Thread by @ICICI_Direct

Introduction to candlestick - Part 2
A thread ✍️🧵

Here we explain advanced application of candlesticks. Incase you have missed Part 1, visit here:

https://twitter.com/ICICI_Direct/status/1635579734821314561?s=20

So grab a cup of coffee and start.
#LearnwithICICIDirect
1/n

2/n
1. Hammer

A hammer is a bullish trend reversal single candlestick that forms after a correction. It indicates a change in trend, i.e. from downtrend📉 to uptrend📈.

The candlestick has a long lower wick with a short body and little to no upper wick

3/n
Chart view - highlighted candle

🔸A long wick indicates a weak trading session where sellers pushed prices down during the session.

🔸However, the green candle finish shows that buyers entered to end the session strongly.

4/n
Trading insight:
Before taking action (Buying), there needs to be a confirmation, ideally of an increasing volume. A gap up or a follow up green candlestick could provide such confirmation.

5/n
Criteria for a Hammer:
🔸The wick should be at least 2x the length of body
🔸There should be no long upper wick
🔸The body is at the upper end of the trading range. The colour of the body is not important, although a green body will have more bullish implications.

6/n
🔸A positive day, a green candle, is required the next day to confirm this signal.
🔸The stop loss level is the low of the hammer
🔸A perfect hammer can have its open=high or open=low with the body being in a small range with a 2x size shadow than its body

7/n
The below examples (Daily timeframe):
1⃣LTI Mindtree
2⃣Maharashtra Scooter

8/n

2.Hanging Man

The "hanging man" pattern refers to a candle that has the same shape as a hammer, except that hammers occur in downtrends and the hanging man pattern occurs in uptrends

9/n

Market view
The hanging man pattern is considered a bearish reversal pattern because it suggests that the bulls are losing control and bears are taking over. It is often interpreted as a signal that the uptrend is weakening and a downtrend may be starting

10/n
Criteria
🔸The candlestick must have a long lower shadow, at least twice the length of the body
🔸The upper shadow should be small or non-existent
🔸The candlestick must occur after an uptrend

11/n

Trade setup:
To confirm the HM, wait for the next candlestick to form.
If the following candlestick closes below the hanging man's low, or there is a gap down or a long red candle is formed with a heavy volume, then it could be a confirmation of the bearish reversal

12/n
One can sell the stock once the next candlestick closes below the hanging man's low, with a stop-loss set above the high of the hanging man candlestick

13/n
Examples of Hanging Man:

14/n
3.Inverted hammer
🔸An "inverted hammer" is a bullish candlestick pattern that can potentially indicate a reversal in a downtrend.
🔸The candle has a small body, a long upper wick and a small or nonexistent lower wick. This candlestick marks potential trend reversals

15/n
Criteria
🔸The candlestick must have a small real body near the upper end of the range for the day
🔸The candlestick must have a long upper wick at least 2x the length of the body
🔸The lower wick should be small or non-existent
The candlestick must occur after a downtrend

16/n

4. Shooting star

🔸The "shooting star" pattern appears at the peak of an uptrend; its long upper wick indicates that a bearish reversal is possible
🔸The Shooting Star is a bearish reversal pattern that develops following an advance and in the star position

17/n

Criteria:
🔸The candlestick must have a small real body near the lower end of the range for the day
🔸The candlestick must have a long upper shadow, at least 2x length of the body
🔸The lower shadow should be small
🔸The candlestick must occur after an uptrend

18/n

Trade setup:
🔸The longer the upper wick, the higher the chances of a reversal occurring.
🔸A gap up from the previous day's close sets up for a stronger reversal move provided the day after the Shooting Star opens lower

19/n
🔸Large volume on Shooting Star day increases the chances that a blow-off day has occurred, although it is not a necessity.
🔸The following day should confirm the Shooting Star signal with a red candle or a gap down with a lower close

20/n

5. Marubozu

A "marubozu" represents a strong continuation of the current trend. Marubozu does not have upper or lower wicks, and the high and low are represented by the open or close

21/n
Market view:
1⃣A green Marubozu forms when open=low and close=high. Indicating that buyers controlled the price action from the first trade to the last trade
2⃣A Red Marubozu forms when the open=high and close=low. Indicating that sellers controlled the price action

22/n

Criteria
🔸The candlestick must have a long real body with little or no wicks on either end
🔸The candle can be green or red, and it can appear anywhere on the chart
🔸A green Marubozu moves upward and is very bullish, and a red Marubozu moves downward and is very bearish

23/23
Follow us @icici_direct and check hashtag #LearnwithICICIDirect for more such threads.

You can read a more detailed explanation of Candlestick on our blog here:
icicidirect.com/ilearn/technic…

Link to the start of thread:

https://twitter.com/ICICI_Direct/status/1636352813516173315?s=20