How to Study Candlestick in Trading

In this article, I am going to discuss how to study candlesticks in trading. As part of this article, we will
discuss the following three important pointers in detail related to Candlestick in Trading.

1. What is a candlestick?

2. How to Study Candlestick?

3. The 6 principles for analyzing candlestick

What is a candlestick?

The candlesticks are the reflections of what buyers and sellers are doing. To what extent do they move the
price and the strength behind the move? CANDLES TELL YOU who is in control but do not tell you about the
strength of buyers or sellers behind the move; candle with volume shows that

The Open:

Open price tells us the balance between buyers and sellers at the opening of that period. The opening value
is the first trade of the day. After the traders have time to review the markets overnight, the open
represents the desired position of investors to begin the day. The change from the previous close to the
open reflects new sentiments. Also, institutions looking to accumulate (or distribute) positions often place
orders at the open because the open trade is often the largest, most liquid trade of the day. In this way, the
opening might be one of the best times to accumulate/ distribute a large stock volume while minimizing the
impact on the stock’s price.

The High:

The high is the highest point the stock traded during the session. The high is the furthest point the bulls
were able to push the stock higher before sellers regained control to push the stock back down. The high
represents a stronghold for sellers and a resistance area to buyers. There is one exception: when the stock
closes on the high, it does not encounter any real resistance from the sellers. The buyers just ran out of
time.

The Low:
The low is the lowest point the stock traded during the session. It is the furthest point the bears were able
to force down the stock before buyers regained control and pushed the stock up. The low represents an
area where enough demand exists to prevent the price from lowering. The exception is when the security
closes on the low. When the stock closed at the low, it did not encounter buying support. Rather, the bulls
were saved by the closing bell of the session.

The Close:

Close price tells us where the balance point was at the end of the period. The close is the last price agreed
upon between buyers and sellers, ending the trading session. The close is the market’s final evaluation. A lot
can happen between one close and the next close. The close represents investors’ sentiments and
convictions of investors at the end of the day. It is the position investors desire to hold after-hours when
investors cannot trade with liquidity until the next session opens. The closing price is the first (often the
only) price most investors desire to know.

The Change:

The change is the difference between close and close. The difference in the closing value one day versus the
closing value the next. When this difference is positive, it tells us that demand outweighs supply. When this
difference is negative, it tells us that supply is increasing beyond demand. The change is perhaps the most
sought-after piece of financial data.

The Range:

The range is the spread of values within which the stock trades throughout the day. The range spans
between the bar’s highest point and the same bar’s lowest point. It is measured from the top of the bar,
where resistance is low and support comes in. The size of the range gives us important information about
how easily demand can move the s took up or supply forces the price down. The wider the range, the easier
it is for the forces of supply and demand to move the stock price.

Bullish CANDLESTICK

This is nothing, but when the CURRENT CANDLE closes, it is ABOVE the previous candle’s close.

Bearish CANDLESTICK

When the CURRENT close is BELOW the previous candle close

With the proper understanding of CANDLESTICK, you can predict what is about to happen in the near future

#Pro Tips: we (retailers) can’t move the market, so every candle shows what smart money is trying to show.
So their move trap or genuine is only validated by volume
#Pro Tips: CANDLESTICK shows half of the information, and the volume shows the other half of the
information

Example

WHAT IS TELLING US?

SENIMATE = BULLISH, 2 consecutive higher close candles. Let’s add volume to this candle
2nd candle range is smaller than 1st candle
2nd candle volume greater than 1st candle
Think why the volume is greater than 1st candle.

Let me explain to you.

NARROW SPREAD CANDLE WITH HIGH VOLUME. Two possible explanations

If the volume had represented buying, how could the spread be narrow?

 Either the professional money is selling into the buying, the possible reversal in the near future

 There is a trading range to the left, and the professional money is prepared to absorb the selling
from traders locked into this old trading range. I mean, break out may happen.

Let’s understand the chart.

If the next bar is down, closing near its lows, this confirms the professional selling

A low volume down candle close to the middle or top shows that smart money testing supply and no more
supply available 2nd candle was the buyer’s volume if the next candle closes above the current candle

6 PRINCIPLES FOR CANDLESTICK ANALYSIS IN TRADING

 Principle Number One: The length of any wick, either to the top or bottom of the candle, is ALWAYS
the first point of focus because it instantly shows strength, weakness, and indecision, and most
importantly, where SMART-MONEY enters.

 Principle Number Two: If no wick is created, this signals strong market sentiment toward the
closing price. SMART-MONEY active there

 Principle Number Three: A wide body represents strong market sentiment, and a narrow body
presents weak market sentiment. A Narrow body with a heavy volume of either Smart Money
observing for the continuous move or Smart Money entering in the opposite direction

 Principle Number Four: A candle of the same type will have a completely different meaning
depending on where it appears in a price trend. Start of the trend or middle of the trend, end of the
trend, at support or resistance, or in the consolidation phase. Candlestick should analyze the
context of the move. You should never try to read the market by looking at one day’s action in
isolation. Read the market phase-by-phase and then read the latest day’s action into the phase.

 Principle Number Five: Volume validates price. First, see what CANDLESTICK is telling you, then
validate by volume. Is it validating or not with the CANDLESTICK price action?

 Principle Number SIX: When a particular timeframe doesn’t make sense, then move to the next
higher time frame for the big picture or lower timeframe for the microstructure of the move
Candlestick Analysis in Trading

In this article, I will discuss Candlestick Analysis in Trading. The ultimate guide you will ever need to
understand CANDLESTICK and its behaviors. After the study, you will not need to recognize any
CANDLESTICK patterns. As part of this article, you will understand the following four things related to
Candlestick Analysis in Trading.

1. Understanding candlestick

2. How to read a candlestick?

3. How to read a chart using a candlestick?

4. How do I find an opportunity to use a candlestick?

Part1: Understanding Candlestick Analysis

What is a candlestick?

 Candlesticks are a reflection of what buyers and sellers are doing. CANDLES TELL YOU who is in
control in that specific time frame

 Candlesticks tell us immediate information about the supply-demand relationship.

 Multiple candles form patterns that tell us a story

 Understanding candlesticks is paramount to successfully day trade

Elements of candlestick

 The High

 The Open

 The Low

 The Close

 The Change(BODY)

 The Range
Part2: How to read candlestick

STEP 1: The size of the body (open to close)

Remember that in every bar, the same number of contracts/shares are sold and bought at that time frame

 The only reason for a bar to end up with a higher price is that the buyers were committed to one
direction and more aggressive than the sellers. The reverse is true for a bear range bar

 So, the candle body shows to what extent they move the price and the strength behind the move

BODY:

Generally, we have to consider 3 types of body

1. Narrow range candle

2. Average candle

3. Wide range candle

The candle body shows lots of information, such as

Let us see some example

STEP 2: The length of wicks

The length of any wick, either to the top or bottom of the candle, is ALWAYS the first point of focus because
it instantly shows strength, weakness, and indecision, and most importantly, where SMART-MONEY enters.

 Larger wicks show that the price moved a lot during the candle’s duration, but it was rejected,
which shows the presence of supply or demand.

 The lower wick acts as support, and the upper wick acts as resistance
Let’s understand the pin bar
What is a pin bar telling us?
When candles cannot break through a zone 70-80% of the time, they will go the opposite way.

Part 3: How to read a chart using a candlestick?

Step 1: First, read the DIRECTION OF the current CANDLE with respect to the previous candle
That means the relationship of each bar is high/low relative to the previous bar. What is it telling us?

Step 2 Context (read the current bar sentiment with respect to the previous bar)

Candlestick should analyze the context of the move. You should never try to read the market by looking at
one day’s action in isolation. A candlestick must always be analyzed in the context of what has happened in
the past.

Context is what the current candlestick shows with respect to the previous candlestick.
 Is the current candlestick larger or smaller than the previous ones? Which shows momentum
increases or decreases

 Is the size changing meaningfully or not? Buying or selling pressure

 Does volatility increase or decrease

 Is the change happening during an active trading period or not? For example, candlesticks in mid-
period are generally dead or inactive.
Step 3 Testing (Read what it is showing when testing key level (support or resistance))

Testing refers to the market moving towards a price level to “test” if the price level will accept or reject the
market’s advances. Key levels are

 Previous candles high/low

 Last swing high/low

 The previous day’s high/low

 Major support or resistance

The high and low of each price bar are natural support and resistance levels, and the wick generally acts as a
supply and demand zone. Testing these levels or zones shows the market’s undercurrents and is critical for
reading price action.
Step 4: Expectation

With a clear read of DIRECTION, CONTEXT, TESTING. we can form expectations of the market in the third
candle. We would expect the market to move in a certain way in the third bar with our read of DIRECTION,
CONTEXT, and TESTING. The confirmation or failure of our expectations of the third bar reveals more about
the market and adds to our candlestick analysis.

To form expectations, we need to make a very simple assumption about how the market should behave and
should not behave.

Essentially, the market has momentum and inertia. bearishness should follow bearishness, and bullishness
should follow bullishness. When it does not obey this assumption, we have to be cautious. There may be a
change in market direction.
Part 4: Finding Trading Opportunity

A candlestick pattern is useless if its location is incorrect; where it happens is the most important
variable. So, we should analyze the candlestick at support and resistance for opportunity, either reversing or
continuing the trend.

AT resistance, we expect the price to reverse or supply to exceed demand, confirming the supply or
resistance level. For example, at the support, we expect the price to reverse to confirm demand over
supply.

Some key pointers should be considered when trading reversal. This means that candlestick action validates
our support and resistance level. Explained below

Point 1: Momentum loss when approaching a key level(support resistance)

Below is an example of a bullish reversal

Point2: Clear Rejection from resistance in the form of the pin bar multiple rejections

In an established uptrend, any Clear Rejection from resistance in the form of the pin bar confirms the
resistance level, and it indicates buyers tried but failed to close above the resistance.
MULTIPLE REJECTION SHOWS THAT BUYERS TRIED OVER AND OVER AGAIN TO PUSH THROUGH THE LEVEL
BUT FAILED
Point3: Price Unable to close above the resistance level or below the support level

When Buyers try hard each time to close above the resistance level, each time they fail shows supply
coming and trying to dominate demand.

Point 4: Candle color change

For a bearish reversal, the price should break the previous candle low and close below the low at resistance.
It shows that bullish strength has completely lost.
Point5: REVERSAL MOMENTUM CANDLE FROM KEY LEVEL

When a reversal momentum candle forms from the key level, it confirms the strength of the level of the
opposite party. When a bullish strength candle forms from support, it confirms the support level as strong.

What candlestick action disconfirms the resistance? Opposite for support

There is also a certain point to consider when the price approaches support or resistance. That validated or
invalidated our support or resistance level
Candle spread increases when approaching the resistance level

With a widespread up, while the price is getting close to the resistance, we would expect to see the
resistance broken due to the extra effort by buyers

If the price hugs the support and holds, it disconfirms the demand and shows the presence of supply

 If there is a strong support or resistance level, the price should immediately react within a few
candles

 Price hold (unable to react) after a move down to support. Sellers overcoming buyers is the
repeated inability of prices to REACT away from the danger point(support). Such hugging of support
usually leads to a breakout
What do we learn?

Part1: Understanding candlestick

Part2: How to read candlestick
Wide range bar(show strength or momentum)
Narrow range bar(momentum or strength decreases)
A pin bar(shows rejection or either supply or demand came in)
Doji(indecision )

Part3: How to read a chart using a candlestick

First, read the current candle direction with respect to the previous candle.
Second, read the current candle sentiment with respect to the previous candle.
Third, read the testing key level
Expect what you fill

Part4: How to find opportunities using candlestick

Step to find a trading opportunity for reversal

Point1 Momentum loss when approaching resistance /support
Point2 Clear Rejection from resistance in the form of the pin bar multiple rejections
Point3 Price unable to close above the resistance
Point4 CANDLE COLOR CHANGE
Point5 REVERSAL MOMENTUM CANDLE FROM KEY LEVEL

What candlestick action disconfirms the resistance?

Candle spread increases when approaching the resistance level
If the price hugs the resistance and holds, it disconfirms the demand and shows the presence of demand
Price Action Analysis in Trading

In this article, I will discuss Price Action Analysis in Trading. As part of this article, we are going to discuss
the following pointers in detail, which are related to Price Action Analysis in Trading.

1. What is Price Action Analysis?

2. Understanding the advanced features of CANDLESTICK

The ultimate guide you will ever need to understand CANDLESTICK and its characteristics. Once you
complete this article, you will not need to recognize any CANDLESTICK patterns.

What is Price Action Analysis?

The Price Action Analysis is the movement of price in the chart. The candlestick format shows clear price
action. I mean what buyers and sellers were doing during that period. Their activity clearly shows in
CANDLESTICK. So, to learn price action, we have to learn all the basic and advanced features of candlestick

5 steps to candlestick analysis

Step1: The size of the body (high to low)

BODY:

1. Narrow

2. Average

3. Wide

Find the body of your timeframe. The candle’s body shows a lot of information, such as

 A long body is showing strength

 A narrow body shows weakness

 When consecutive bodies become larger and larger, it shows an increase in momentum

 When consecutive bodies become smaller and smaller, it shows slowing momentum
  If an up or down move with greater than average body candle, it shows volatility high

How to compare?

1. current candlestick with respect to the previous candle

2. current candlestick with respect to the same swing

3. current candlestick with respect to the previous swing

Step2: The length of the wick

 Larger wicks show that the price moved a lot during the candle’s duration, but it was rejected,
which shows the presence of supply or demand.

 At major support and resistance levels. Candlewick becomes larger, which indicates volatility. This
generally happens after long trending phases before a reversal happens from the support and
resistance level.

 One more thing: the longer the shadow, the more likely prices will move in the opposite direction of
the shadow

 Long-wick candles do not always signal a reversal. If a subsequent move engulfs the wick of the
rejection candle, it fails; it is called reverse rejection.

 If it appears between the trend, it shows trend cont. ( as a small pullback in a smaller time frame)

 While a single long wick indicates possible prices moving in the opposite direction of the wick, a
cluster of multiple wicks indicates that prices are likely to move in the same direction of the wick
created, and if the body closes the direction of the trend
Step3: The ratio between wicks and bodies

Understanding the relationship between the open and close when compared to the high and the low of the
present bar

 Open price tells us where the balance between buyers and sellers at the opening of that period is.

 Close price tells us where the balance point was at the end of the period
Etep4: Volume contains

WYCKOFF BASIC LAW

1. THE LAW OF SUPPLY AND DEMAND: When demand is greater than supply, then the price will rise to
meet this demand, and conversely, when supply is greater than demand, then the price will fall

2. THE LAW OF CAUSE AND EFFECT: The effect will be indirectly proportional to the cause. In other
words, a small amount of volume action will only result in a small amount of price action. If the
cause is large, then the effect will be large, and vice versa.

3. THE LAW OF EFFORT VS RESULT: Similar to Newton’s third law. Every action must have an equal and
opposite reaction. In other words, the price action on the chart must reflect the volume action
below. Effort (volume) is seen as the result (price), were validated, and anomaly comes into
consider
Wide spared candle

Price action –

There is strong bullish market sentiment. The price has risen sharply and closed at or near the high of an up
candle.

Volume Action–

 Therefore, the associated volume should reflect this strong sentiment with a ‘strong’ volume. As we
can see in the above example, if the volume is above average(effort vs. result), then this is what we
should expect to see as it validates the price. Smart money is joining the move higher, and
everything is as it should be.

 This is a warning signal if the volume is below average or low. The price is being marked higher but
with little effort. The move is not genuine. If we are in a position, we look to exit. If we are not in a
position, we stay out and wait for the next signal to see when and where the smart money is now
taking this market.

Narrow Spread Candles

Price action – weak market sentiment

Volume Action–

 A narrow spread candle should have low volume – again, effort vs result.

 NARROW SPREAD CANDLE WITH HIGH VOLUME. If the volume had represented buying, how could
the spread be narrow? Only two possible explanations exist for a narrow spread-up candle on a high
volume.

1. Either the professional money is selling into the buying [see the end of a rising market]

2. There is a trading range to the left, and the professional money is prepared to absorb the selling
from traders locked into this old trading range.

Step5: RELATIVE OR 2 CANDLE PRICE ACTION

DIRECTION OF CANDLE

The relationship of each bar’s high/low relative to the previous bar

 1. An up bar starts an upswing and confirms the end of a downswing

2. A down bar starts a downswing and confirms the end of an upswing

3. The inside bar does not break the previous high low; they do not affect the direction of the current
swing

4. The outside bar breaks both the previous high and low, introducing uncertainty in the market
structure. The outside bar in the upswing cont the upswing, and the outside bar in the downswing
cont the downswing. Typically, an outside bar does not end or start a price swing without a down
bar or a break below the swing low; an upswing will cont

DIRECTION OF TREND WITH RESPECT TO CANDLE POSITION

Context or Background

CANDLESTICK should not be analyzed in a vacuum. A candlestick must always be analyzed in the context of
what has happened in the past.

Context is what the current candlestick shows with respect to the previous candlestick.

 Is the current candlestick larger or smaller than the previous ones? Which shows momentum
increases or decreases

 Is the size changing meaningfully or not? Buying or selling pressure

 Does volatility increase or decrease

 Is the change happening during an active trading period or not? For example, candlesticks in mid-
period are generally dead or inactive.
TESTING PRICE LEVELS

Testing refers to the market moving towards a price level to “test” if the price level will accept or reject the
market’s advances. The high and low of each price bar are natural support and resistance levels, and the
wick generally acts as a supply and demand zone. The test of these levels or zones shows the undercurrents
of the market and is critical for reading price action.
THREE PRICE BARS/expectation

With a clear read of 2 BAR PRICE ACTION (DIRECTION, CONTEXT, TESTING), we can form an expectation of
the market in the third candle. We expect the market to move in a certain way in the third bar with our read
of 2 bar price action. The confirmation or failure of our expectations of the third bar reveals more about the
market and adds to our price action analysis.

To form expectations, we need to make a very simple assumption about how the market should behave and
should not behave. Essentially, the market has momentum and inertia. bearishness should follow
bearishness, and bullishness should follow bullishness. When it does not obey this assumption, we have to
be cautious. There may be a change in market direction.
Some more examples
Advanced Price Action Analysis

In this article, I will discuss Advanced Price Action Analysis in Trading. This is a continuation of our previous
article, so please read it before proceeding to this one. In that article, we discussed the basic concept
of Price Action Analysis in Trading. As part of this article, I will discuss the following pointers in detail.

1. What are high and low?

2. What is the swing high and swing low?

3. Criteria for drawing swing high and swing low

4. Types of swing high

5. Strength and Weakness of Trend through Analysis Swing.

Before going forward, let me know if this is the extension part of the price action analysis. so I would
suggest going through the previous article

How to Study Candlestick

Price Action Analysis

Let’s begin

Understanding Market Structure through the swing

It is similar to learning to read a new alphabet- once you understand the characters, you can read the
words, and once you know the words, you can read the story. The first letter to the master tells you what
market activity causes the formation of a short-term high or low. If you learn this basic point, the meaning
of all market structures will begin to fall into place.

The market moves in the up-down wave, what we call a market swing. In a healthy bull trend, the upswing
generally exceeds the downswing in length. The reverse is true for the bear market. Hence, by observing
market swing, we can glimpse the market structure and get clues on whether the market will increase or
decrease.

Swing high and swing low.

Criteria for drawing swing high and swing low

SWING HIGH OR SWING LOW CONSIST OF MINIMUM 5 BAR. The middle bar must be higher and lower than
the two proceeding bars and the two following bars.
Restriction for drawing swing high and swing low

1. If the bar high is parallel to the middle or high(LOW) bar, it does not count as one of the five bars in
the swing HIGH (LOW) because it does not have a lower high(HIGHER LOW) than the middle bar.

2. TWO ADJACENT swings high or swing low may share bars

 1. A swing high

2. B both swing high and swing low. This happens because two proceeding bars and two following bars
are inside bars, which fulfills the requirement that the middle bar must be the highest or lowest
point of the bar sequence.

3. C both up and downswing by sharing bar

4. D requires six bars to form a swing high, as the fifth bar equals the middle bar.

Why important?

These points are not random, and the market creates them. they represent momentary changes and
demand and supply forces. The bulls could not move the market above the swing high. This means that at
that point in time, no one was willing to offer a price higher than the swing high. Traders saw no value
above the swing high
In a nutshell, there are two key skills in reading price action:

1. Evaluate how likely a swing pivot will hold up as support/resistance

2. Understand the implication of a swing pivot not holding up as support/resistance

Swing types

There are two types of swing

1. High and low

2. Swing high and swing low

Let me explain to you

Swing low(SL)

The market tried to move down. Then, it stopped, and the bullish trend resumed. The market broke all
resistance(swing high) and made a new trend high. In other words, the market failed terribly to move down.
The lowest point it pushed to is called swing low.

Tip: A valid pivot makes sense only within the trending price action. To find a valid low, you need to know
the start point of the trend and the last extreme trend high. Then what about point B? Point B is called a
LOW, not a swing low

Swing low

Every major market has some shallow pullback, and some last for one swing. The point where pullback goes
deeper and lasts for more than one swing, forming a LOW. Eventually, this deeper pullback terminated, and
the trend resumed. A low becomes a swing low once the price breaks out above the last extreme price high
for the resumption of the bullish trend. Let me explain to you.
All the concepts discussed above are applicable for a swing high and high

HOW TO KNOW WHEN LOW BECOMES SWING LOW

When the price cleared, the above swing to a high level. The market must form a price bar completely
above the price level to clear a price level. This means if a bar low is higher than a price level, the market has
cleared above the price level.
UNDERSTANDING MARKET SWINGS in Advanced Candlestick Analysis

We have understood how to find out swing high and swing low

Let’s understand strengths and weaknesses or trends through an ANALYSIS OF swing

 Momentum

 Thrust and pullback

 Volume

What is Momentum?

The rate at which price moves with respect to time

We are observing price action to compare price movement’s current speed and acceleration with historical
speed and acceleration. Momentum is visible on a chart when the slope (angle) of price movement is
observed.
The same concept applies to price action on charts. Changes in momentum are observed through changes in
the slope (angle) of the price action.

Analysis of momentum is not about measuring its absolute value but about comparing current price action
momentum with prior price action momentum.

We can compare through.

1. Candle

2. Swing

Momentum through candle

Compare the current candle’s momentum with the previous candle’s momentum.
BAR COUNTING

1. Counting the number of bars in a half cycle and comparing one-half cycle to another (previous half
cycle)

2. Comparing each swing(relative strength of move)

3. How much time to get up or how much time to get down
Momentum through swing

1. Compare the momentum of the current price swing with the momentum of the previous price
swing in the same direction.

2. Compare the momentum of the current price swing with the momentum of the previous price
swing in the opposite direction.

3. Is the current price accelerating or decelerating? What does that mean?

1) Compare the momentum of the current price swing with the momentum of the previous price swing in
the same direction.

Now, let’s remove the downswing and study what it shows. Is the price faster or slower than before?
Compare the slope of UP-swings (a), (c), (e), and (g). Note the decreased speed on each of these legs,
indicating a reduction in bullish momentum. Weakness is appearing on the bullish side.

Clearly shows upward momentum decreasing.

Now, putting the same chart with only downward momentum

Compare the slope of upswings (B), (D), (F), and (H). Note the increasing speed on each leg, indicating an
increase in bearish momentum. bearish price swings are showing signs of strength.

COMPARING THE SWING indicates an increase in bearish momentum. Bearish price swings are showing
signs of strength. The price movement is more likely to continue in the direction of strength and against the
direction of weakness.
2) Compare the momentum of the current price swing with the momentum of the previous price swing in
the opposite direction.

That is, comparing the current bullish swing with the previous bearish swing or the current bearish swing
with the previous bullish swing. Note the slope of (a) is quite steep compared with the slope of (b). The
latest upswing (b) has shown weakness compared with the previous downswing (a). Strength is still in the
bearish direction.

The bullish upswing (d) shows an increase in speed compared with the last downswing (c). At the same
time, the strength is now on the bullish side. The shallow angle of downward momentum compared with
the steep rise of upward momentum indicates that Strength is now clearly on the bullish side.
The price movement is expected in the direction of strength and against the direction of weakness.

3) Is the current price accelerating or decelerating? What does that mean?

The deceleration in this example is evidence of bullish momentum gradually weakening as bearish pressure
overcomes any bullish pressure.
Thrust Pullback and Measuring Move Analysis

In this article, I will discuss Thrust Pullback and Measuring Move Analysis in detail. As part of this article, I
will discuss the following pointers in detail related to Thrust Pullback and Measuring Move Analysis.

1. Thrust and Pullback Analysis

2. Measuring Move

3. Volume and Price Analysis

Thrust, Pullback, and Measuring Move Analysis

The strengthening or weakening of a trend may also be observed through the analysis of thrust and pullback
and measured move.

THRUST Analysis

Thrust Refers to the distance between the current swing high and a previous swing high (in an uptrend) or
swing low (in a downtrend). Increased thrust is a sign of potential trend strength. The shortening of Thrust is
a sign of potential trend weakness.

The increased thrust of T2, when compared with T1, indicates greater strength within the trend. It also
compares with T3 to T2, indicating strength on the upside.
Shortening of thrust, T2, when compared with T1, indicates weakness with the trend. T3 is then much
shorter than T2, indicating weakness developing with the trend. T2 is unable to project to the same distance
as T1 did. Something has shifted in the balance of supply and demand. The fact that the market could not
do so indicates either a decrease in bullish pressure and/or an increase in bearish pressure.

The uptrend is showing signs of weakening

ALL REVERSE FOR DOWNTREND

DEPTH OF Pullback

DEPTH Pullback refers to the distance with which a price retraces the previous up move or impulse move
Increased depth is a sign of the potential weakness of a trend. Decreased depth is a sign of the potential
strength of a trend.

PULLBACK DP1 is the distance with which the pullback retraces IMPULSEMOVE IM1. DP2 is the depth with
which the pullback retraces IM2. And DP3 is the depth with which the pullback retraces IME3

Note that

DP2 has a much smaller percentage of its IMPULSE MOVE IM2 than DP1. D2 has a smaller depth than D1,
indicating a potential weakening of the bears and, therefore, strength within the price trend.
DP4 is significantly larger than DP3, indicating potential strength within the bears and potential weakness
within the price trend. The increased depth of pullback DP3 indicates increasing bearish pressure and a
potential trend weakening.

The same concept applies to the downtrend.

MEASURING MOVE (relative strength of move)

Comparing impulse swing with the previous impulse swing in the same direction to find whether strength is
increasing or decreasing or equal
Volume and Price Analysis

Before going forward, we have to identify a few terms:

Swing: A high or low where the price changes direction.

Leg: The distance between two swings

General Rules for Interpreting Volume to determine the health of a trend

1.) If the PRICE rises and VOLUME rises, the market is STRONGLY BULLISH.

Volume helps us to determine the health of a trend. An uptrend is strong and healthy if volume increases as
the price moves with the trend and decreases when the price goes counter-trend (correction periods or
‘pullbacks’).

2.) If the price rises but VOLUME falls, the market is WEAKLY BULLISH.

When prices rise, and volume decreases, it tells that a trend is unlikely to continue. Price may still attempt
to rise at a lesser pace, and once sellers take control (which is usually signified by an increase in volume on a
down bar or candle), prices will fall

3.) If the PRICE is falling, VOLUME is rising, and the market is STRONGLY BEARISH.

4.) If the PRICE and VOLUME are falling, the market is WEAKLY BEARISH.
Volume strength and weakness analysis

Volume is always analyzed by comparing it to previous legs or swings. The reason for volume analysis is to
look for increases or decreases compared to previous swings or legs to identify whether there is an increase
or decrease in strength.

1) Compare the volume of the current price swing with the volume of the previous price swing in the same
direction.

2) Compare the volume of the current price swing with the volume of the previous price swing in the
opposite direction.

Compare the volume of the current price swing with the volume of the previous price swing in the same
direction.
This means comparing the current impulse swing vs the previous impulse swing. What is it telling? Volume
increasing or decreasing or the same volume.

LEFT SIDE image 1

Compare the volume of UP-swings (A) and (B). Note the decreased VOLUME of the leg (B), indicating a
reduction in bullish VOLUME. Weakness is appearing on the bullish side.

When comparing the current up-leg B volume with the previous up-leg A volume. It shows volume
decreasing. When prices are rising and volume is decreasing, it tells that the trend is unlikely to continue.
Price may still attempt to rise at a slower pace, and once sellers take control (which is usually signified by an
increase in volume on a down bar or candle), prices will fall.

RIGHT SIDE IMAGE 2

When comparing the current up B leg volume with the previous up leg A volume. Note the increasing
VOLUME on A legs, indicating an increase in BULLISH STRENGTH. BULLISH price swings are showing signs of
strength

ALL CONCEPTS REVERSE FOR DOWNTREND

Compare the volume of the current price swing with the volume of the previous price swing in the
opposite direction.

This means comparing impulse volume vs retrace volume. Generally, a healthy trend is increasing volume
on impulse movement and decreasing retrace volume.

LEFT SIDE IMAGE 1

When comparing the current up-leg B volume with the previous up-leg A volume, the volume decreases.
Strength is now clearly on the BEARISH side.

Price movement is expected in the direction of strength. When prices rise, and volume decreases, it tells
traders that the trend is unlikely to continue. Price may still attempt to rise at a slower pace, and once
sellers take control (which is usually signified by an increase in volume on a down bar or candle), prices will
fall.

RIGHT SIDE IMAGE 2

When comparing the current up B leg volume with the previous up leg A volume, it shows that the price is
rising and VOLUME is rising, which means BULLISH PRESSURE OVERCOME BEARISH PRESSURE. TREND
CONTINUE IN UP DIRECTION
How to Day Trade with Trend

In this article, I will discuss how to Day Trade with Trend in detail. As part of this article, we are going to
discuss the following pointers related to Day Trading with Trend.

1. Why is trend analysis required for day trading?

2. Structure of the market in detail

3. How do you trade with uptrend, downtrend, and sideways markets?

4. Characteristics of each trend

5. How do we analyze each trend?

6. When does the trend end?

Why Trend Analysis for Day Trading?

Trading against the trend, without a trend, or poor quality trends are among the most common reasons for
trade failure. The quality or strong trends have more predictable success (edge).

The controlled arrangement of price bars and pullbacks provides greater certainty that reverses in supply
and demand will happen. Poor or weak trends are less predictable. The uncontrolled arrangement of price
bars and pullbacks in supply and demand lessens the chances of a reversal.

STRUCTURE OF MARKET OF MARKET

The price goes through 4 Phases

1. ACCUMULATION (sideways market)

2. UPTREND(trending up)

3. DISTRIBUTION (sideways market)

4. DOWNTREND (trending down)

ACCUMULATION (SIDEWAYS MARKET)

Smart money is removed from the floating supply of stock by buying, a process called accumulation. The
accumulation phase looks like a range market after an extended downtrend.

A market is in a range when trading between Support and Resistance. Price Stuck between Resistance and
Support. Not move in any direction. Generally, in the accumulation stage, we will see

 Normal or narrow-range candle

 Both mix the green and red candle

 Low volume

 Take more time

 Price in a tight range

As time goes by, stops will gradually build up beyond the range as traders long near the lows and short near
the highs of the range.
No guarantee that the market will reverse from here. But it should alert you to the possibility that the bears
are getting weak, and the bulls could take control and push the price higher above the highs of the range.

How to Enter the Accumulation

3 TYPES OF ENTRY FROM ACCUMULATION

1. Spring entry

2. Break out entry

3. Break out pullback(flat or test ) entry

If the range’s lows coincide with Support on the higher timeframe, it greatly increases the odds of the
market breaking out higher. Let me explain: the big picture is bullish, but the lower timeframe has a
downtrend, and the lower timeframe trend stops at a higher timeframe resistance.
UPDATED DAILY CHART

This means you wait for the price to come to an area of Support daily and then look for the break of
accumulation on your trading timeframe.

UPTREND

Smart money is aggressively moving prices up. The advancing phase is essentially an uptrend, with prices
making higher highs and lows. Market moves in up and downswing

In a healthy bull trend, the upswing generally exceeds the downswing in length and makes a higher high and
higher low, and the reverse is true for the bear market

Price Make Higher High (HH) and Higher Low (HL)

Generally in the advancing stage:

1. There are more bullish than bearish candles

2. The bullish candles are larger than the bearish candles

3. Volume increases on the upswing and decreases on the downswing

Bullish bars close to opposite extremes or at near-high

Now… the advancing stage eventually will need to “take a break” because the early buyers will start taking
profits, and sellers will look to short the markets as prices are at attractive levels.

Different types of trends.

They are:

1. Strong trend

2. Healthy trend

3. Weak trend

Strong uptrend

 In a strong uptrend, the buyers are in control with little selling pressure.

 You can expect this trend to have shallow pullbacks (flat sideways)with low-volume

 Barely retracing beyond the 20 EMA.

 A bullish wide-range bar is more than bearish.

This makes it difficult to enter on a pullback because the market hardly retraces and continues trading
higher. The best way to trade this trend is on a breakout

ANALYZE YOURSELF:

Healthy uptrend

In a healthy uptrend, the buyers are still in control with the presence of selling pressure (possibly due to
traders taking profits or traders looking to take counter-trend setups).

You can expect this trend to have a decent retracement, usually towards the 20EMA, which provides an
opportunity entry with the trend. Low volume pullback with narrow range or lower wick candle
Weak uptrend/choppy trend

 In a weak uptrend, buyers and sellers are almost equal control, with the buyers having a slight
advantage.

 You can expect the market to have steep pullbacks and trades beyond the 20EMA.

 Generally choppy price action

 The market breaks out of the highs only to retrace back much lower (which makes it prone to false
breakout). Pullbacks are often breakthrough areas of minor demand (uptrend) or minor supply
(downtrend)

 The majority of open prices will be into 50% or more of the prior bar range.

 Close may not move in the direction of the previous bar

 New bar open and close not near extremes, meaning tails

 Display uncertainty

The best way to enter this trend is to support or Resist.

Analyze yourself
Tick by Tick: Secrets to Day Trading Success Class 2: Technical Analysis

DISTRIBUTION

SM will take advantage of the higher prices obtained in the rally to make profits by beginning to sell the
stock back to the uninformed traders/investors.

ALL THE INFORMATION PROVIDED ABOVE IS REVERSE FOR THE DISTRIBUTION AND DECLINE PHASE

DOWNTREND

Price makes Lower High (LH) and Lower Low. (LL)

When does a trend end?

An uptrend is officially over when the stock has put in two lower highs and two lower lows in a particular
time frame. A downtrend is officially over when the stock has put in two higher lows and two higher highs in
a particular time frame.

Remember, day trading involves substantial risk and the possibility of rapid financial loss. It’s crucial to
practice strategies in a simulated environment and to have a thorough understanding of the markets before
committing to real capital. Always stay informed and continuously educate yourself to adapt to changing
market conditions.
Multiple Time Frame Analysis in Trading

In this article, I will discuss Multiple Time Frame Analysis in Trading. If you identify level correctly and
confluence across different time frames, you can actually increase your winning trade. So, as part of this
article, we will discuss the following pointers, which are related to multiple time frame analysis.

1. What is multiple timeframe analysis?

2. Understanding the trend with multiple timeframe analysis.

3. How do you use multiple time frames in trading?

4. Advantages of multiple timeframe analysis.

5. Entry principle for multiple time frames.

Trend Analysis

Once we identify the current trend, we need to anticipate what would occur to make the price fall into a
sideways trend or reverse. Some common reversal patterns are

1. 123 REVERSAL

2. Double Top/bottom

3. RANGE

4. Up THRUST/SPRING

5. Head and shoulder

WHAT IS FRACTAL?

Fractals are just smaller things that combine to create bigger things. Each of the smaller things is identical in
shape to the larger thing.

How do Fractals apply to Financial Markets?

Markets behave like nature, creating “Patterns Within Patterns” from smaller timeframes to larger
ones. Larger timeframe swings are comprised of several identical smaller-timeframe swings.

We use a “Factor of Five” to break up the different timeframes.

1. A month is around 25 trading days, so 25/5 = 5 weeks

2. Weak is 5 days trading day s 5/5=1 day

3. The day is around 6:30 active hours, so 6:30/5=78 minutes

4. Even lower time frame 78/5=15 minutes for day trading

What is Multiple Time Frame Analysis?

The multi-timeframe analysis is nothing but an analysis of multiple timeframe charts of a single instrument.
Let’s understand in a chart
Let’s see an example with three timeframes
Understanding Trends with Multiple Time Frames

There are two major rules for multiple timeframe analysis:

1. Larger Timeframes establish and dominate the trend.

2. Reversals start from the smaller timeframes first and propagate upwards.
Let’s go back to our two main price action rules.

Larger Timeframes establish and dominate the trend.

This means when a larger timeframe trend is in play, you will see pullbacks on the smaller timeframes.

Reversals start from the smaller timeframes first and propagate upwards

This means that we’ll see this changing structure first on the shorter timeframe charts.
HOW TO USE MULTIPLE TIME FRAMES?

Use 1:

We can differentiate a “pullback” on the smaller time frame chart from the beginning of a correction in the
larger time frame. Let me explain.

Use 2:

We can read the “smaller” timeframes to see when that pullback will reverse.
Use 3:

We will also be able to spot potential reversals before the structure change
Advantages of Using Multiple Time Frames:

 Allowing the trader to get a micro view of larger time frames, which can, in turn, confirm the
trader’s original analysis of trade. It is like using a backup pattern and fine-tuning an entry. An
example would be having a pattern on a 60-minute chart and using a 5-minute chart to confirm the
entry. (See Figures 8.12 through 8.14 as an example.)

 Risk can be managed more effectively by combining time frames. A trader can learn to move stops
on smaller time frames for patterns that complete on larger time frames.

 Using multiple time frames, from larger to smaller, can help the trader be aware of contrary or
opposing patterns that form on smaller time frames that are against the longer-term time frame.

MULTIPLE TIME FRAME ENTRY PRINCIPLE

1. Define your “signal” chart. For swing traders, this will generally be a Daily chart. For Day traders, it
will be a smaller timeframe like a 2/5/10/15-minute chart.

2. Add a higher time frame chart that is either 5x or 25x larger than your signal chart.

3. Trade your signal chart as before, but trade in the direction of the swings on that higher timeframe
chart!

Let me explain to you.

While the bigger frame, like daily, is trending and in impulse, you would have CYCLES of impulses and
correction in the hourly frame. This is the most important phase. You have to find the conjunction when the
hourly comes in the impulse.

Let’s take the day trading example

Daily time frame market overview (uptrend)

Hourly time frame strategy development (price reverse after a pullback )
5minute timeframe execution
Day Trade when the long-term structure, daily swing structure, and intraday structure are all synchronizing
TAX
Open the chart and start the top-down analysis, from a monthly chart to 15-minute chart.
How to Trade with Support and Resistance

In this article, I will discuss how to Trade with Support and Resistance. We will also discuss the following
pointers in detail.

1. What are Support and Resistance?

2. How to Trade with Support and Resistance?

3. The Psychology Behind Support and Resistance

4. Support Resistance Level vs Zone.

5. Types of Support and Resistance.

6. Multiple Time Frame Support and Resistance.

7. Where are Support and Resistance Formed?

8. Strength of Support and Resistance

9. When Do Support and Resistance Break?

What are SUPPORT AND RESISTANCE?

SUPPORT

Support, such as “buying, actual or potential, sufficient in DEMAND to halt a downtrend in prices for an
appreciable period,” possibly reverse it and start prices moving up again. Fair price for buyers and risk to
reward is more.

RESISTANCE

Resistance is the selling, actual or potential, insufficient supply to keep prices from rising for a time and
possibly turn back its uptrend. Fair price for sellers and risk to reward is more.
FLIPPING

These price levels constantly switch their roles from support to resistance and from resistance to support. A
former resistance, once it has been surpassed, becomes a support zone in a subsequent downtrend; and old
support, once it has been penetrated, becomes our resistance zone in a later advancing phase.”

Why are Support and Resistance important?

These points are not random; the market creates them. They represent momentary changes in demand and
supply forces. The bulls could not move the market above the swing high. This means that at that point in
time, no one was willing to offer a price higher than the swing high, and traders saw no value above the
swing high.
Hence, subsequently, when the price moves close to near or above a wing high, we must remember that
traders saw no value in buying above that point previously. Assuming that most traders have not changed
their opinions, prices are unlikely to move above the swing high. Effectively, the swing high marks a price
area that prevents the market from moving up. This is what we call a resistance area. Reverse for support
area.

Once the structure of the market know, then find which phase the market is currently in (accumulation or
distribution or up or down)

The Psychology of Support and Resistance

To illustrate, let’s divide the market participants into three categories: the longs, the shorts, and the
uncommitted. When the price comes to the support level/

1. The longs are those traders who have already purchased contracts;

2. The shorts are those who have already committed themselves to the sell-side;

3. The uncommitted are those who have been out of the market or remain undecided about which
side to enter.
Traders who fear missing out would enter their trades when the price comes close to Support to get at a
low price. And if there’s enough buying pressure, the market would reverse at that location.

Let’s assume that a market starts to move higher from a support area where prices have been fluctuating
OR accumulating for some time.

The longs are delighted but regret not having bought more. If the market retraced near that support area
again, they could add to their long positions.

Now that they are on the wrong side of the market, the shorts are hoping (and praying) for a dip back to the
area where they went short so they can exit the market where they got in (their break-even point).

The final uncommitted group now realizes that prices are increasing and resolves to enter the market on the
long side on the next good buying opportunity.

All four groups are resolved to “buy the next dip.” They all have a “vested interest” in that support area
under the market. If prices decline near support, renewed buying by all four groups will increase prices.

Now, let’s turn the tables and imagine that instead of moving higher, prices move lower. In the previous
situation, because prices advanced, the combined reaction of the market participants caused each
downside reaction to be met with additional buying (thereby creating new support). However, if prices drop
and move below the previous support zone, the reaction becomes the opposite. All those who bought in the
support zone now realize they made a mistake.

All of the factors that were supported by the three categories of participants—the longs, the shorts, and the
uncommitted—will now function to put a ceiling over prices on subsequent rallies or bounces. Similarly, all
previous buy orders under the market have become sell orders over the market. The support zone has
become a resistance zone.

Support and Resistance Level and Zone

Support and Resistance Levels are more detailed, and the levels are different within the zone. The level is
one line, and the Zone is a Zone. In practice, support and resistance and supply and demand zones are
formed from the same origin.

Support and Resistance are areas and not lines

Why?

Because you’ll face these two problems:

 Price undershoot, and you miss the trade

 Price overshoot and you assume support and resistance are broken

Let me explain…

Price “undershoot,” and you missed the trade. This occurs when the market comes close to the support and
resistance line but not close enough.

Then, it reverses back in the opposite direction. And you missed the trade because you were waiting for the
market to test your SR level. This price reversal is also called 123 reversals. Or holding a higher level of
support or lower level of resistance. THIS GENERALLY OCCURS DUE TO THE AGGRESSIVE BUYERS AND
SELLERS.
An example: OF PRICE UNDERSHOOT

Price “overshoots” and assumes support and resistance are broken

This happens when the market breaks support and resistance levels, and you assume it’s broken. Thus, we
trade the breakout but only to realize it’s a false breakout. THIS TYPE OF PRICE ACTION IS CALLED
UPTHRUST AND SPRING

Let’s DO AN EXAMPLE OF PRICE OVERSHOOT

So, how do you solve these two problems?

Simple, Support, and Resistance are areas on the chart, not lines.

How to draw support and resistance zone

A two-step process to find SR ZONE

1. Step 1: Switch to a line chart and mark the line with the rejections.

2. Step 2: Again switch to the candlestick chart, mark the high or low of the candle near the marked
line, and make the zone.

Let’s do an example of drawing an SR zone

TYPES OF SUPPORT AND RESISTANCE

 Horizontal

 Dynamic(moving average)
  Trend line

LET’S FIND ALL THE ABOVE SUPPORT AND RESISTANCE IN A SINGLE CHART
Timeframe SUPPORT AND RESISTANCE

 The power of support and resistance depends on the time frame we are considering. The longer the
time frame, the higher the probability of it working.

 Through all the timeframe support and resistance work, the rewards grow the higher the timeframe
is

 There is more noise in the lower time frame chart.

Using the higher time frame and top-down analysis, put more weight on the higher time frame SR level.

To focus on major support and resistance levels, first, find them on higher time frames before applying
them to your trading time frame for analysis.

For example, you can note the support and resistance levels from the weekly chart. Then, plot them on the
daily chart to find trading opportunities. This method keeps you focused on important support and
resistance levels instead of flooding your chart with dozens of potential support and resistance levels.
WHERE SUPPORT AND RESISTANCE DEVELOPED?

 The first point of support in any time frame is the prior bar’s high

 The first point of resistance in any time frame is the prior bar’s low

 The second points of support and resistance are pivot points(swing high and swing low)

 Consolidation area

 Rejection from an area

 Previous has acted as both support and resistance

 Gap(invisible tail), EMOTIONAL POINT

 Fibo retracement

 Trend line and MA

Rejection from an area

THE LAST SWING IS HIGH, AND THE LAST SWING IS LOW
Swing highs and swing lows are market turning points. They are natural choices for projecting support and
resistance zones.

CONGESTION AREAS
Smart money has spent a prolonged time in the congestion area, establishing actual trading interests within
that price range. Hence, earlier market congestion areas are reliable support and resistance zones.

MA AND FIBO RETRACEMENT

You can also derive support and resistance from the moving average. They work best in trending markets.

Fibonacci retracement is a popular method for projecting support and resistance. We can easily mark out
retracement levels. Hence, Identify major market swings and focus on the retracement of the move by a
Fibonacci ratio. Generally, Fibonacci ratios include 23.6%, 38.2%, 50%, 61.8%, and 100%.

FLIPPING OF SUPPORT/RESISTANCE
Flipping acts as both support and resistance. Support can turn into resistance, or resistance can turn into
support. When the price breaks through a resistance level, it shifts power from sellers to buyers, and the
resistance level becomes support.

How strong support and resistance

Many factors should be considered in determining how significant or strong the support or resistance level
will be. These factors are as follows:

1. The number of occurrences. The first time retracing to the area is strong.

2. Volume. The higher the relative volume is at a particular price level, the more likely it is that the
price level will become significant support or resistance.

3. How did the price leave the level? The stronger the price moves away from a zone, the more out-of-
balance supply and demand are at that zone. Smart money places a heavy order.
 4. How much time did the price spend at the zone? The less time the price spends at a zone, the more
out-of-balance supply and demand are at the price level. Smart money aggressively enters when
prices retrace, and the level is tested in the future.

5. How far did the price move away from the zone before returning back to the zone? The farther the
price moves away from a zone before returning to that zone, the greater the reward to risk and
probability.

When support and resistance break

And even when prices start to falter in the higher region of the chart, bulls are technically still in control as
long as they manage to keep the market up at levels higher than or equal to a former significant low.
However, the stronger the earlier dominance, the less likely the market will turn on any first reversal
attempt.

 Support tends to break into a downtrend

 Resistance tends to break into an uptrend

 Support and Resistance tend to break when there is a tight range at the SR level.

 The more/frequent test of support resistance weakens this level and breaks the level.

The more times Support or Resistance (SR) is tested, the weaker it becomes and breaks the level.

Here’s why…

The market reverses at resistance because selling pressure pushes the price lower. The selling pressure
could come from Institutions, banks, or smart money that trades in large orders.

Imagine this: If the market keeps re-testing resistance, these orders will eventually be filled. And when all
the orders are filled, who’s left to sell?

It shows that participants are more aggressive in pushing/pulling the price to break the resistance/support.
While the higher low toward resistance indicates aggressive by the buyers

LET’S DO AN EXAMPLE
Higher lows into Resistance usually result in a breakout (formed ascending triangle), and lower highs into
Support usually result in a breakdown (formed descending triangle).

Resistance tends to break into an uptrend.

For an uptrend to continue, it has to break new highs consistently. So, shorting at resistance is a low-
probability trade in an uptrend. Instead, going long at Support is a better trade or break out from the last
high.
Support tends to break into a downtrend.

For a downtrend to continue, it has to break new lows consistently. So, going long at support isn’t a good
idea in the downtrend. But going short at Resistance is a great idea, as well as a breakout from the last
swing low.

Support and Resistance tend to break when there’s a tight range

Resistance is an area with potential selling pressure. So, the price should move up quickly.

Now… what if the price didn’t move down and instead consolidated at resistance?

What does it mean?

It was a sign of strength as the bears couldn’t lower the price. Perhaps there’s no selling pressure, or there
is strong buying pressure. Either way, it doesn’t look good for the bears, and resistance will likely break. An
example: the opposite of Resistance:

Trading with support and resistance is best done with other indicators and analysis techniques. Interpreting
support and resistance levels accurately requires practice, and traders should always be prepared for the
possibility that the market may not respect them.
Advanced Candlestick Analysis in Trading

In this article, I will discuss Advanced Candlestick Analysis in Trading. I will also discuss the following
pointers in detail.

1. Advanced Candlestick Analysis

2. What price action validates the resistance/support level?

3. What price action disconfirms the resistance/support level?

Candlestick Analysis in Trading:

Each candlestick tells a story as they are a reflection of what buyers and sellers are doing or what the
market is telling you. Use candlestick with support and resistance area

1. Support tends to break into a downtrend

2. Resistance tends to break into an uptrend

3. Support and Resistance tend to break when there is a tight range at the SR level

4. The more/frequent test of support resistance weakens this level and breaks the level

Then how to know whether the price will reverse from support or resistance or break level. I mean whether
price confirms or disconfirms as support or resistance.

DISCONFIRMATION AND CONFIRMATION

At resistance, we expect the price to reverse or supply to exceed demand, confirming the supply.

What price action validates the resistance level?

1. Clear Rejection from resistance in the form of the pin bar, outside bar, or engulfing bar

2. Momentum loss when approaching resistance

3. Unable to close above the resistance level

4. Low-volume candle when approaching resistance

CANDLE REJECTION

Single candle rejection (pin bar)

In an established downtrend, any Clear Rejection from resistance in the form of the pin bar, outside bar, or
engulfing bar confirms the resistance level.
MULTIPLE CANDLE REJECTION

It is better if multiple candlesticks are rejecting an area as this shows that the price tried over and over but
failed. When multiple candles refuse to go UP or reject from resistance, they ultimately go down. Below are
some examples of multiple rejection candles from an area
THE REJECTION CANDLE SHOULD BE CONFIRMED BY A FOLLOW-THROUGH CANDLE
The next candle should be a follow-through candle for validation of the rejection candle

Momentum loss is the key to reversal when approaching a key level

1. Candle getting smaller and multiple colors with wicks signal that buyers or sellers are losing strength

2. Even better when it finishes with long wick candles (for a bullish reversal, lower ling wick, and for a
bearish reversal, upper long wick)

Below is an example of a bullish reversal

Price unable to close above the resistance

Buyers are trying hard to close above the resistance level, but each time they fail, they show supply coming
and trying to dominate demand.
Volume

In an up-move, where the price is getting close to the upper trend line (resistance Line), and low volume
appearing will tell you that the trend line is likely to hold for that moment in time because there is no effort
to change the trend (you need buying to push through resistance). The resistance area needs demand
pressure to penetrate it. Low volume tells us there is little demand, and thus, the line is likely to hold.
What price action disconfirms the resistance?

1. Candle spread and volume increase when approaching the resistance level

2. If the price hugs the resistance and holds, it disconfirms the supply and shows the presence of

Candle spread and volume increase when approaching the resistance level

In an up-move, where the price is getting close to the upper trend line (resistance Line), and low volume
appearing will tell you that the trend line is likely to hold for that moment in time because there is no effort
to change the trend (you need buying to push through resistance).

If the volume is high, with a widespread up, whilst the price is getting close to the upper trend line, we
would expect to see the trend line broken due to the extra effort, and the next day is level or even higher,
then you would now be expecting higher prices. Any low volume down-day (potential test) will confirm this
view.
If the price hugs the resistance and holds, it disconfirms the supply and shows the presence of demand.

1. Price hold (unable to react) after a drive-up

2. The price will move up at the resistance price form a tight trading range. Nevermore than 50% of
the previous drive up. Tighter the better

The main characteristic of BUYERS overcoming SELLERS is the repeated inability of prices to REACT away
from the danger point(resistance). Such hugging of the HIGH usually leads to a breakout. Persistently heavy
volume hammering the HIGH usually says a break is Imminent.
Trendline Trading Strategy in Detail

In this article, I will discuss the Trendline Trading Strategy in detail. As part of this article, I will discuss the
following pointers in detail, which are related to the Trendline Trading Strategy.

1. The importance of drawing lines over your charts.

2. TRENDLINE

3. Rules for DRAWING TREND LINES

4. How to Determine the Significance of a Trendline Trading Strategy

5. The trend channel

6. Use of Trendlines Trading Strategy

7. How do you enter based on the trend line?

Importance of drawing lines over your charts:

They tell a story. They show the angle of advance or decline within a price trend, alert when a market has
reached an overbought or oversold point within a trend, show trading ranges, indicate the point of
equilibrium (apex), and help forecast where to expect support or resistance on corrections.

Never undertake to draw conclusive deductions from trend lines alone, taking care to weigh all of the
factors (three) involved in a complete diagnosis of market action. The three factors are Price Movement,
Volume, and Price Movement-Volume Relationships, which determine when and where trend lines may
logically be applied} and when it is inadvisable to attempt to apply them.

What is the Trendline Trading Strategy?

The momentum of an upward movement is reflected in the angular upward climb of the vertical bars on our
charts and the pace of a downward movement by their angular downward pitch. The eye may not always
see the pitch of these angular swings clearly because of the confusing effect of minor irregularities of the
price movement as recorded on charts. Therefore, it is frequently helpful to employ Trend Lines for this
purpose. Thus, examining the accompanying charts will show how the angle of ascent or descent of prices
may be visualized more clearly by drawing straight lines through the successive tops or bottoms of the price
path established during the minor, intermediate, and major moves.
A support or demand Line is that line that identifies the angle of the advance of a bull swing by passing
through two successive points of support. Example:- Lines A-C, D-1 in above IMAGE 1

A resistance or Supply Line is that line that identifies the angle of the decline of a bear swing by passing
through two successive points of resistance (top of rallies). Example:- Line I-K and I-6 in above image 2.

An Oversold Position Line is that line that is drawn parallel to a supply or resistance line and passes through
the first point of support (reaction low), which intervenes between two successive rally tops in a
downtrend. Example:- Line J-L, Note that J is the first point of support intervening between the two
successive tops, I and K. IN IMAGE 2

An Overbought Position Line is a line drawn parallel to a support line. It passes through the first point of
resistance (rally top), intervening between two successive support points in an uptrend. Example: Lines B-E,
in the above image 1

Rules for Drawing Trendline Trading Strategy

RULES

1. DRAW a new trend line by connecting the start of the trend with a valid swing point.

2. Adjust the trend line as price action unfolds.

DRAW a new trendline by connecting the start of the trend with a valid swing point

This means we cannot draw a new trendline without a valid swing. First, there must be evidence of a trend.
For an up-trend line to be drawn, there must be at least two reaction lows, with the second low higher than
the first.
ADJUSTING New trendlines

For instance, in the case of an advance, the angle of ascent may be leisurely for a time and then become
pitched more sharply upward as the original force of demand is renewed by fresh buying from the move’s
sponsors and the public and perhaps by expanding enthusiasm of bullishly inclined traders and investors.
Under these conditions, we must relocate our trend lines to conform to the newly established stride.

If a steep trend line is broken, a slower trend line might have to be drawn.
Trendline analysis on a chart

After the reaction to (B), we can distinguish two well-defined rally tops, the first at (A) and the second at (C).

Accordingly, if we draw a straight line through the extreme tops of these two rallies, we find that the
extension of this supply line to the right, across the page, helps to define the approximate limits of
subsequent rallies. If, however, it can rise through the supply line with some degree of strength by either
increasing volume, by a material gain in price, or both. Finally, price swing E-F successfully breaks the supply
line, as both candle and volume increase.

The upswing from G enables us to establish the trend support line E-G, representing the angle, or rate of
acceleration, of the first phase of the bull campaign in this stock. Extending this line to the right, we find
that after a sharp run-up from G temporarily accelerates the rise, the price recedes toward this line of
support, which we conclude is a normal corrective reaction. If it recedes further, we may expect the price to
hold on or around this support line (H). It does hold on to the quick further rally from G POINT, marked by
closing at the high, as the price almost touches our established trend line. Thus, our trend line has given us a
helpful hint in advance as to the point at which we might reasonably look for new demand (support) and
the probable place where this particular reaction should end.

After the markup from H POINT, we must readjust our trend support line because of the rising momentum
of the rise. PONIT (1) brings a new phase of the advance. This new line, of course, runs from 1 to 2, with
price getting support from the support line.

How to Determine the Significance of a Trendline Trading Strategy

1. The number of times the trendline has been touched or approached. The larger the number, the
greater the significance. A trendline that has been successfully tested five times is obviously more
significant than one that has only been touched three times.

2. Time factor, a trendline that has been in effect for nine months, is of more importance than one
that has been in effect for nine weeks or nine days.

3. Angel of ascent and descent, a very sharp trend that is difficult to maintain and liable to be broken.
A steep trend is not more important than a more gradual one. A large angle on a lower trendline in
an uptrend means that the lows are rising significantly fast and that the momentum is high.

THE TREND CHANNEL

Occasionally, the momentum produced by the forces of demand and supply will become so plainly marked
as to develop a well-defined zone of activity; that is, the alternating buying and selling waves form a price
path or channel whose upper and lower limits are easily identified by a series of tops and bottoms confined
within parallel, or nearly parallel, lines.

The drawing of the channel line is very simple. In an uptrend, first, draw the support or demand line along
with the lows (A-C). Then, draw a line from the first prominent peak (point B) parallel to the support or
demand trend line. Both lines move up to the right, forming a channel. A channel may exist if the next rally
reaches and backs off from the channel line (at point D). If prices drop back to the original trendline (at
point E), then a channel probably does exist. The same holds true for a downtrend, but of course, in the
opposite direction.
In the uptrend, the supply line acts as overbought, and the price will be reversed from the supply line. The
support line acts as an oversold.

Use of Trendline in Trading:

The use of trend lines is frequently helpful in judging the points at which you may expect the price:-

1. To be supported on reactions;

2. To meet resistance on rallies and

3. Overbought and oversold condition sowing in channel

4. To approach a critical position in its travel from one level to another, trend line l also helps you
foresee the possibilities of an impending change of trend before it actually takes place.

Violating a trend line often (but by no means always) may signify that the force of demand or supply that
was formerly in effect is now becoming exhausted. This may either mean that the price movement is
changing its rate of progress or that the trend is definitely in danger of being reversed.
Trendline Trading Strategy

It is bad practice to enter a stock simply because it has penetrated an established. Trendline or broken out
of an extended congestion area. The significant thing is HOW the line is broken, the conditions under which
the change of stride occurs.

The quality of the buying or selling at and around the point of penetration determines whether the violation
of an established trendline may be regarded as evidence of a further price movement in the direction of the
breakthrough or whether it means only a temporary change of false breakout. For a breakout, the price
must close above or below the trendline.

An opposite trade to be taken on the retest of the trendline

Incorporate trendlines into a comprehensive trading strategy that includes proper risk management and
considers overall market conditions. As with any trading strategy, it’s essential to practice in a simulated
environment before applying these concepts to live trading.