1. NUSInvest Workshop Series Candlesticks Patterns
Session Two
Candlesticks Patterns

2. NUS Students’ Investment Society

3. Workshops Syllabus – Sem 1
LT18, 6-7PM
Week
Lesson Topic
Week 4
Introduction to FA & TA
Week 5
Japanese Candlesticks & Charts (E-learning Week)
Week 6
Annual Reports
Week 7
NIL (Mid-terms Week)
Week 8
Support & Resistance
Week 9
Valuation Methodology
Week 10
Exams Preparation
Week 11
Week 12

4. PROFILE NUS Invest Research Analyst, Acting FA Director
Year 2 BBA (Finance)
First trading experience in 2010
Does both FA & TA, mostly FA

5. DISCLOSURES & DISCLAIMERS
This research material has been prepared by NUS Invest.
NUS Invest specifically prohibits the redistribution of this material in whole or in part without the written permission of NUS Invest.
The research officer(s) primarily responsible for the content of this research material, in whole or in part, certifies that their views are accurately expressed and they will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this research material.
Nothing in this research material constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments.
No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The research material should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this research material are subject to change without notice.

6. Background

7. PRICE TRADING STRATEGIES
Japanese Candlestick
Stresses relationship between open and close prices
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

8. PRICE TRADING STRATEGIES
Candle Anatomy
Body: Distance between open and closing
Tip of upper wick/shadow: Highest price of that period
Bottom of lower wick/shadow/hair: Lowest price of that period
Range (length) of candle stick indicates volatility
Upward candlestick usually white or green or blue
Downward candlestick usually black or red
Bearish Candle
Bullish Candle
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

9. PRICE TRADING STRATEGIES
Gaps/ Windows
Gap: Current open is not the same as prior closing price
No price and no volume transacted hands between the gap (area on price chart where there is no trades)
Effect of news after stock market closed for the day (e.g. earnings report)
Psychology: Can act as resistance/ support (news that sparked the gap is still in play)
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

10. PRICE TRADING STRATEGIES
Gaps
Daily Chart – Wal-Mart (WMT)
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

11. 1-Price Bar Patterns

12. PRICE TRADING STRATEGIES
1-Bar Pattern
Long Lower Shadow
Bullish signal
Lower shadow must be at least the size of the real body
Longer lower shadow: more reliable that it is a bullish trend
Long Upper Shadow
Bearish signal
Upper shadow must be at least the size of the real body
Longer upper shadow: more reliable that it is a bearish trend
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

13. PRICE TRADING STRATEGIES
Marubozu
White Marubozu
Long white body, no wicks
Bullish candle
Open equals low, closing equals high
Indicates buyers in control during entire period
Black Marubozu
Long black body, no wicks
Bearish Candle
Indicates sellers in control during entire period
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

14. PRICE TRADING STRATEGIES
Hammer
Found in downtrend
Short body at the top of price range
Little to no upper shadow
Lower shadow must be at least twice the length of real-body
Signals: Reversal pattern when found in a downtrend
Short-term outlook indication
Real body can be black or white (white: stronger signal)
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

15. PRICE TRADING STRATEGIES
Hammer
Low reliability, requires confirmation
Bullish gap for next session
Subsequent session shows white real body above that of the hammer’s real body
Significance/ Strength:
Length of Lower Shadow
Colour
Buyers drive prices back up to close near the highs
Long lower wick indicates initial selling prices
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

16. PRICE TRADING STRATEGIES
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

17. PRICE TRADING STRATEGIES
Hanging Man
Found in uptrend
Short body at the top of price range
Little to no upper shadow
Lower shadow must be at least twice the length of real-body
Warning of a potential downward trend
Short-term outlook indication
Also requires confirmation
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

18. PRICE TRADING STRATEGIES
Hanging Man
1. Uptrend 2. Gap Up 3. Lower Shadow at least twice as big as Real Body 4. Real Body Bullish or Bearish; better if Bearish 5. Confirmation Candle
Greater gap: Higher likelihood of reversal
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

19. PRICE TRADING STRATEGIES
Shooting Star
Found in uptrend
Short body at the bottom of price range
Little to no lower shadow
Upper shadow must be at least twice the length of real-body
Signals: Reversal pattern
Short-term outlook indication
Real body can be black or white (black: stronger signal)
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

20. PRICE TRADING STRATEGIES
Shooting Star
Low reliability, requires confirmation
Bearish gap for next session
Subsequent session shows black real body below that of the shooting star’s real body
Significance/ Strength:
Length of Upper Shadow
Colour
Long upper wick indicates initial buying prices
Open
Bears were able to reject bulls completely (or push prices even lower by closing below open)
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

21. PRICE TRADING STRATEGIES
Shooting Star
1. Uptrend 2. Upper shadow at least twice as big as real body
3. Real body bullish or bearish (bearish: stronger indication)
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

22. PRICE TRADING STRATEGIES
Inverted Hammer
Found in downtrend
Short body at the bottom of price range
Little to no lower shadow
Upper shadow must be at least twice the length of real-body
Signals: Reversal pattern
Short-term outlook indication
Real body can be black or white (white: stronger signal)
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

23. PRICE TRADING STRATEGIES
Inverted Hammer
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

24. PRICE TRADING STRATEGIES
Spinning Top & Doji
Short body in the middle of two long wicks
Market closed relatively unchanged
Indicates indecision (‘standoff’ after significant price movement)
Trend losing momentum; possible turning point
Doji/ Long-legged Doji: stronger signal
Open and close are the same
Insignificant in sideway markets
Buyers in control
Sellers in control
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

25. PRICE TRADING STRATEGIES
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

26. PRICE TRADING STRATEGIES
More Doji Patterns
Dragonfly Doji
Gravestone Doji
Four Price Doji
Long lower, no upper
Long upper, no lower
Same upper, lower, open & close
Very rare
Low volume situations
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

27. 2-Price Bar Patterns

28. Bullish Engulfing Candle
When found in a downtrend:
Bullish candle opens lower than previous candle’s close, closes higher than previous candle’s open
Potential sign that trend is reversing
Indicates control has shifted from sellers to buyers
Gap down
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

29. PRICE TRADING STRATEGIES
Bullish Engulfing
1. Downtrend 2. Bearish Candle 3. Gap Down 4. Bullish Candle 5. Close above previous Bearish Candle
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

30. Bearish Engulfing Candle
When found in a uptrend:
Gap up: Bullish sign
But: Bulls only push prices up slightly before bears take over and push prices much lower
Potential sign that trend is reversing
Indicates control has shifted from buyers to sellers
Gap Up
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

31. PRICE TRADING STRATEGIES
Bearish Engulfing
1. Uptrend 2. Bullish Candle 3. Gap Up 4. Bearish candle 5. Close below previous Bullish Candle
Greater size difference: Increased significance
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

32. PRICE TRADING STRATEGIES
Dark Cloud Cover
Gap Up
Bullish candle closes below the middle of previous candle
Rejection of Gap: Bearish sign
Retracement: Additional significance
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

33. PRICE TRADING STRATEGIES
Piercing Line Pattern
Gap down
Bearish candle closes below the middle of previous candle
Rejection of Gap: Bullish Sign
Retracement: Additional significance
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

34. PRICE TRADING STRATEGIES
Harami
Bearish Harami
Large bullish, followed by small bearish
Gap down, unable to retrace
 Uncertainty entering the market
Bullish Harami
Large bearish, followed by small bullish
Gap up
 Reversal Pattern
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

35. Harami
In a Downtrend
1. Downtrend 2. Bearish Candle 3. Gap Up 4. Small Bullish Candle
In an Uptrend
1. Uptrend 2. Bullish Candle 3. Gap Down 4. Small Bullish Candle

36. PRICE TRADING STRATEGIES
Tweezer Top & Bottom
Bearish Tweezer Top
Day 1 Close about equal to Day 2 Open
Occurs during an uptrend (closes near the high)
Sentiments reverses completely the next day
Bullish Tweezer Bottom
Occurs during downtrend (closing the day near the lows)
Sometimes eliminates entire gains from previous day
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

37. PRICE TRADING STRATEGIES
Tweezer Bottom
1. Downtrend 2. Bearish Candle 3. Day 1 Lows about equal to Day 2 Lows
4. Bullish Candle
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

38. Tweezer Top Resistance Line
High of Day 3 Gap Up to Prior Highs; Bulls rejected again
High of Day 2 (Bulls rejected)
High of Day 1
Resistance Line

39. 3-Price Bar Patterns

40. PRICE TRADING STRATEGIES
Morning Star
Consists of 3 candlesticks
Bearish Gap: Bears are in control during opening
Day 2: Prices are not pushed much lower (small / neutral candlestick)
Bullish: stronger sign
Day 3: Bullish gap up
Prices pushed further upward, sometimes eliminating all Day 1 losses
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

41. Morning Star 1. Downtrend 2. Bearish Candle 3. Gap Down
4. Small Bullish/ Bearish Candle
5. Gap Up
6. Bullish Candle

42. PRICE TRADING STRATEGIES
Evening Star
Consists of 3 candlesticks: - Bullish, Small/ Neutral, Bearish
Presence of bullish gap & bearish gap
Day 2: Prices are not pushed much higher
Bearish: stronger sign
Day 3: Large bearish candlestick
Prices pushed further downward, sometimes eliminating all of Day 1’s gains
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

43. Evening Star 1. Uptrend 2. Bullish Candle 3. Gap Up
4. Small Bullish/ Bearish Candle
5. Gap Down
6. Bullish Candle
Morning Star Pattern
Powerful bearish reversal pattern!

44. Price Action Trading Strategies

45. PRICE TRADING STRATEGIES
Pin Bar Setup
Bullish Pin Bar
Pin bar: middle of a 3-bar formation
Open and Close of pin bar is within (or very close) price range of bar 1 and 3
Shadow of pin bar sticks out
Longer, more significant
Pin bars occurring at important support/ resistance level can be very accurate
Can be taken as counter trend if well-defined and protrude significantly from surrounding price bars
Indicates strong rejection occurred
Preferably on daily chart time frame
Bearish Pin Bar
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

46. PRICE TRADING STRATEGIES
Pin Bar Setup
Two large bullish pin bars bring an end to the previous downtrend
Obvious bullish pin bars with the overall uptrend
Pin bars occurring the context of a trending market
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

47. PRICE TRADING STRATEGIES
Inside Bar Setup
Inside bar: Bar (or series of bars) completely contained within preceding bar
Not the same as harami
Inside bars in strong trending markets breakout plays in that direction (‘pauses’)
Mother bar
Two inside bars contained within range of mother bar
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

48. PRICE TRADING STRATEGIES
Inside Bar Setup
Inside bar setups traded with the near-term momentum often give rise to large moves.
Daily AUDUSD chart
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

49. PRICE TRADING STRATEGIES
Fakey Setup
Inside/Harami bar + False break, then closes back within range
Fakey entry: triggered as price moves back up past the high of the inside bar (or the low in the case of a bearish fakey)
Amateurs tried to pick market top, pros stepped in and flushed out amateurs in a flurry of buying
Fakey setup
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

50. PRICE TRADING STRATEGIES
Fakey Setup
Substantial push higher after false-break to the downside
False-break / Fakey setup
BACKGROUND
1-BAR PATTERN
2-BARS PATTERN
3-BARS PATTERN
PRICE TRADING STRATEGIES

51. Summary Background 2-Bars Pattern 1-Bar Pattern 3-Bars Pattern
Candlestick Anatomy
Bullish/ Bearish Engulfing
Gaps
Dark cloud cover/ Piercing Line
Harami
1-Bar Pattern
Tweezer Top/ Bottom
Hammer/ Hanging Man
3-Bars Pattern
Shooting Star/ Inverted Hammer
Morning/ Evening Star
Spinning Top
Doji
Price Trading Strategies
Pin Bar Setup
Inside Bar Setup
Fakey Bar Setup

52. Resources
Babypips.com
Forexfactory.com

53. Do email us at research@nusinvest.com if you have any questions!
Ask Research!
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54. Thank You! 