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team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A For Stock Market
Newbies”, to spread the
basic stock market knowledge to the beginners.
Day
14: Basic Stock Market Concepts
Technical
Analysis for Beginners:
1. What are the Different Types of Candlestick Patterns?
As per the trends in
the market, there are two types of candlestick patterns:
Bullish: when closing price is higher than the opening price.
Bearish: When closing price is lower than the opening price.
Again, according to
the pattern formation there are two types of candlestick patterns:
Single Candlestick Pattern: Which forms with single candle.
Multiple Candlestick Patterns: Such patterns generated by two or more
candles.
2. What is Bullish Marubozu Candle?
This is a big bullish candle having no wick, which means bald headed.
Here, open=low, high=close, so it has no wick.
Bullish Marubozu indicates increased buying pressure in an asset
among the buyers. That means the buyers are willing to pay higher prices
irrespective of its price during the session. As a result, the price of the
asset closes near its high point during the session.
Bullish Marubozu, when forms exactly at support or near support,
indicates buying interest.
3. What is Bullish Hammer Candle?
It has a small body at the top and a long wick. It is a very powerful candlestick pattern. If it forms at the bottom after a downtrend which is a support then it indicates a buying pressure. That means buyers have entered into the stock. One can take long position in the stock as soon as the high is overtaken by the next candle keeping a stop loss at the low of the hammer candle. The longer the wick, the stronger the bullishness. In short a hammer is a bullish reversal pattern that shows price rejection at the lower level.
4. What is Bearish
Marubozu Candle?
This is a big bearish candle without having any wick.
Here, open=high, low=close.
It indicates extreme bearishness in the market. That means the
sellers have full control on the market. Selling pressure is so extreme that
the traders are willing to sell their stocks at every point during the
session.
Location is the most important part. In a downtrend it indicates
the continuation of a strong trend. If it forms in an uptrend, it gives a
signal of trend reversal.
5. What is Bearish
Hammer or Shooting Star Candle?
This is very significant candlestick pattern. It has a body with a long upper wick. The upper wick is about 2 or 3 times the length of the body.
Shooting Star candlestick pattern means that as soon as the
market opens the buyers took control and pushed the price higher. During the
buying climax a large selling pressure emerged and pushed the price lower, the
selling pressure was so strong that it closed below the opening price. In short
a bearish hammer or shooting star is a bearish reversal candlestick pattern
that shows price rejection at higher level. Below is an example of shooting
star candle.
6. What is a Bullish Engulfing Candlestick Pattern?
The bullish engulfing pattern comprises of two candles that appears at the bottom or support in a downtrend. The prior trend should be a downtrend. On the first session a red candle is formed that confirms the continuation of bearishness in the market. On the 2nd session a green candle is formed in the pattern which is long enough to engulf the first session's red candle.
The market is in a downtrend with prices making lower lows. On
the first session the market opens at low and makes a new low and forms a red
candle. On the next session the stock opens near the closing price of the 1st
session. But at this low point sudden buying pressure emerges driving the price
to close higher than the 1st session's open. As a result, a long green candle
is formed which confirms the strength of the bulls and to continue the
bullishness for the next few sessions.
7. What is a Bearish
Harami Candlestick Pattern?
It's a two candles bearish pattern. The first candle is big one and the 2nd one is half of the first candle. 1st candle is bullish and the 2nd one is bearish. If it forms at the resistance it has more impact.
The market is in uptrend, bulls have full control making higher
highs. On 2nd session the market opens lower and continue to trade lower and
finally closes negatively forming a red candle. The unexpected negative move
creates a panic among the bulls and they start to unwind their long positions.
This accelerates the selling pressure creating opportunity for traders to take
short positions. Stop-loss should be at the highest point of the two
candles.
8. What is a Bearish
Engulfing Pattern?
It's a bearish pattern comprises of two candles. First candle is
bullish and second candle is a bearish one. The 2nd candle is so big that it
engulfs the 1st candle completely. If it forms at the top in an uptrend which
is a resistance it indicates higher selling probability. The prior trend should
be an uptrend.
On the first session, market goes up reassuring the continuation
of bullishness. On the second session, the market opens higher and makes a new
high. But at the higher point, a selling pressure emerges. The selling pressure
is so extreme that the stock closes below the open of the 1st session's candle.
It indicates the bears take absolute control over the market.
9. What is a Evening
Star Candlestick Pattern?
It's a bearish pattern comprised of three candles. When it forms
at the top of an uptrend or at resistance it indicates selling probability. If
it forms in higher time-frame it can work as a reversal of uptrend with higher
probability.
On the first session a big green candle is formed during the
uptrend confirming the absolute control of the bulls over the market. On 2nd
session market opens with gap-up but at the end forms a spinning top or doji
which represents indecision in the market. On the 3rd session the market opens
gap-down creating a long red candle.
This long red candle confirms the strength of the sellers. Panic
in bulls accelerates the bearishness in the market.
10. What is a Morning
Star Candlestick Pattern?
The
morning star is a bullish pattern consists of 3 candlesticks consecutively in a
certain order. The morning star appears at the bottom of a downtrend
indicating buying interest. If it forms in higher time-frame it can work as a
reversal of downtrend with higher probability.
On
the 1st session there is a big red candle formed confirming the absolute
control of the bears over the market. On the 2nd session market opens with a
gap down and at the end forms a doji Or spinning top which represents
indecision in the market. On the 3rd session market opens with a gap up
creating a green candle and finally closes above the high of the 1st session's
candle.
If you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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