Candlesticks Analysis
TABLE OF CONTENTS
1. Why this book? .......................................................................................................................................................... 3
2. Candlestick charts ..................................................................................................................................................... 4
3. Master the art............................................................................................................................................................. 5
4. Support and Resistance ............................................................................................................................................ 6
6. More practice ......................................................................................................................................................... 13
7. Bullish engulfing....................................................................................................................................................... 17
8. Hammer ................................................................................................................................................................... 20
9. Shooting star ........................................................................................................................................................... 21
10. Putting it all together ................................................................................................................................................ 22
11. How to take it from here ............................................................................................................................................ 28
Pradeep Iyer
Candlesticks Analysis
INTRODUCTION
1. WHY THIS BOOK?
Search candlesticks on amazon and one will get hundreds of books on candlesticks. Why one more?
Ninety-nine percent of traders lose money in stock market. I was one among the 99 percent till 4 years back. This book
details out how using candlesticks I turned the tables and made a fortune from the stock market which enabled me to
quit my job and live a lifestyle I always wanted to.
This book is for all levels of traders. Whether you are starting out or an expert I am certain that you will take something
out of this book which you can immediately implement in your trading.
This book is also a testament to human spirit and tenacity to stick to our calling against all odds.
Pradeep Iyer
Candlesticks Analysis
2. CANDLESTICK CHARTS
The four components of a candlestick chart are the Open, High, Low, and Close (of a session or day).
However, because these charts are simple to read, they have gained a lot of popularity.
These charts are highly trustworthy due to the amount of information they present,
and they also offer early signs of a market turn. These charts make it simple to identify probable reversal zones.
Whether it be day trading, swing trading, positional trading or investment, candlestick charts can help us immensely
Pradeep Iyer
Candlesticks Analysis
3. MASTER THE ART
Master the art of Trading.
Let us first consider how to become a successful trader before diving into candlestick charts.
At the tail end of a book, risk management is frequently emphasized.
However, the trader's thinking and money management are more crucial than any kind of trading technique.
Here is how to gradually increase your capital:
Assume that our initial investment for day trading is $50,000. We consider a 150000-point margin (3x).
Our maximum loss on any deal should not exceed 2% of our capital. I.e., 1000.
Our position size should be determined by this.
For illustration, suppose we are purchasing RELIANCE at 2,500. Our stop loss is at 2480, and our goal is 2540.
How many reliance shares should we purchase?
One hundred shares divided by 100 SL points results in fifty shares.
We are going to trade using this position size rule for the first two months.
We only accept a maximum of two deals each day.
At a risk-to-reward ratio of 1:2, we record a profit.
We can aim to enhance our risk reward to 1:3 or greater and up the deals to four per day after about one hundred
trades.
Read this plan once again. If you follow it, it is easy to do and will help you become a trader.
Pradeep Iyer
Candlesticks Analysis
4. SUPPORT AND RESISTANCE
Numerous candlestick patterns exist. We can make decent money even if we just master one or two patterns.
In this book, we will go through the most significant and profitable patterns.
Let us first define what constitutes support and resistance.
Simply explained, S and R are areas or positions from which a stock or index has historically reversed.
If you want to succeed in candlestick trading, you must learn to recognize support and resistance levels.
Let us look at some examples:
In this chart 452 is a level from which stock fell significantly. Hence this becomes a resistance area.
Let us see what happened a few sessions later.
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Candlesticks Analysis
Sure enough, market reversed from 452 a few sessions later as we expected.
Let us look at another example:
Here stock reversed from 4444. So, we expect a bounce next time this stock reaches 4444.
Did it happen? Sure enough.
Pradeep Iyer
Candlesticks Analysis
Support and resistance have dual intent.
1. We are going to look for our candle patterns only at support or resistance.
2. Our targets are going to be support and resistance.
So, S&R are our engines in our trading.
Close this book now and draw support and resistance on at least fifty charts before you come back to the book.
You need to nail this one.
TREND:
How to identify trend? Simply put, if stock is making higher high and higher low, it is in uptrend.
If stock is making lower high and lower low, it is in a downtrend.
Else it is in sideways trend.
As candlestick chart traders, we only trade uptrend and downtrend, never, a sideways trend.
Pradeep Iyer
Candlesticks Analysis
5.MOST IMPORTANT CANDLESTICKS
Most educational materials talk about scores of patterns, to the extent that it confuses.
The success ratio of any candlestick pattern is just a tad over 50% (on an average basis).
If this is correct, then why do we need to know all the patterns in the world?
With the concept of support and resistance combined with money management, we can achieve a success
rate of 80 to 90% using candlestick methods. Let us understand how.
The trick with candlesticks is to not bother about patterns but look at the psychology of candles.
Let me explain. Every candle tells a story. Where did the candle open? What did the buyers do (high)? What
did the sellers do(low) and where did the candle close (net result)?
Closely observing candles with this approach, tells you a lot about where the price is headed.
Given below are few charts for you to practice and get this concept right.
You can send in your work at the contact id given at the end of the book and you will receive the right answers.
Example 1:
What will the stock do next?
Let us take the last five candles and examine.
Last candle is a bull candle with close near the high of the day.
Observe the long tails in the candles before.
This means that bulls are extraordinarily strong at this support level.
Logically we should expect the stock to go up from here.
Pradeep Iyer
Candlesticks Analysis
At this moment we will not worry about entry, SL, and target, let us understand the concept of buyer and seller
candles thoroughly.
So, what happened to this stock?
The stock went up a whopping 70% in a matter of few weeks.
Easy right?
Let us do another one
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Candlesticks Analysis
Example 2:
If you guessed the stock went down, you are spot on. The stock cracked 25% in mere thirty trading sessions.
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Candlesticks Analysis
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Candlesticks Analysis
6. MORE PRACTICE
Predict what happened with the following stocks after the last candle.
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Candlesticks Analysis
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Candlesticks Analysis
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Candlesticks Analysis
Got the hang of it? Send in your answers to the email id at the end of this book and see whether you got them right.
Practice this with bar replay feature in your trading software.
Support, Resistance and buy and sell power are two aspects that will increase our win ration while trading
With candlesticks. Talking about trading, let us now dive into some important candle patterns.
If you can master even two of these, you should be able to make remarkable returns in trading (short and long term).
The key is practice. Practice at least on ten thousand charts to master.
Pradeep Iyer
Candlesticks Analysis
7. BULLISH ENGULFING
RULES:
1. Must be at support.
2. Must be after a down trend.
3. Close must be greater than open and Close must be near to the high of the day
4. Previous day close must be less than open
Entry:
Above the high of the engulfing candle
SL:
Below the low of both the candles,
Target:
1:2 or next resistance area.
Example of Bullish Engulfing:
The stock moved up 25% after this bullish engulfing.
Pradeep Iyer
Candlesticks Analysis
Pradeep Iyer
Candlesticks Analysis
BEARISH ENGULING Example:
The stock fell 8%/
Rules of the bearish engulfing are mirror image of those of bullish engulfing provided earlier in the chapter.
Pradeep Iyer
Candlesticks Analysis
8.HAMMER
Rules:
1. Small body
2. Very less upper shadow
3. Tail = minimum 2 times size of body
4. Color may be green or red.
Once a hammer forms at support. Wait for next candle to be a bullish one before initiating trade.
One can see how the second hammer in the above chart, which formed at support, and with a next day confirmation
shot up 28% from entry
Pradeep Iyer
Candlesticks Analysis
9.SHOOTING STAR
RULES:
1. Prior trend must be up
2. Upper wick = minimum 2*body
3. No/small lower shadow
4. Red body
9/5/2022
Pradeep Iyer
Candlesticks Analysis
10. PUTTING IT ALL TOGETHER
Now that you have learnt the nuances of key patterns, let us see how to put the picture together and how we can act
using what we learnt in this book so far and be a successful trader.
It is highly recommended that you do 2 weeks of virtual trading before doing actual trading.
While starting actual trading, allocate a maximum of 20% of your overall capital for one month for this method
Of trading. Once you have doubled your capital, you may allocate larger sums.
Always remember, if you want to win in stock market, make sure you do not lose your capital.
In addition to the below examples, you can check my twitter timeline (@pradytrader1) more real time examples of
candlestick trades.
Pradeep Iyer
Candlesticks Analysis
Example1: DLF trade (intraday)
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Candlesticks Analysis
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Candlesticks Analysis
Example 2: ULTRACEMCO swing trade
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Candlesticks Analysis
Example 3: CANBK – intraday trade
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Candlesticks Analysis
Example 4:
Fake Candle. See how the bearish engulfing candle at support is trapping short positions.
Pradeep Iyer
Candlesticks Analysis
11. HOW TO TAKE IT FROM HERE
Thank you for taking the time to read this book. I hope you enjoyed reading as much I did while writing it.
The key from here is practice. First practice using back test, then forward test in live market with very less amount
of money – 5000 to 10000 maximum. On an average it takes anywhere between 3 to 6 months to be an awesome
candlesticks trader.
The benefit of buying this book is not limited the book alone.
You will have offline support from me to clear any doubts you have for a period of 1 month from purchase date.
Mail me at pradywebdev@gmail.com with the purchase receipt and you will hear from me within 2 working days.
Wishing you all the very best in life.
Successful Trading
Pradeep
Pradeep Iyer
