Bullish candle:

Bearish candle :

Intraday charts : 30 Mints, 15 mints and 5 minutes.

The single candlestick pattern:
e ill e lea i g the follo i g
1.Marubozu
a) Bullish Marubozu
b) Bearish Marubozu
2.Doji
3.Spinning Tops
4.Paper umbrella
a) Hammer
b) Hanging man

5.Shooting Star
Multiple candlestick patterns:
Multiple candlestick patterns are a combination of multiple candles. Under the multiple candlestick patterns
we will learn the following:
1.Engulfing pattern
a)Bullish Engulfing
b) Bearish Engulfing
2.Harami
a)Bullish Harami
b)Bearish Harami
3.Piercing Pattern
4.Dark cloud cover
5.Morning Star
6.Evening Star
Rules : There are three important assumptions specific to candlestick patterns
1.Buy strength and sell weakness
2.Be flexible with patterns (quantify and verify)
3. Look for a prior trend
1. The Marubozu(Bald):
The text book defines Marubozu as a candlestick with no upper and lower shadow (therefore appearing bald).

a)Bullish Marubuzo:
The absence of the upper and lower shadow in a bullish marubuzo implies that the low is equal to the
open and the high is equal to the close.
A bullish marubuzo indicates that there is so much buying interest in the stock that the market
participants were willing to buy the stock at every price point during the day, so much so that the
stock closed near its high point for the day.
The expectation is that with this sudden change in sentiment there is a surge of bullishness and this
bullish sentiment will continue over the next few trading sessions.

b)Bearish Marubuzo:
A bearish marubuzo indicates that there is so much selling pressure in the stock that the market
participants actually sold at every price point during the day, so much so that the stock closed near its
low point of the day.
It does not matter what the prior trend has been, the action on the marubuzo day suggests that the
sentiment has changed and the stock is now bearish.

The Trade Trap :

One should avoid trading during an extremely small (below 1% range) or long candle (above 10%
range).
A s all a dle i di ates su dued t adi g a ti it a d he e it ould e dii ult to ide tif the
direction of the trade. On the other hand a long candle indicates extreme activity.
The problem with lengthy candles would be the placement of stoploss. The stoploss would be deep
and in case the trade goes wrong the penalty to pay would be painful.
The Spinning Top:
The spinning top is a very interesting candlestick. Unlike the Marubuzo, it does not give the trader a trading
signal with specific entry or an exit point.

T o thi gs a e uite p o i e t
The a dles ha e a s all eal od
The uppe a d lo e shado a e al ost e ual
Dramatic events :
1.Small real body:
This indicates that the open price and close price are quite close to each other.If the open and close price
points are nearby to one another, the color of the candle does not really matter. It could be a blue or a red
candle, what really matters is the fact that the open prices and close prices are near to one another.
2. The upper shadow:
The upper shadow connects the real body to the high point of the day. The presence of the upper shadow tells
us that the bulls did attempt to take the market higher. However they were not really successful in their
endeavor. This can be treated as an attempt by the bulls to take the markets higher but they were not really
successful at it.
3.The lower shadow :
The lower shadow connects the real body to the low point of the day.. The presence of the lower shadow tells
us that the bears did attempt to take the market lower. However they were not really successful in their
endeavor. This can be treated as an attempt by the bears to take the markets lower but they were not really
successful.

 The bulls made a futile attempt to take the market higher. The bears tried to take the markets lower
and it did not work either.
Neither the bulls nor the bears were able to establish any influence on the market as this is evident
with the small real body.
Thus Spinning tops are indicative of a market where indecision and uncertainty prevails. It just
conveys indecision as both bulls and bears were not able to influence the markets.
Spinning tops in a down trend there are two foreseeable situations with an equal probability:
1. Either there will be another round of selling
2.Or the markets could reverse its directions and the prices could increase
Clearly, with no clarity on what is likely to happen, the trader needs to be prepared for both the situations i.e
reversal and continuation.
NOTE: Mostly Bullish
Here is a chart, which shows the downtrend followed by a set of spinning tops.

o, thi k a out the spi i g top as The al

efo e the sto
. The sto
ould e i the fo of a
continuation or a reversal of the trend. In which way the price will eventually move is not certain, however
what is certain is the movement itself. One needs to be prepared for both the situations.

Spinning tops in an uptrend :

A spinning top in an uptrend has similar implications as the spinning top in a down trend,

1. The spinning top basically conveys indecision in the market i.e. neither the bulls nor the bears are able
to influence the markets.

The Dojis:
The Doji s a e e si ila to the spi i g tops, except that it does not have a real body at all. This means the
ope a d lose p i es a e e ual. Doji s p o ide u ial i fo atio a out the a ket sentiments and is an
important candlestick pattern.

Obviously the color of the candle does not matter in case of a wafer thin real body.
The Dojis have similar implications as the spinning top. Whatever we learnt for spinning tops applies to Dojis
as well. In fact more ofen than not, the dojis and spinning tops appear in a cluster indicating indecision in the
market.
Have a look at the chart below, where the dojis appear in a downtrend indicating indecision in the market
before the next big move.

Here is another chart where the doji appears afer a healthy up trend afer which the market reverses its
direction and corrects.

So the next time you see either a Spinning top or a Doji individually or in a cluster, remember there is
indecision is the market.
Paper Umbrella:
The paper umbrella is a single candlestick pattern which helps traders in setting up directional trades.
The interpretation of the paper umbrella changes based on where it appears on the chart.

A paper umbrella consists of two trend reversal patterns namely the hanging man and the hammer. The
hanging man pattern is bearish and the hammer pattern is relatively bullish.
If the pape u

ella appea s at the otto

e d of a do

a d all , it is alled the Ha

If the paper umbrella appears at the top e d of a upt e d all , it is alled the Ha gi g

e .
a .

To qualify a candle as a paper umbrella, the length of the lower shadow should be at least twice the length of
the eal od . This is alled the shado to eal od atio .
The Hammer formation:
The bullish hammer is a significant candlestick pattern that occurs at the bottom of the trend. A hammer
consists of a small real body at the upper end of the trading range with a long lower shadow. The longer the
lower shadow the more bullish the pattern.

The chart below shows the presence of two hammers formed at the bottom of a down trend.

A ha

e a

e of a

olo as it does ot eall

atte as lo g as it ualifies the shado to eal od

atio.

The prior trend for the hammer should be a down trend. The prior trend is highlighted with the curved line.
The thought process behind a hammer is as follows:
1. The market is in a down trend, where the bears are in absolute control of the markets
2. During a downtrend, every day the market would open lower o pa ed to the p e ious da s lose a d
again closes lower to form a new low
3.On the day the hammer pattern forms, the market as expected trades lower, and makes a new low
4. However at the low point, there is some amount of buying interest that emerges, which pushes the prices
higher to the extent that the stock closes near the high point of the day
5. The price action on the hammer formation day indicates that the bulls attempted to break the prices from
falling further, and were reasonably successful
6. This action by the bulls has the potential to change the sentiment in the stock, hence one should look at
buying opportunities
Hammer Conditions:
1.Open and close should be almost the same (within 1-2% range)
2.Lower shadow length should be at least twice the length of real body

He e is a othe ha t he e the isk a e se t ade

eak ess ule.

ould ha e e efited

i tue of the Bu st e gth a d ell

The Hanging man:

If a paper umbrella appears at the top end of a trend, it is called a Hanging man. The bearish hanging man is a
single candlestick, and a top reversal pattern. A hanging man signals a market high. The hanging man is
classified as a hanging man only after it precedes an uptrend. Since the hanging man is seen after a high, the
bearish hanging man pattern signals selling pressure.

A ha gi g a
od atio.

e of a

olo a d it does ot eall

atte as lo g as it ualifies the shado to eal

The prior trend for the hanging man should be an uptrend, as highlighted by the curved line in the chart
above.
The thought process behind a hanging man is as follows:
1.The market is in an uptrend, hence the bulls are in absolute control
2.The market is characterized by new highs and higher lows
3.The day the hanging man pattern appears, the bears have managed to make an entry
4.This is emphasized by a long lower shadow of the hanging man
5.The entry of bears signifies that they are trying to break the strong hold of the bulls
Thus, the hanging man makes a case for shorting the stock.

Note: Prefer Hamer the hanging man

The shooting star :
The price action on the shooting star is quite powerful, thus making the shooting star a very popular
candlestick pattern to trade.The shooting star looks just like an inverted paper umbrella.

The colour of the body does not matter, but the pattern is slightly more reliable if the real body is red.
The longer the upper wick, the more bearish is the pattern.
The shooting star is a bearish pattern;
hence the prior trend should be bullish.
The thought process behind the shooting star is as follows:
The sto k is i a upt e d i pl i g that the ulls a e i a solute o t ol. When bulls are in control, the
stock or the market tends to make a new high and higher lowOn the day the shooting star pattern forms, the
market as expected trades higher, and in the process makes a new high
Ho ever at the high point of the day, there is a selling pressure to an extent where the stock price recedes
to close near the low point of the day, thus forming a shooting star
The selli g i di ates that the ea s ha e ade a e t , a d the
the prices down. This is evident by the long upper shadow

e e a tually quite successful in pushing

The e pe tatio is that the ea s ill o ti ue selli g o e the e t fe t adi g sessio s, he e the t ade s
should look for shorting opportunities
Take a look at this chart where a shooting star has been formed right at the top of an uptrend.

Here is an example, where both the risk averse and the risk taker would have initiated the trade based on a
shooting star. However the stop loss has been breached.

Multiple candlestick patterns :

The Engulfing Pattern :
The engulfing pattern needs 2 trading sessions to evolve. In a typical engulfing pattern, you will find a small
candle on day 1 and a relatively long candle on day 2 which appears as if it engulfs the candle on day 1. If the
e gulfi g patte appea s at the otto of the t e d, it is alled the Bullish E gulfi g patte . If the
e gulfi g patte appea s at the top e d of the t e d, it is alled the Bea ish E gulfi g patte .
The Bullish Engulfing Pattern :
The bullish engulfing pattern is a two candlestick pattern which appears at the bottom of the down trend. As
the name suggests, this is a bullish pattern which prompts the trader to go long.
The two day bullish engulfing pattern is encircled in the chart below. The prerequisites for the pattern are as
follows:
1. The prior trend should be a downtrend
2. The first day of the pattern (P1) should be a red candle reconfirming the bearishness in the market

3. The candle on the 2nd day of pattern (P2) should be a blue candle, long enough to engulf the red candle

The thought process behind the bullish engulfing pattern is as follows:

1.The market is in down trend with prices steadily moving down
2.On the first day of the pattern (P1), the market opens low and makes a new low. This forms a red candle in
the process
3.On the second day of the pattern (P2), the stock opens near the closing prices of P1, and attempts to make a
new low. However, at this low point of the day there is a sudden buying interest, which drives the prices to
lose highe tha the p e ious da s ope . This p i e a tio fo s a lue a dle
4.The price action on P2 also suggests that bulls made a very sudden and strong attempt to break the bearish
trend and they did so quite successfully. This is evident by the long blue candle on P2
.The ea s ould ot ha e e pe ted the ull s sudde a tio o P a d he e the ull s a tio ki d of attles
the bears causing them some amount of nervousness
6.The bullishness is expected to continue over the next few successive trading sessions, driving the prices
higher and hence the trader should look for buying opportunities

The bearish engulfing pattern :

The bearish engulfing pattern is a two candlestick pattern which appears at the top end of the trend, thus
making it a bearish pattern. The thought process remains very similar to the bullish engulfing pattern, except
one has to think about it from a shorting perspective.

1. To begin with the bulls are in absolute control pushing the prices higher
2. On P1, as expected the market moves up and makes a new high, reconfirming a bullish trend in the market
3. On P2, as expected the market opens higher and attempts to make a new high. However at this high point
selling pressure starts. This selling comes unexpected and hence tends to displace the bulls
. The selle s push the p i es lo e , so u h so that the sto k loses elo the p e ious da s P
creates nervousness amongst the bulls
5. The strong sell on P2 indicates that the bears a ha e su essfull
oke do
the market may continue to witness selling pressure over the next few days

ope . This

the ull s st o ghold a d

6. The idea is to short the index or the stock in order to capitalize on the expected downward slide in prices
The presence of a doji :
Now here is a very interesting chart. From my own personal experience I can tell you, charts like the one
shown below are highly profitable. One should not miss such trading opportunities
Take a look at the chart, what are the things that catch your attention?
1.An obvious uptrend as highlighted
2.A bearish engulfing pattern right at the top end of the upward rally
3.A doji formation on the day following P2
What implication would a doji have in this chart?

Let us inspect this chart event by event:

1.A prolonged uptrend in the chart confirms the bulls are in absolute control
.O P a lue a dle is fo

ed, e o fi

i g the ull s do i a e i the

a kets

3. On P2 markets open higher and make a new high comforting the bulls. However at the high point a strong
su ge to sell uilds up, to a e te t that the p i es loses elo P s ope i g p i es
4.This trading action on P2 sets in a bit of panic to bulls, but they are not shaken yet
5.On day 3, let us call it as P3, though the opening is weak it is ot u h lo e o pa ed to P s lose. This is
not too comforting for the bulls, as they expect the markets to be stronger.
.Du i g P the a ket atte pts to o e highe Doji s uppe shado ho e e the high is not sustained.
Even the low is not sustained and eventually the day closes flat forming a Doji. As you may recall, Dojis
indicate indecision in the market
7.On P2 bulls panicked and on P3 bulls were uncertain
8.Panic with uncertainty is the perfect recipe for a catastrophe. Which explains the long red candle following
the Doji
From my own personal trading experience I can tell you that whenever a doji follows a recognizable
candlestick pattern, the opportunity created is bigger. Besides illustrating this point, I also want to draw your
attention to chart analysis methodology. Notice in this particular chart, we did not just look at what was
happe i g o P o P ut e e t e o d that a d a tuall o i ed t o die e t patte s to de elop a
comprehensive view on the market.
The Piercing Pattern :
The piercing pattern is very similar to the bullish engulfing pattern with a very minor variation. In a bullish
e gulfi g patte the P s lue a dle e gulfs P s ed a dle o pletel . Ho e e i a pie i g patte P s
blue candle partially engulfs P s ed a dle, ho e e the e gulfi g should e et ee
% a d less tha
%. You a alidate this isuall o al ulate the sa e. Fo e a ple if P s a ge Ope Close is , P s
range should be at least 6 or higher but below 12.

As long as this condition is satisfied, everything else is similar to the bullish engulfing including the trade set
up. Here a risk taker would initiate the trade on P2 around the close. The risk averse would initiate the trade,
the day afer P2 only afer ensuring a blue candle is formed. The stoploss would be the low of the pattern.

The Dark Cloud Cover :

The dark cloud cover is very similar to the bearish engulfing pattern with a minor variation. In a bearish
e gulfi g patte the ed a dle o P e gulfs P s blue candle completely. However in a dark cloud cover,
the ed a dle o P e gulfs a out to
% of P s lue a dle. The t ade set up is e a tl the sa e as the
bearish engulfing pattern. Think about the dark cloud cover as the inverse of a piercing pattern.

Both these are recognizable candlestick patterns but if I were to choose between the two patterns to set up a
trade. I would put my money on the bearish engulfing pattern as opposed to a dark cloud cover. This is
because the bearishness in a bearish engulfing pattern is more pronounced (due to the fact that it engulfs the
p e ious da s e ti e a dle . O the sa e li es I ould hoose a ullish e gulfi g patte o e a pie i g
pattern.
Later in this module I will introduce a 6 point trading checklist. A trade should satisfy at least 3 to 4 points on
this checklist for it to be considered as a qualified trade. Keeping this point in perspective, assume there is a
situation where the ICICI Bank stock forms a piercing pattern and the HDFC Bank stock forms a bullish
engulfing pattern. Naturally one would be tempted to trade the bullish engulfing pattern, however if the HDFC
Bank stock satisfies 3 checklist points, and ICICI Bank stock satisfies 4 checklist points, I would go ahead with
the ICICI Bank stock even though it forms a less convincing candlestick pattern.
On the other hand, if both the stocks satisfy 4 checklist points I will go ahead with the HDFC Bank Trade
The Harami Pattern : (pregnant)
Harami is a two candle pattern. The first candle is usually long and the second candle has a small body. The
second candle is generally opposite in colour to the first candle. On the appearance of the harami pattern a
trend reversal is possible. There are two types of harami patterns the bullish harami and the bearish harami.
The Bullish Harami :
As the name suggests, the bullish harami is a bullish pattern appearing at the bottom end of the chart. The
bullish harami pattern evolves over a two day period, similar to the engulfing pattern.
In the chart below, the bullish harami pattern is encircled.

The thought process behind a bullish harami pattern is as follows:

1.The market is in a downtrend pushing the prices lower, therefore giving the bears absolute control over the
markets
2.On day 1 of the pattern P
market

a ed a dle ith a e lo is fo

ed, ei fo i g the ea s positio i the

.O da of the patte P the a ket ope s at a p i e highe tha the p e ious da s lose. O seei g a
high opening price the bears panic ,as they would have otherwise expected a lower opening price
4.The market gains strength on P2 and manages to close on a positive note, thus forming a blue candle.
Ho e e P s losi g p i e is just elo the p e ious da s P ope p i e
5.The price action on P2 creates a small lue a dle hi h appea s o tai ed p eg a t
candle

ithi P s lo g ed

6.The small blue candle on a standalone basis looks harmless, but what really causes the panic is the fact that
the bullish candle appears all of a sudden, when it is least expected
7.The blue candle not only encourages the bulls to build long positions, but also unnerves the bears
8.The expectation is that panic amongst the bears will spread in an accelerated manner, giving a greater push
to bulls. This tends to push the prices higher. Hence one should look at going long on the stock.

And here is another example where a bullish harami occurred but the stoploss on the trade triggered leading
to a loss.

The bearish harami :

The bearish harami pattern appears at the top end of an uptrend which gives the trader a opportunity to
initiate a short trade.

The thought process behind shorting a bearish harami is as follows:

1.The market is in an uptrend, placing the bulls in absolute control
2.On P1, the market trades higher, and makes a new high and closes positively forming a blue candle day. The
trading action reconfirms the bulls dominance in the market
3.On P2 the market unexpectedly opens lower which displaces the bulls ,and sets in a bit of panic to bulls
4.The market continues to trade lower to an extent where it manages to close negatively forming a red candle
day
5.The unexpected negative drif in the market causes panic making the bulls to unwind their positions
6.The expectation is that this negative drif is likely to continue and therefore one should look at setting up a
short trade.