be the target upwards of the entry price for a 1:1 risk-reward ratio. This
pattern can often start from a morning star pattern.

 Three Black Crows: This is the exact opposite of the three white soldiers.

 Doji: In this pattern, the open and close prices are virtually equal or very close to each other
and usually indicates a trend reversal (can be both upward or downward). This has further
types. The first one is the standard doji, which has the open and close in the middle of the
stick and indicates that the buyer and sellers are confused. Then there is the long-legged doji
which has the open and close towards the upper part of the candle and means that the
buyers are in power and the price is going to get higher. Then there is the dragonfly doji
which is an extension of the long-legged doji and does not have an upper wick which means
that the price opened and went down a lot and then recovered and closed at the recovery
price. Then there is the gravestone doji which is the inverse of dragonfly doji. The formation
of morning star, doji and three white soldiers in combination is a very strong buying call.
Finally, there is the 4 price doji which is essentially just a horizontal line which means all the
4 prices – open, high, low, close – are all virtually equal and indicate non-liquidity and that
the stock is barely traded.