Technical Analysis Workshop Series Session Six 1, 2, 3 Price-Bars Patterns
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Agenda 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
Background
Japanese Candlestick Stresses relationship between open and close prices
Candle Anatomy Body: Distance between open and closing Tip of upper wick/shadow: Highest price of 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 Bearish Candle 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)
Gaps Daily Chart Wal-Mart (WMT)
1 Price-Bar Pattern
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
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)
Hammer Low reliability, requires confirmation Bullish gap for next session Subsequent session shows white real body above that of the hammer s real body Significance/ Strength: Length of Lower Shadow Colour Buyers drive prices back up to close near the highs Long lower wick indicates initial selling prices
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 Short-term outlook indication Also requires confirmation
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
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)
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)
Shooting Star 1. Uptrend 2. Upper shadow at least twice as big as real body 3. Real body bullish or bearish (bearish: stronger indication)
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)
Inverted Hammer
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 Buyers in control Doji/ Long-legged Doji: stronger signal Open and close are the same Insignificant in sideway markets Sellers in control
More DojiPatterns Dragonfly Doji Gravestone Doji Four Price Doji Long lower, no upper Long upper, no lower Same upper, lower, open & close Very rare Low volume situations
2 Price-Bars Pattern
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 Gap down Indicates control has shifted from sellers to buyers
Bullish Engulfing 1. Downtrend 2. Bearish Candle 3. Gap Down 4. Bullish Candle 5. Close above previous Bearish Candle
Bearish Engulfing Candle When found in a uptrend: Gap Up Gap up: Bullish sign But: Bulls only push prices up slightly before bears take over and push prices much lower Potential sign that trend is reversing Indicates control has shifted from buyers to sellers
Bearish Engulfing Greater size difference: Increased significance 1. Uptrend 2. Bullish Candle 3. Gap Up 4. Bearish candle 5. Close below previous Bullish Candle
Dark Cloud Cover Bullish candle closes below the middle of previous candle Gap Up Rejection of Gap: Bearish sign Retracement: Additional significance
Piercing Line Pattern Bearish candle closes below the middle of previous candle Rejection of Gap: Bullish Sign Retracement: Additional significance Gap down
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
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
TweezerTop & 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
TweezerBottom 1. Downtrend 2. Bearish Candle 3. Day 1 Lows about equal to Day 2 Lows 4. Bullish Candle
TweezerTop 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-Bars Pattern
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
Morning Star 1. Downtrend 2. Bearish Candle 3. Gap Down 4. Small Bullish/ Bearish Candle 5. Gap Up 6. Bullish Candle Powerful bullish reversal pattern!
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
Evening Star 1. Uptrend 2. Bullish Candle 3. Gap Up 4. Small Bullish/ Bearish Candle 5. Gap Down 6. Bullish Candle Morning Star Pattern
Price Acting 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 Longer, more significant Pin bars occurring at important support/ resistance level can be very accurate Bullish Pin Bar 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
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
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
Inside Bar Setup Inside bar setups traded with the near-term momentum often give rise to large moves. Daily AUDUSD chart
Fakey Setup Inside/Haramibar + 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
Fakey Setup Substantial push higher after false-break to the downside False-break / Fakey setup
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