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NUSInvest Workshop Series Session Two Candlesticks Patterns

NUSInvest Workshop Series Session Two Candlesticks Patterns. NUS Students’ Investment Society. Workshops Syllabus – Sem 1. LT18, 6-7PM. 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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NUSInvest Workshop Series Session Two Candlesticks Patterns

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  1. NUSInvest Workshop Series Session Two Candlesticks Patterns

  2. NUS Students’ Investment Society

  3. Workshops Syllabus – Sem 1 LT18, 6-7PM

  4. PROFILE • NUS Invest Research Analyst, Acting FA Director • Year 2 BBA (Finance) • First trading experience in 2010 • Does both FA & TA, mostly FA

  5. DISCLOSURES & DISCLAIMERS This research material has been prepared by NUS Invest. NUS Invest specifically prohibits the redistribution of this material in whole or in part without the written permission of NUS Invest. The research officer(s) primarily responsible for the content of this research material, in whole or in part, certifies that their views are accurately expressed and they will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this research material. Nothing in this research material constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for 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.

  6. Background

  7. Japanese Candlestick • Stresses relationship between open and close prices PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  8. 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 white or green orblue • Downward candlestick usually black or red BearishCandle BullishCandle PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  9. 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) PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  10. Gaps Daily Chart – Wal-Mart (WMT) PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  11. 1-Price Bar Patterns

  12. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  13. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  14. 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) PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  15. 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 upto close near the highs Long lower wick indicates initial selling prices PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  16. PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  17. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  18. Hanging Man 1. Uptrend2. Gap Up3. Lower Shadow at least twice as big as Real Body4. Real Body Bullish or Bearish; better if Bearish5. Confirmation Candle Greater gap: Higher likelihood of reversal PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  19. 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) PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  20. 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 Bears were able to rejectbulls completely (or push prices evenlower by closing below open) Long upper wick indicatesinitial buying prices Open PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  21. Shooting Star 1. Uptrend2. Upper shadow at least twice as big as real body 3. Real body bullish or bearish (bearish: stronger indication) PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  22. 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) PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  23. Inverted Hammer PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  24. 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 Buyers in control Sellers in control PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  25. PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  26. More Doji Patterns PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  27. 2-Price Bar Patterns

  28. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  29. Bullish Engulfing 1. Downtrend2. Bearish Candle3. Gap Down4. Bullish Candle5. Close above previous Bearish Candle PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  30. 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 • Potential sign that trend is reversing • Indicates control has shifted from buyers to sellers Gap Up PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  31. Bearish Engulfing Greater size difference: Increased significance 1. Uptrend2. Bullish Candle3. Gap Up4. Bearish candle5. Close below previous Bullish Candle PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  32. Dark Cloud Cover • Bullish candle closes below the middle of previous candle • Rejection of Gap: Bearish sign • Retracement: Additional significance Gap Up PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  33. Piercing Line Pattern • Bearish candle closes below the middle of previous candle • Rejection of Gap: Bullish Sign • Retracement: Additional significance Gap down PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  34. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  35. Harami In an Uptrend 1. Uptrend2. Bullish Candle3. Gap Down4. Small Bullish Candle In a Downtrend 1. Downtrend2. Bearish Candle3. Gap Up4. Small Bullish Candle

  36. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  37. Tweezer Bottom 1. Downtrend2. Bearish Candle3. Day 1 Lows about equal to Day 2 Lows 4. Bullish Candle PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  38. High of Day 3Gap Up to Prior Highs;Bulls rejected again Tweezer Top High of Day 2(Bulls rejected) High of Day 1 Resistance Line

  39. 3-Price Bar Patterns

  40. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  41. Morning Star 1. Downtrend2. Bearish Candle3. Gap Down 4. Small Bullish/ Bearish Candle 5. Gap Up 6. Bullish Candle

  42. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  43. Evening Star 1. Uptrend2. Bullish Candle3. Gap Up 4. Small Bullish/ Bearish Candle 5. Gap Down 6. Bullish Candle Morning Star Pattern Powerful bearish reversal pattern!

  44. Price Action Trading Strategies

  45. 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 • 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 Bullish Pin Bar Bearish Pin Bar PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  46. 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 bringan end to the previous downtrend PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  47. 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  48. Inside Bar Setup Inside bar setups traded with the near-term momentum often give rise to large moves. Daily AUDUSD chart PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  49. Fakey Setup • Inside/Harami bar + False break, then closes back within range • 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 PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

  50. Fakey Setup Substantial push higher after false-break to the downside False-break / Fakey setup PRICE TRADING STRATEGIES 2-BARS PATTERN 1-BAR PATTERN 3-BARS PATTERN BACKGROUND

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