technical-analysis

> **Skill:** Technical Analysis | **Domain:** trading | **Category:** analysis | **Level:** intermediate > **Tags:** `trading`, `analysis`, `technical`, `supply-demand`, `fibonacci`, `vwap`, `pivots`, `candlestick` # Technical Analysis --- ## 1. Candlestick Patterns ### Reading Candlesticks ``` High ──── ┐ │ Upper Wick (Shadow) Open ─── [█] Body (Bullish: Close > Open = White/Green) Close ── [█] │ Lower Wick (Shadow) Low ──── ┘ Body Color: Green/White = Close ABOVE Open (Bullish) Red/Black = Close BELOW Open (Bearish) ``` --- ### Single Candlestick Patterns #### Hammer (Bullish Reversal) - **Shape**: Small body at top, long lower wick (≥2× body), little/no upper wick - **Context**: Must appear at BOTTOM of downtrend - **Signal**: Bulls pushed price back up from lows; rejection of lower prices - **Reliability**: 60–65% - **Confirmation**: Next candle closes above hammer body - **Colors**: Green hammer more bullish than red hammer (both valid) #### Inverted Hammer (Bullish Reversal) - **Shape**: Small body at bottom, long upper wick (≥2× body) - **Context**: At bottom of downtrend - **Signal**: Initial buying attempt; needs confirmation - **Reliability**: 55–60% - **Confirmation**: Next candle closes bullish #### Hanging Man (Bearish Reversal) - **Shape**: Identical to Hammer but at TOP of uptrend - **Context**: Must appear at TOP of uptrend (context = opposite signal) - **Signal**: Intraday selling pressure; warning of reversal - **Reliability**: 55–60% #### Shooting Star (Bearish Reversal) - **Shape**: Small body at bottom, long upper wick (≥2× body), little/no lower wick - **Context**: At TOP of uptrend - **Signal**: Bears pushed price back from highs; rejection of higher prices - **Reliability**: 65–70% - **Confirmation**: Next candle closes below shooting star body #### Doji Patterns | Doji Type | Shape | Signal | Reliability | |-----------|-------|--------|-------------| | **Standard Doji** | Open ≈ Close, equal wicks | Indecision | 50% (needs context) | | **Long-Legged Doji** | Very long upper & lower wicks | High volatility indecision | 55% | | **Gravestone Doji** | Open=Close at LOW, long upper wick | Bearish reversal at tops | 65% | | **Dragonfly Doji** | Open=Close at HIGH, long lower wick | Bullish reversal at bottoms | 65% | | **Four Price Doji** | All four prices identical | Extreme indecision (illiquid) | N/A | | **Rickshaw Man** | Open≈Close in middle, very long wicks | Major indecision | 55% | #### Marubozu (Strong Momentum) | Type | Shape | Signal | Reliability | |------|-------|--------|-------------| | **Bullish Marubozu** | Large green body, NO wicks | Strong bullish momentum | 75–80% | | **Bearish Marubozu** | Large red body, NO wicks | Strong bearish momentum | 75–80% | | **Opening Marubozu** | No opening wick, has closing wick | Momentum fading at close | 60% | | **Closing Marubozu** | No closing wick, has opening wick | Strong closing momentum | 65% | #### Spinning Top - **Shape**: Small body (any color), significant upper AND lower wicks - **Signal**: Indecision; neither bulls nor bears in control - **Reliability**: 45–50% (needs strong context) - **Use**: Warning of trend pause or reversal when in extended trend #### Belt Hold - **Bullish**: Opens at low of session (no lower wick), rallies strongly - **Bearish**: Opens at high of session (no upper wick), falls strongly - **Reliability**: 55–60% --- ### Double Candlestick Patterns #### Bullish Engulfing (★★★★ Reversal) - **Setup**: Small bearish candle followed by large bullish candle that completely engulfs it - **Rules**: Green body must cover entire red body (wicks optional) - **Context**: Must be at bottom of downtrend or key support - **Reliability**: 72–78% - **Strength Factors**: Higher volume on bullish candle, larger relative size, at major S/R #### Bearish Engulfing (★★★★ Reversal) - **Setup**: Small bullish candle followed by large bearish candle that engulfs it - **Context**: Must be at top of uptrend or key resistance - **Reliability**: 72–78% #### Bullish Harami (Reversal) - **Setup**: Large bearish candle followed by small bullish candle INSIDE prior body - **Signal**: Selling momentum slowing; potential reversal - **Reliability**: 55–65% - **Note**: Harami = "pregnant" in Japanese; small candle is "baby" #### Bearish Harami (Reversal) - **Setup**: Large bullish candle followed by small bearish candle inside prior body - **Reliability**: 55–65% #### Harami Cross - **Setup**: Harami where second candle is a Doji - **Reliability**: 65–70% (doji = more indecision = stronger signal) #### Tweezer Top (Bearish Reversal) - **Setup**: Two candles with equal HIGHS (±1–2 ticks acceptable) - **Context**: At resistance or top of uptrend - **Reliability**: 60–68% - **Signal**: Double rejection at same price = strong resistance #### Tweezer Bottom (Bullish Reversal) - **Setup**: Two candles with equal LOWS - **Context**: At support or bottom of downtrend - **Reliability**: 60–68% #### Piercing Line (Bullish Reversal) - **Setup**: Large bearish candle, followed by bullish candle that opens BELOW prior low but closes MORE THAN 50% into prior bearish body - **Context**: At support/bottom of trend - **Reliability**: 65–70% #### Dark Cloud Cover (Bearish Reversal) - **Setup**: Large bullish candle, followed by bearish candle that opens ABOVE prior high but closes MORE THAN 50% into prior bullish body - **Context**: At resistance/top of trend - **Reliability**: 65–70% #### On Neck / In Neck (Continuation) - **On Neck**: Gap down open, closes at or near prior candle LOW (weak bullish) - **In Neck**: Closes slightly into prior body (stronger) - **Signal**: Continuation of downtrend - **Reliability**: 55% --- ### Triple Candlestick Patterns #### Morning Star (★★★★★ Bullish Reversal) ``` Candle 1: Large bearish (downtrend continuation) Candle 2: Small body (gap down optional), star candle (indecision) Candle 3: Large bullish, closes >50% into Candle 1's body ★ Most reliable triple candlestick pattern ★ Reliability: 78–83% ``` #### Evening Star (★★★★★ Bearish Reversal) ``` Candle 1: Large bullish (uptrend continuation) Candle 2: Small body (gap up optional), star candle Candle 3: Large bearish, closes >50% into Candle 1's body Reliability: 78–83% ``` #### Morning Doji Star (Higher Reliability) - Same as Morning Star but Candle 2 is a Doji - **Reliability**: 83–87% (doji increases significance) #### Evening Doji Star - Same as Evening Star but Candle 2 is a Doji - **Reliability**: 83–87% #### Three White Soldiers (Bullish Continuation/Reversal) - **Setup**: Three consecutive large bullish candles, each opening in prior body and closing higher - **Requirements**: Each close near session high, minimal wicks - **Context**: After downtrend = strong reversal; during uptrend = continuation - **Reliability**: 70–75% - **Warning**: After large prior move = exhaustion signal #### Three Black Crows (Bearish Continuation/Reversal) - **Setup**: Three consecutive large bearish candles, each opening in prior body and closing lower - **Reliability**: 70–75% #### Abandoned Baby (Strongest Reversal Signal) - **Bullish Setup**: Bearish marubozu → Doji with gap down → Bullish marubozu with gap up - **Bearish Setup**: Bullish marubozu → Doji with gap up → Bearish marubozu with gap down - **Key**: TRUE gaps required (no overlap including wicks) - **Reliability**: 85–90% (rare but highly reliable) #### Three Inside Up (Bullish) - Bearish candle → small bullish inside → bullish candle closes above first candle's body - Essentially Harami + confirmation - **Reliability**: 65–70% #### Three Inside Down (Bearish) - Bullish candle → small bearish inside → bearish candle closes below first candle - **Reliability**: 65–70% #### Upside/Downside Tasuki Gap (Continuation) - Gap in direction of trend + candle that partially fills gap - **Signal**: Continuation of trend - **Reliability**: 55–60% #### Rising Three Methods / Falling Three Methods - **Rising**: Large bullish candle → 3 small bearish candles (stay within range) → large bullish close above first candle high - **Signal**: Brief consolidation before trend continuation - **Reliability**: 70–75% ### Proven Multi-Candle Trading Patterns > Source: "The BEST Candlestick Pattern Guide" — Data Trader (2.5M views, tested across career) #### Three-Bar Continuation Pattern ``` Candle 1: Large body, bigger than average (sets direction) Candle 2: Small opposite-color candle, body < 50% of Candle 1's body Candle 3: Large candle same color as C1, closes beyond C2's close Bullish: Large green → small red → large green (uptrend continuation) Bearish: Large red → small green → large red (downtrend continuation) Entry: Close of Candle 3 SL: Bottom wick of Candle 2 (bullish) / Top wick of C2 (bearish) Best when: Forming during established trend, not at reversals ``` #### Three-Bar Reversal Pattern ``` Candle 1: Large full body (establishes current trend) Candle 2: Small body, SAME color as C1 Candle 3: Large full body, OPPOSITE color to C1 & C2 Strong signal: C3 body >= C1 body (higher success rate) Weak signal: C3 body < C1 body (lower probability) Bullish: Two red candles → large green (downtrend reversal) Bearish: Two green candles → large red (uptrend reversal) Entry: Close of Candle 3 SL: Lows of C2 (bullish) / Highs of C2 (bearish) ``` #### Breakout Candles Pattern ``` Setup: 3+ small consolidation candles → 1 large breakout candle - Consolidation candle color doesn't matter — size does (all small) - More consolidation candles = higher probability breakout - Breakout candle must have clearly larger body than consolidation candles Entry: Close of breakout candle SL: Opening price of breakout candle Direction: Continue in direction of breakout candle ``` #### Shrinking Candles Pattern (Momentum Exhaustion) ``` Setup: 3+ consecutive same-color candles, each SMALLER than the last → followed by large opposite-color candle Shows: Trend gradually weakening → reversal confirmation Strong signal: C4 closes beyond C2 (deeper reversal) Bullish: 3+ shrinking red candles → large green candle Bearish: 3+ shrinking green candles → large red candle Entry: Close of the reversal candle SL: Beyond the previous candle's extreme ``` #### Combining Patterns with Key Levels (Strategy) ``` Step 1: Identify key level (S/R, trendline, Fib, or confluence zone) Step 2: Wait for price to interact with the key level Step 3: Look for one of the 6 patterns at that level: - Engulfing, Pin Bar, 3-Bar Continuation, 3-Bar Reversal, Breakout Candles, Shrinking Candles Step 4: Enter on pattern completion, SL per pattern rules Step 5: TP at 2:1 RR minimum Note: Patterns work best on 1H+ timeframes. Less effective on LTF. Confluence level (multiple key levels intersecting) = highest probability. ``` --- ## 2. Chart Patterns ### Reversal Patterns #### Head and Shoulders (H&S) ``` Left Head Right Shoulder: ▲ ▲ ▲ | ||| | Neckline: ─┴──────┴┴──────┴─ Measured Move: Distance from Head to Neckline Target = Neckline − (Head − Neckline) Rules: - Left shoulder: rally, pullback - Head: higher rally, deeper pullback - Right shoulder: lower rally, break below neckline - Volume: decreasing through right shoulder - Neckline break: high volume confirmation Reliability: 83–85% Retest: ~45% of breakouts retest neckline ``` #### Inverse Head and Shoulders (Bullish) - Mirror image of H&S - **Reliability**: 83–85% - **Target**: Breakout price + Head-to-Neckline distance #### Double Top (★★★★) ``` Peak 1 Peak 2 ▲ ▲ / \ / \ / \ / \ ──/─────\──/─────\── Support/Neckline \/ Rules: - Two peaks at approximately SAME price level (±1–3%) - Valley between = neckline/support - Volume: higher on left peak than right peak - Breakdown: close below neckline = confirmation Target = Neckline − (Peak − Neckline) Reliability: 75–80% Time between peaks: minimum 2 weeks for swing trading ``` #### Double Bottom (Bullish) - Mirror image; "W" shape - **Reliability**: 75–80% - **Target**: Breakout + (Neckline − Trough) #### Triple Top / Triple Bottom - Three tests of same level before breakdown/breakout - **Reliability**: 80–85% (more tests = stronger level) - **Target**: Same measured move as double top/bottom #### Rounding Bottom (Saucer) - Gradual, curved reversal from down to uptrend - **Time**: Weeks to months (long-term pattern) - **Reliability**: 75% - **Target**: Breakout + depth of saucer --- ### Continuation Patterns #### Ascending Triangle (Bullish Continuation/Reversal) ``` Resistance: ─────────────────── (Flat top) / / / / / / / / (Rising support) Rules: - Flat upper resistance + rising lower support - Bullish in uptrend; reversal if at bottom of downtrend - Breakout: above resistance with volume - Target = Resistance + Height of triangle (at widest) Reliability: 72–75% False breakout rate: ~25% ``` #### Descending Triangle (Bearish) - Flat support + declining resistance - **Reliability**: 72–75% - **Target**: Flat support − Triangle height #### Symmetrical Triangle - Converging trendlines (lower highs + higher lows) - **Breakout direction**: Usually continues prior trend (75%) - **Target**: Breakout point ± widest point of triangle - **Reliability**: 65–70% - **Timing**: Breakout typically occurs 50–75% through triangle