5 CANDLESTICK

SECRETS
YOU NEVER KNEW

CA Sunny Balani & Kohmal Chhajed

5 SECRETS OF CANDLESTICKS BET YOU
NEVER KNEW

Authors:
CA SUNNY BALANI & AR. KOHMAL CHHAJED
(Co-Founders of TraYdeasy)
 DISCLAIMER
THE INFORMATION PROVIDED IN THIS BOOK IS ONLY FOR EDUCATIONAL
PURPOSES. IT IS NOT INTENDED TO BE A SOURCE OF FINANCIAL OR LEGAL
ADVICE. CONSULT YOUR FINANCIAL ADVISOR BEFORE TAKING ANY
DECISION. THE AUTHORS DO NOT GUARANTEE ANY FINANCIAL RESULTS.

This E-Book is protected by the Copyright Laws and is the Intellectual

Property of the Authors. Any unauthorized use, reproduction or distribution
of in whole or in part is strictly prohibited and may result in civil and criminal
offence and penalties.
 CONTENT
➢ Anatomy of the Candlesticks
➢ 5 Secrets Revealed
➢ Single Candle Patterns
o Hammer
o Inverted Hammer
o Doji (Gravestone Doji, Dragonfly Doji)
o Spinning Tops
o Hanging Man
o Shooting Star
➢ Double Candle Patterns
o Engulfing Pattern (Bullish and Bearish)
o Harami Pattern (Bullish and Bearish)
o Piercing Pattern
o Tweezer Top
o Tweezer Bottom
➢ Three Candle Patterns
o Morning Star
o Evening Star
➢ Golden Nuggets from the Authors on how to become a Professional
Trader
 ANATOMY OF A CANDLESTICK
A Candlestick is made of two parts: Real Body and Shadows (Wicks).
Body is made by Open and Close price of the candle.
Shadows are made of High and Low Price of the candle.

Following images explain the different parts of the candlestick.

 5 SECRETS OF CANDLESTICKS THAT YOU NEVER KNEW
(Knowing These Can Completely Change Your Trading)

1. Small Body Candle always Needs Confirmation to Trade. This means

that a trader should never trade only by looking at the small candle
alone, confirmation is always needed to trade small candle patterns.
Confirmation can be had using an indicator, volume or any other
candle combined with the small candle pattern.

2. Long Body Candles can be traded without confirmation also. This

means that a trader can take trades solely on the basis of long body
candles also. However, to increase the probability and chances of
winning, a trader can use other analytical tools like an indicator,
volume etc. along with a long body candle.

3. There should be a Prevalent Trend Before a candle pattern appears on

the charts. This means that, if there is no trend (Uptrend or
Downtrend) before the pattern appears then the pattern may fail or
will not give the results that it otherwise can give.

4. Failure of a Pattern is also a Pattern . This justifies the fact that

nothing is 100% accurate in trading and same is with candlesticks too.
The pattern may appear to be a Picture Perfect yet it has the
probability of failure. Always remember, Market is Supreme. Respect
the markets and be a winner even when you lose.

5. The Location of the Candlestick Pattern determines the strength of

that Pattern. If the pattern appears at the right location, the
probability of winning increases manifold. This says, candle patterns
keep on forming at various places on the chart but every pattern
should not to be traded. Only those patterns should be traded that
appear at the right point on the chart.
 SINGLE CANDLE PATTERNS
HAMMER

Hammer Candlestick Pattern: A Hammer candlestick is formed when a price

moves significantly lower during the session but moves much higher before the
close of the session. This Pattern has a small body and a small upper wick and
since it looks like a Hammer it is named as such. This is a Bullish Reversal Pattern
but the Hammer can be green or red and is equally powerful despite of having
red colour even though it is a bullish pattern. It has impact only if it appears after
a Downtrend.
 INVERTED HAMMER

Inverted Hammer Pattern: An Inverted Hammer candlestick as the name

suggests is the opposite of the Hammer. This Pattern has a small body and a small
lower wick. This is a Bearish Reversal Pattern. It can have a green body or a red
body. It has impact only if it appears after a downtrend.
 GRAVESTONE DOJI

GRAVESTONE DOJI PATTERN: Gravestone Doji Pattern is a Bearish Reversal

Pattern that appears after an uptrend. A trader should become cautious
whenever a DOJI candle is formed. If you carefully look at a Doji Pattern it
shows a tight fight between the Bulls and the Bears and at the end no one
has won the battle.
 DRAGONFLY DOJI

DRAGONFLY DOJI PATTERN: Dragonfly Doji Pattern is a Bullish Reversal

Pattern that appears after a downtrend. A trader should become cautious
whenever a DOJI candle is formed. If you carefully look at a Doji Pattern it
shows a tight fight between the Bulls and the Bears and at the end no one
has won the battle.
 SPINNING TOPS

SPINNING TOPS: Spinning Tops are the one candle pattern that are complete
by themselves. This means that, this is the pattern which can be traded
without confirmation even though it is a small candle pattern. Spinning tops
have a small real body at the center of the range of the candle and big wicks
on both sides. One of the most powerful candlestick patterns that exist is
the spinning top. If there is a higher volume along with this candle it
becomes a super strong signal for trend reversal.
 HANGING MAN

HANGING MAN PATTERN: Hanging Man is nothing but a Hammer Pattern

that appears at the top of an uptrend. A Hammer appears at the bottom of
the downtrend while Hanging Man appears at the top of the uptrend.
Hanging Man signals the probable end of an uptrend. As said, a small body
candle required confirmation, so if the hanging man is supported by an
additional confirmation, it signals the reversal of an uptrend.
 SHOOTING STAR

SHOOTING STAR PATTERN: Shooting Star is nothing but an Inverted Hammer

Pattern that appears at the top of an uptrend. An Inverted Hammer appears
at the bottom of the downtrend while a Shooting Star appears at the top of
the uptrend. Shooting Star signals the probable end of an uptrend.
Combined with confirmation and other signals from indicators or patters,
shooting stars can give an early signal of trend reversals.
 ENGULFING PATTERN
Image 1 Image 2

ENGULFING PATTERN: Important Points to note for an Engulfing

Candlestick Pattern are:
1. It is a 2 Candlesticks Pattern
2. Bullish Engulfing Pattern should be preceded by a downtrend.
3. Bearish Engulfing Pattern should be preceded by an Uptrend.
4. As shown in the images above, the first candle should be smaller one
and the second candle should be bigger one that completely engulfs
(covers) the first candle.
5. In case of Bullish Engulfing Pattern, it is stronger when the first candle
is a bearish candle (red).
6. In case of Bearish Engulfing Pattern, it is stronger when the first candle
is a bullish candle (green).

Image 1 below shows the Bullish Engulfing Pattern on Nifty Chart

Image 2 below shows the Bearish Engulfing Pattern on JSW Steel Chart
 HARAMI PATTERN (Bullish and Bearish Harami Pattern)

Image 1 Image 2

HARAMI PATTERN: Harami in Japanese Language means Pregnant Lady. If

you closely observe the first candle in the Harami Pattern is the bigger
candle and is also termed as a Mother Candle. Second Candle in the Harami
Pattern is a smaller candle and is also termed as a Baby Candle.
Important Points to note for a Harami Candlestick Pattern are:
1. It is a 2 Candlesticks Pattern
2. Colour of the Mother and Baby Candles is not important, just the
preceding trend is important.
3. Bullish Harami Pattern should be preceded by a downtrend.
4. Bearish Harami Pattern should be preceded by an Uptrend.
5. In case of Bullish Harami Pattern, it is stronger when the mother
candle is a bearish candle (red).
6. In case of Bearish Harami Pattern, it is stronger when the mother
candle is a bullish candle (green).
Image 1 below Shows the Bullish Harami Pattern in Bajaj Auto
Image 2 below Shows the Bearish Harami Pattern in DLF
 BULLISH PIERCING PATTERN

Important Points to note for a Bullish Piercing Pattern are:

1. It is a 2 Candlesticks Pattern
2. It should appear after a downtrend.
3. Second candle should open gap down i.e. below the close of the
previous candle and then rise during the session to finally close above
minimum 50% body of the previous candle as shown in the image
above.
4. Bullish Piercing is a very powerful reversal pattern that signals the
change of trend from bearish to bullish.
5. If the second candle covers the entire body of the previous candle
then it becomes the engulfing candle as taught in the previous
pattern.
Image below shows the bullish piercing pattern in INDUSIND Bank after a
strong downtrend
 BEARISH PIERCING PATTERN

Important Points to note for a Bearish Piercing Pattern are:

1. It is a 2 Candlesticks Pattern
2. It should appear after an Uptrend.
3. Second candle should open gap up i.e. above the close of the previous
candle and then fall during the session to finally close below minimum
50% body of the previous candle as shown in the image above.
4. Bearish Piercing is a very powerful reversal pattern that signals the
change of trend from bullish to bearish.
5. If the second candle covers the entire body of the previous candle
then it becomes the engulfing candle as taught earlier.
Image below shows the bearish piercing pattern in INDUSIND Bank after a
strong uptrend.
 TWEEZER BOTTOM PATTERN

Important Points to note for a Tweezer Bottom Pattern are:

1. It is a 2 Candlesticks Pattern
2. It should appear after a downtrend.
3. As shown in the image above the low of both the candles is exactly or
almost the same and that is why it is called as tweezer bottom.
4. This Pattern becomes stronger when the first candle in the pattern is
bearish candle and the second candle is a bullish candle with same low
price. However, this pattern is also effective when after a downtrend two
bullish candles are formed with a same low.
5. Second candle can be any candle like an engulfing, piercing, harami etc.
Image below shows the Tweezer Bottom Pattern in DLF.
 TWEEZER TOP PATTERN

Important Points to note for a Tweezer Top Pattern are:

1. It is a 2 Candlesticks Pattern
2. It should appear after an uptrend.
3. As shown in the image above the high of both the candles is exactly or
almost the same and that is why it is called as tweezer top.
4. This Pattern becomes stronger when the first candle in the pattern is bullish
candle and the second candle is a bearish candle with same high price.
However, this pattern is also effective when after an uptrend two bearish
candles are formed with a same high.
5. Second candle can be any candle like an engulfing, piercing, harami etc.
Image below shows the Tweezer Top Pattern in DLF.
 THREE CANDLE PATTERNS
MORNING STAR PATTERN

Important Points to note for a Morning Star Pattern are:

1. It is a 3 Candlesticks Pattern
2. It should appear after a downtrend.
3. First Candle should be a bearish candle, second should open with or
without gap and is generally a small body candle and the third candle is a
bullish candle that opens with or without a gap up.
4. This is a very strong Bullish Reversal Pattern.
Image below shows the Morning Star Pattern in Reliance Industries.
 EVENING STAR PATTERN

Important Points to note for an Evening Star Pattern are:

1. It is a 3 Candlesticks Pattern
2. It should appear after an uptrend.
3. First Candle should be a bullish candle, second should open with or without
gap and is generally a small body candle and the third candle is a bearish
candle that opens with or without a gap down.
4. This is a very strong Bearish Reversal Pattern.
Image below shows the Evening Star Pattern in Reliance Industries.
 GOLDEN NUGGESTS FROM THE AUTHORS
(If you follow these nuggets from the authors, nothing can
stop you from becoming a Successful Person and a Trader)
➢ Have a Goal – Decide why you want to become a Professional Trader.
Bina Goal ke aap Gol Gol Ghumte Rahoge (Without a Goal you will go
round and round endlessly).

➢ Make a Plan – Making a Plan to achieve goals is very important in life.

Have a Plan A, Plan B and Plan C for various situations.

➢ Educate Yourself – Learn from a Good Trader and a Trainer. Without

learning, earning is impossible.

➢ Practice Discipline and Patience – Discipline and Patience are the most
important qualities of a Professional Trader. You should be disciplined
in your life first so that you can bring that discipline to trading also.
Patience is the Key to get best results because time is the best healer
and giver.

➢ Be Consistent – Follow your trading strategy consistently without fail.

Follow all the rules of your strategy in every trade you take.

➢ Focus on The Process and not on the Profits (Results) – Focus on the
Process because that is what will make money for you and that is what
will also make losses. However, if you consistently focus on the
process, you will end up with positive results in long term.

➢ Physical and Mental fitness is must – Trading is not just about taking
trades and money. It also demands a fit body and a fit mind. After all,
Health is Wealth we all know.
➢ Have Healthy Relationships – As said above, trading is not just about
trading and money, it is also more about having a harmonious life and
a balanced life. Having Healthy Relationships is one of the most
important requirements to become successful in life. Relationship
with ownself, family, friends, associates, sub-ordinates and every one
else.

➢ Mistakes are your best friends – Learn from your mistakes. Mistakes
are your stepping stones to becoming a successful trader.

➢ Maintain a Trading Journal – A Trading Journal is your Individual Bible.

Maintaining a Journal of your trades helps you rectify your mistakes
and also helps you focus on right things and avoid wrong things.
 GOOD LUCK
AND
HAPPY TRADING