Contents

Introduction ........................................................................................................................ 1
1. Trend ......................................................................................................................... 2 - 6
- What is Trend? ............................................................................................................................
• What is trendline & How to draw a Trendline?

2. Candlestick Patterns .............................................................................................. 7 - 34

• Candlestick Components .............................................................................................
• Basic Candlestick Patterns
• Types of Candles
- The Marubozu (Bullish & Bearish)
- Hammer
- Inverse Hammer
- Bullish Engulfing
- Piercing Line
- Morning Star
- Three White Soldiers
- Hanging Man
- Shooting Star
- Bearish Engulfing
- Evening Star
- Three Black Crows
- Dark Cloud Cover
- Doji
- Spinning Top
- Falling Three Methods
- Rising Three Methods
- Gravestone and Dragonfly
- Bearish Harami and Bullish Harami.

• Candle Strenth Chart

3. Support & Resistance ....................................................................................................... 35 – 37

• Support
• Resistance
4. Indicators………………………………………………………………..… 38 - 49

• Volume
- Basic guidelines of using Volume
 • Moving Average
- For Uptrend

- For Downtrend

- Crossover Strategy

- Golden Cross

- Death Cross

• Catching the Tops and Bottoms with RSI Divergence

- What is Divergence?

- Bullish Divergence

- Bearish Divergence

5. Multi Time Frame Analysis ………………………………………….… 50 – 54

6. Introduction to Chart Patterns ……………………………………….. 55 – 85

• Triangular Patterns
• Diamond Patterns
• Head & Shoulder Pattern
• Cup & Handle
• Inverted Cup & Handle
• Flag Continuation
• Bear Flag
• Falling Wedge
• Rising Wedge
• Double Bottom
• Triple Bottom
• Double Top
• Triple Top
7. Fibonacci Retracements ………………………………………………. 86 – 91

• Fibonacci Retracement Construction

• How should you use the Fibonacci Retracements levels?
8. Risk Management ……………………………………………….……… 92 – 96

• Stop Loss
• Planning Your Trades
• Consider the One – Percent rule
 • Position Sizing
• What is Risk/Reward Ratio?
- How do you calculate the Risk/Reward Ratio?

- How the Risk/Reward Ratio works?

- Limitations of Risk/Reward Ratio

9. Capital Tracking ………………………………………………………………. 97

• What is Capital?
• What is Leverage?
• How to Track Capital?
10. What’s a Trading Journal? ……………………………...………....... 98 – 100

11. Discipline of Market …………………………………………..…..… 101 – 107

12. Wave Analysis ……………………………………………………….. 108 – 132

…….………………………Final Note………………………………….133
Introduction

We would like to start by thanking you to make a decision for buying our E-book and investing your time
to learn technical analysis in a systematic way.

We are the community of experienced traders who have been trained more than thousand of people
across the world. The Clifford were established in 2020 based in New Delhi.

This handbook is a stepping stone for your trading success. If you are a beginner or someone who has
already been trading and investing but wants to grow exponentially, this handbook is for you. Reading each
section of this handbook thoroughly and by putting effort on charts and case studies, you will get more clarity and
growth potential in this field.

Mastering trading is something that can take a long time to do. In trading, your job is to
find an opportunity and then trade that opportunity. There is more than enough content available on the
internet where you can learn it all for free. But the wide range of educational content can confuse you. You
will end up asking what to use and what not to.

In this handbook, there is nothing that you will never need in trading or investing. We have covered what is
necessary with visual examples and what actually works in the market. Once you finish the ebook and you want
to become professional trader then you should enroll for our course where we teaches you all the aspects of
technical analysis including price action, indicators, risk management, market sentiments as well as
execution. This course is reliable for beginners and intermediates as well.

If you have any feedback or suggestions, we would love to hear it.

Enjoy!

Disclaimer: Trading is risky. Please consult with your financial adviser before making any
trading or investment decision.

1
 CHAPTER 1

Trend
When we talk about doing analysis of a stock or any scrip, the most important & basic thing is to
understand the ‘trend’ to represent it on the chart so that we can proceed to implement our plan
to take any trade.

So, what is Trend?

From a technical analyst’s perspective, “a trend is a directional movement of prices that
remains in effect long enough to be identified & still be profitable”.

A trend can be upward, downward, or sideways.

When the prices make higher highs & higher lows which are shown in the below example we
call it an uptrend.

2
On the other hand, when prices make lower lows & lower highs as shown in the below
example we call it downtrend.

Also, when prices move in a range bound area without any significant Up-move or Down-
move as shown in the below example we call it Sideways or Flat trend establishment.

A classic example of Sideways trend & a trading idea action to be taken on that stock is
mentioned below.

3
4
What is trendline & how to draw a trendline.
● A trendline is a straight line which shows a clear direction of the price on the chart &
helps to find out their trend.
● It helps to determine the support (demand) & resistance (supply) areas on the chart.
● Trendlines are made to be broken.

Key takeaways:
● Mathematically we need two points to define a straight line.
● Similarly to draw a trend line we need at least two major determined & established
points.
● To draw an Up Trendline we need two established Bottom Reversal points & to draw a
Down Trendline we need two established Top Reversal points.
● The third touch always confirms your trend line

A classic example of Drawing a trendline & taking a decision on that simple trendline is shown
with help of asian paints stock.

5
Now see what happens in the stock of ASIANPAINTS:

If you want to learn technical analysis in details, then enroll for our live batch.
https://www.clifford.co.in/Getservice.php?id=LB001

6
 CHAPTER 2
Candlestick Patterns
Candlestick charts originated in Japan over 100 years before the West developed the bar and point-
and-figure charts. In the 1700s, a Japanese man named Homma discovered that, while there was a
link between price. the supply and demand of rice, the markets were strongly influenced by the
emotions of traders.

Candlesticks show that emotion by visually representing the size of price moves with different colors.
Traders use the candlesticks to make trading decisions based on regularly occurring patterns
that help forecast the short-term direction of the price.

KEY TAKEAWAYS

• Candlestick charts are used by traders to determine possible price movement based on past
patterns.
• Candlesticks are useful when trading as they show four price points (open, close, high, and
low) throughout the period of time the trader specifies.
• Many algorithms are based on the same price information shown in candlestick charts.
• Trading is often dictated by emotion, which can be read in candlestick charts.

Candlestick Components
Just like a bar chart, a daily candlestick shows the market's open, high, low, and close price for
the day. The candlestick has a wide part, which is called the "real body."

This real body represents the price range between the open and close of that day's trading. When
the real body is filled in or black, it means the close was lower than the open. If the real body is
empty, it means the close was higher than the open.

7
 Traders can alter these colors in their trading platform. For example, a down candle is often
added red instead of black, and up candles are often shaded green instead of white.

Red candlestick: A red candlestick is a price chart indicating that the closing price of a
security is below both the price at which it opened and previously closed.
Green candlestick: A green candlestick means that the opening price on that day
was lower than the closing price that day (i.e. the price moved up during the day).
Time frame: In order to consistently make money in the markets, traders need to
learn how to identify an underlying trend and trade around it accordingly. Common
clichés include: "trade with the trend," "don't fight the market," and "the trend is your
friend." But how long does a trend last? When should you get in or out of a trade?
What exactly does it mean to be a short-term trader? Here we dig deeper into trading
time frames.

• A time frame refers to the amount of time that a trend lasts for in a market,
which can be identified and used by traders.
• Primary or immediate time frames are actionable right now and are of interest
to day- traders and high-frequency trading.
• Other time frames, however, should also be on your radar that can confirm or
refute a pattern, or indicate simultaneous or contradictory trends that are
taking place.
• These time frames can range from minutes or hours to days or weeks, or even longer.

8
Basic Candlestick Patterns

Candlesticks are created by up and down movements in the price. While these price movements
sometimes appear random, at other times they form patterns that traders use for analysis or trading
purposes. There are many candlestick patterns. Here is a sampling to get you started.

Patterns are separated into bullish and bearish. Bullish patterns indicate that the price is likely to
rise, while bearish patterns indicate that the price is likely to fall. No pattern works all the time, as
candlestick patterns represent tendencies in price movement, not guarantees.

Types of Candlesticks:

The Marubozu
The Marubozu is the first single candlestick pattern that we will understand. The word Marubozu
means “Bald” in Japanese. We will understand the context of the terminology soon. There are two
types of marubozu – the bullish marubozu and the bearish marubozu.
Before we proceed, let us lay down the three important rules about candlesticks. We looked at it in
the previous chapter; I’ve reproduced the same for quick reference:

• Buy strength and sell weakness.

9
• Be flexible with patterns (verify and quantify)
• Look for the prior trend.
Marubozu is probably the only candlestick pattern that violates rule number 3, i.e., looking for a prior
trend. A Marubozu can appear anywhere in the chart irrespective of the prior trend; the trading
implication remains the same.
The textbook defines Marubozu as a candlestick with no upper and lower shadow (therefore
appearing bald). A Marubozu has just the real body, as shown below. However, there are
exceptions to this. We will look into these exceptions shortly.

The red candle represents the bearish marubozu, and the blue represents the bullish marubozu.

Bullish Marubozu
The absence of the upper and lower shadow in a bullish marubozu implies that the low is equal to
the open and the high is equal to the close. Hence whenever the Open = Low and High = close, a
bullish marubozu is formed.
A bullish marubozu 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. It does not matter what the prior trend has been, the
action on the marubozu day suggests that the sentiment has changed and the stock is now bullish.
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. Hence a trader should look at
buying opportunities with the occurrence of a bullish marubozu. The buying price should be around
the closing price of the marubozu.

10
In the chart above (ACC Limited), the encircled candle is a bullish marubozu. Notice the bullish
marubozu candle does not have a visible upper and a lower shadow. The OHLC data for the candle
is: Open = 971.8, High = 1030.2, Low = 970.1, Close = 1028.4
Please notice the textbook definition of a marubozu Open = Low, and High = Close. However, in
reality, there is a minor variation to this definition. The price variation is not much when measured in
percentage terms, for example, the variation between high and close is 1.8, which as a percentage
of high is just 0.17%. This is where the 2nd rule applies – Be flexible, Quantify and Verify.
With this occurrence of a marubozu the expectation has turned bullish, and hence one would be a
buyer of the stock. The trade setup for this would be as follows:
Buy Price = Around 1028.4 and Stoploss = 970.0
As it is evident, candlestick patterns do not give us a target. However, we will address the issue of
setting targets at a later stage in this module.
Having decided to buy the stock, when do we actually buy the stock? The answer to this depends
on your risk appetite. Let us assume two types of a trader with different risk profiles – the risk-taker
and the risk-averse.
The risk-taker would buy the stock on the same day as the marubozu is being formed. However,
the trader needs to validate the occurrence of a marubozu. Validating is quite simple. Indian
markets close at 3:30 PM. So, around 3:20 PM one needs to check if the current market price
(CMP) is approximately equal to the high price for the day, and the opening price of the day
is approximately equal to the low price the day. If this condition is satisfied, you know the day is
forming a marubozu, you can buy the stock around the closing price. It is also essential to note that
the risk-taker is buying on a bullish/blue candle day, thereby following rule 1, i.e., buying on strength
and selling on weakness.
The risk-averse trader would buy the stock on the next day, i.e. the day after the pattern has been
formed. However, before buying the trader, ensure that the day is a bullish day to comply with rule
number 1. This means the risk-averse buyer can buy the stock only around the close of the day.

11
The disadvantage of buying the next day is that the buy price is way above the suggested buy price,
and therefore the stoploss is quite deep. However, as a trade-off, the risk-averse trader is buying
only after doubly confirming that the bullishness is indeed established.
As per the ACC’s chart above, both the risk taker and the risk-averse would have been profitable in
their trades.
Here is another example (Asian Paints Ltd) where both the risk-taker, and the risk-averse trader
would have been profitable.

Here is an example where the risk-averse trader would have benefited :

Notice in the chart above, a bullish marubozu has been encircled. The risk-taker would have
initiated a trade to buy the stock on the same day around the close, only to book a loss on the next
12
day. However, the risk-averse would have avoided buying the stock entirely because the next day
happened to be a red candle day. Going by the rule, we should buy only on a blue candle day and
sell on a red candle day.

Bearish Marubozu
Bearish Marubozu indicates extreme bearishness. Here the open is equal to the high and close the
is equal to low. Open = High, and Close = Low.
A bearish marubozu 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 marubozu
day suggests that the sentiment has changed and the stock is now bearish.
The expectation is that this sudden change in sentiment will be carried forward over the next few
trading sessions, and hence one should look at shorting opportunities. The selling price should be
around the closing price of the marubozu.

In the chart above (BPCL Limited), the encircled candle indicates the presence of a bearish
marubozu. Notice the candle does not have an upper and a lower shadow. The OHLC data for the
candle is as follows:
Open = 355.4, High = 356.0, Low = 341, Close = 341.7
As we had discussed earlier, a minor variation between the OHLC figures leading to small upper
and lower shadows is ok as long as it is within a reasonable limit.
The trade on the bearish marubozu would be to short BPCL approximately at 341.7 with a stoploss
at the high point of the candle. In this case, the stoploss price is 356.0. Of course, we still haven’t
dealt with setting targets at this stage, and we will figure that out much later in this module.
13
Remember this: Once a trade is initiated, you should hold on to it until either the target is hit or the
stoploss is breached. If you attempt to do something else before any one of these event triggers,
your trade could most likely go bust. So staying on the course of the plan is extremely crucial.
Trade can be initiated based on the risk appetite of the person. The risk-taker can initiate a short
trade on the same day around the closing. Of course, he has to make sure that the candle is
forming a bearish marubozu. To do this at 3:20 PM, the trader must confirm if the open is
approximately equal to the high and the current market price is equal to the low price. If the
condition is validated, then it is a bearish marubozu, a short position can be initiated.
If the trader is risk-averse, he can wait till the next day’s closing. The short trade will go through only
by 3:20 PM next day after ensuring that the day is a red candle day. This is also to ensure that we
comply with 1st rule – Buy strength, and Sell weakness.
In the BPCL chart above, both risk taker and risk-averse would have been profitable.
Here is another chart, Cipla Limited, where the bearish marubozu has been profitable for both risk-
taker, and a risk-averse trader. Remember these are short term trades and one needs to be quick in
booking profits.

14