Without going in to its history just lets begin with it and learn how you can get benefit out of it.

Candlestick charts display the open, high, low, and close of an instrument and shade the “candle” portion white if the close of the period is greater than the open of the period, and black if the close for the period is less than the open. The high and the low of the period are then connected by a thin line which is referred to as the wick.

These sticks gives the complete picture of the battle between buyers and sellers during the market session.

And also shows who were more dominant during the entire day.

Below is an example.

Certain formations of candle sticks are good indicators of Trend Reversal.

For Example a Spinning Top and a Doji formation denotes that the trend is most likely to change,

Similarly a Doji formation can help in confirming a change in Trend.

Bullish Engulfing Pattern and Bearish Engulfing Pattern.

These patterns are nothing but combinations of 2 different candle sticks at some special location.

Say the market is in Down Trend and today’s stick was white in color (Buyers were dominant) and if this white stick is Engulfing the previous stick, that indicates a change in trend. Or in simple words we can say that since it was a downtrend the sellers were active till date and today Buyer came in and bought all the shares from the sellers and the demand for that particular stock has increased.

Hammer and Hanging Man

Hammer is also a trend reversal pattern which is found in a downtrend.

Its long lower wick indicates that there was heavy selling pressure but later Buyers came in and made the stock close above its opening price.

It always not necessary that closing will be above open price but still if its above the Bulls are more active and the chances are more for the beginning of uptrend.

Hanging Man

Its just the opposite of a Hammer and is found in a Uptrend.

IMPORTANT LINE -: All these Trend Reversal Patterns Must be Confirmed With the Volumes

You can see the bull flag pattern is encompassed by two parallel lines.

These lines can be either flat (representing sideways movement) or pointed downward (representing the consolidation in the market).

The pole of the flag is formed by the big move upwards which completes the bull flag.

The pattern is seen as the market potentially just taking a “breather” after a big move before continuing its move upward and is thus referred to as a bullish pattern.

Now coming to the actual point as when to enter in to a trade using this patern.

First of all calculate the height of your bull flag’s pole.

Now when the prices break out from the parallel line (ofcourse the upper line as the trend is bullish) we enter in the trade.

The lowest point in the parallel line is your 1st Stop and target is the length of your flag’s pole.

Double Top resembles ‘ M ‘.

Double Bottom resembles ‘ W ‘.

Below figures will surely justify this and make you understand the use of this particular indicator.

Double Top

Double Bottom

How to trade this pattern (Double Top)?

Well as we have identified the resistance so we should short that stock or any other financial instrument just below the resistance level, with Stoploss just above the resistance line.

And our target will be the distance of trough in “M” (ie for the figure it should be 228.0 – 224.44= 4.44) below the blue line. i.e our target should be 224.44(blue line) – 4.44 (Distance of Trough) = 220.0

(in this case target was not achieved still one could have made a huge profit out of this GBP/JPY currency pair.)

Now needless to write a disclaimer as all the technical indicators give us a good entry and exit point by not loosing much of money and hence other indicators must also be used in conjunction with each other.

Should you have any questions, please comment