Indices clock record highs during week; if Nifty50 sustains above 16,000-levels, upside move will continue

Indices clock record highs during week; if Nifty50 sustains above 16,000-levels, upside move will continue

Overall, the bulls continued in action throughout the week as the benchmark opened positively and climbed higher for a week, making a new record high at 15962 levels on the last trading day of the week. The nifty50 index has gained more than 1.2 percent while bank Nifty increased by 2 percent on a weekly basis to close at 35751.80 levels. All the sectoral indices performed well during the week, Nifty Realty gained 9 percent followed by capital goods 3 percent, metal 3 percent and IT 3 percent gains, whereas Nifty Media and oil and gas, power showed some profit booking.

On the stock front, Wipro, Larsen and Ultra Cements were the top gainers while Eicher Motors, BPCL, Maruti were the top laggards for a week.

Technically, the Nifty index has given prior resistance breakout and is showing good strength on the chart, which indicates a continued upward movement in the near term. Moreover, the index has been trading in Higher Highs & Higher Lows formation, which suggests bullish strength in the counter. Furthermore, an indicator MACD & Stochastic is showing positive crossover on the daily chart, which points out a bullish presence for the upcoming days.

For the coming week, If Nifty 50 sustains above 16,000 levels, the upside move will be continued till 16,150/16,200 levels while on the downside, support is shifted up to 15,800 levels.

TECHM

TechM has gained more than 4 percent in a week to close at 1102.90 levels. The stock has given a breakout on the daily chart, which indicates bullish strength for the near term. Moreover, the stock has sustained above Ichimoku Cloud formation, which suggests bullish movement for the long term. Spurt in volume activities & positive crossover in MACD indicator point to an upward move in the counter. So based on the above structure, we are recommending a long view for the upcoming session.

GRASIM

On a weekly chart, the stock has given a breakout of its prior resistance at 1547 and made a high at 1579.30 on a weekly basis with a gain of 4.8 percent. The stock has also given a breakout of Wedge formation and sustained above it, which indicates bullish momentum in the counter. Moreover, the prices have been trading above 100 & 50 Days SMA, which supports the bullish trend. A momentum indicator RSI & MACD suggested a bullish presence for the near term. So based on the above structure, we are expecting more upside in the upcoming sessions.

WIPRO

Wipro has closed at 577.75 in today’s trading sessions. The stock has formed a bullish engulfing pattern on the daily chart. The stock has been continuously bought in major quantities which are seen in the volume indicator which narrates a high demand for the stock. Wipro has settled above the bullish clouds of the Ichimoku Indicator which indicates a further bullish trend. The Money Flow Index rose from 44 levels and settled at 73 levels, which indicates a strong upside momentum. The stock has a support of 546 while it has resistance at its lifetime high of 589.15 levels. Thus, the stock looks very strong on the counter, and further upside can be seen in the short term.

LARSEN & TOUBRO

LT has given a monthly breakout and made a new lifetime high on Friday’s trading session. The stock has closed above the super trend indicator, which indicates a strong trend on the upside. The Parabolic SAR dots have formed under the candles, which indicates a further bullish view for the stock. The RSI has closed in the overbuying zone indicating a strong demand for the stock. The stock has a support at 1530 levels while resistance lies at the lifetime high at 1625 levels. Overall, the stock has very strong momentum for further upwards move.

ULTRACEMCO

ULTRACEMCO has given a weekly breakout of 7056 forming a strong Bullish Marubozu candle on weekly charts. The stock has settled above the convergence lines as well as above the bullish clouds of the Ichimoku Indicator, which indicates a further upside move. The Momentum Indicator is strongly pointing straight in the upward direction, which indicates a strong journey for the stock towards the north. The stochastic has also given a positive crossover in the overbuying zone making the stock strong for further movement. The stock has its closest support at 7050 while having resistance at its lifetime high of 7360 levels. Clubbing the above perspective, the stock seems to be very strong for the short term.

BPCL

On the daily chart, BPCL has been falling continuously for the last couple of days. In addition, the price has also been trading below the 50 Exponential Moving Averages, which point out a negative trend for the medium term. Moreover, the trend indicator Parabolic SAR is also supportive for the short position. However, on an hourly chart, a momentum indicator RSI (14) is at an oversold zone and witnessed divergences, which indicates a slight recovery in the counter. On the downside, there is a support at around 430 while resistance comes at 470 levels.

MARUTI

On a daily chart, Maruti has reversed from the prior supply zone and settled below the 21 Exponential Moving Averages, which supports the downward trend. In addition, the price has shifted below the middle band of the Bollinger formation, which also supports the bearish momentum. Furthermore, a momentum indicator RSI (14) reading is below 50 levels, which suggests a bearish move for the near term. On the downside, the stock has a support at 7,050 while resistance is at 7,550 levels.

EICHER MOTORS

Eicher motors have given a breakdown of Symmetrical Triangle Pattern with large Bearish Engulfing candlesticks pattern, which indicates bearish movement in the near future. In addition, the price has settled below 21 Exponential Moving Averages, which confirms bearish momentum in the near future. However, on an hourly chart, an oscillator Stochastic RSI suggested a positive crossover, which indicates a slight recovery in the counter. On the downside, the stock may find support at around 2470 while resistance comes at 2800 levels.

ADANIPORT

On a weekly chart, the stock has formed a bearish Marabozu candle, which suggests weakness in the counter. The stock has given a breakdown of the descending Triangle formation which points out further weakness in the counter. It has also tested an upper Bollinger Band formation and dragged lower, which suggest further profit booking for the upcoming week. A weekly momentum indicator RSI turned from the overbought zone and stochastic indicated negative crossover, which suggests some weakness for the near term. Downside support is at 630 while resistance is at 750 levels.

BAJAJ AUTO

Bajaj-Auto has confirmed the Bearish Marabozu Candlestick pattern on the top which suggests trend reversal in the counter. Furthermore, the stock has shown distribution on the top, which points out weakness in the counter. In the recent week, it has shifted below the Ichimoku Cloud formation and 50-Days SMA, which suggests some weakness in the counter. Moreover, the weekly indicator MACD & Stochastic suggested a negative crossover that confirms the downside move in the stock for the near term. For the upcoming week, if the stock settles below the 3850 level, we will see some correction till the 3500 levels. On the lower side, support is at 3,850 levels while resistance comes at 4130 levels.

(The writer is Executive Director, Choice Broking)

Japanese Candlestick Patterns

What are Japanese candlestick patterns?

Japanese candlestick patterns are motifs that appear on trading charts. Technical traders believe that you can use them to predict future price action – which makes them useful for finding new potential opportunities.

In technical analysis, the only factor you consider when researching a market is its price chart. By looking at recent movements, you attempt to analyse current market sentiment and predict future behaviour.

Chart patterns offer one method of finding trades using technical analysis. Essentially, each pattern is a signal, which in the past has preceded a new trend, reversal or continuation. Once you spot a pattern on a chart, you can make a call about whether that price action will occur again.

If you think it will, you can open a new position and attempt to profit from the trade.

To learn more about Japanese candlesticks, take a look at our how to read charts guide.

How to trade chart patterns

To trade chart patterns with City Index, follow these three steps:

Open your City Index account. Once approved, you can start trading within minutes Add some funds. You can add funds via debit card or bank transfer Log in and look for patterns on advanced TradingView charts

Not ready for live markets just yet? Open a demo account and access 12,000 live markets with zero risk.

Japanese candlestick patterns guide

Basic candlestick patterns

Before we examine the key bearish and bullish chart patterns, let’s take a look at two that can crop up a lot, and often form the basis of larger moves: doji and spinning tops.

1. Doji

Doji occur when a market’s opening and closing price for the period is roughly (or exactly) the same. Whatever the price action within the period, by the end the buyers and sellers will have cancelled each other out.

To spot a doji, look for a candlestick with a very thin body: usually less than 5% of the total range in that period.

You can then look at the wick to determine what type of doji it is:

If there is a long wick above the body, it’s a gravestone doji

If the wick extends beneath the body, it’s a dragonfly

If the wick is long on both sides, it’s a long-legged doji

If there is no wick at all, it’s a four-price doji

A doji on its own doesn’t necessarily tell you much. But when taken in context, they can be useful.

Say, for example, that you spot a gravestone forming during an uptrend. The tall upper wick indicates that the bull run may have continued at the outset, but the thin body means that sellers took over before the session’s end. A reversal could be on the cards.

2. Spinning tops

A spinning top looks a lot like a long-legged doji but with a slightly wider body.

Here, the long upper and lower wicks tell you that the market saw significant volatility in the session. Buyers sent the market up; sellers sent it down. But in the end, neither had the upper hand.

The colour of the stick doesn’t matter – all you need to look for is the long wick and shorter body.

A spinning top is often a sign that an existing trend is showing signs of petering out. In a long downtrend, for instance, sellers might have near-total control of a market. In a spinning top, that control has weakened significantly.

Bullish candlestick patterns

Bullish candlestick patterns signal that a market is about to make an upward move. They come in two main variations: reversal patterns, and continuation patterns.

A reversal pattern indicates that a market in a downtrend might be about to bounce back into an uptrend. Continuation patterns, meanwhile, occur during uptrends and can act as a sign that momentum isn’t slowing just yet.

When trading any candlestick pattern, it’s always a good idea to look for confirmation before opening your position. Patterns are no guarantee of future behaviour, so waiting for confirmation can help reduce the risk of losing out when a trend or continuation fails.

There are a few different ways of confirming before trading. you could, for instance, wait for the resulting trend or continuation to start before jumping in. Alternatively, you could look at a shorter-term chart to take a closer look at current price action.

Bullish candlestick reversal patterns

Technical traders use bullish reversal patterns to try and predict when a downtrend might end and a rally might start. They tend to appear in two places: at the bottom of a downtrend, or in a period of consolidation shortly after a downtrend.

As ever, you’ll want to confirm the pattern before you trade it. A simple confirmation is to see if a rally starts to form. That could be in the form of a bullish green candlestick, or the market breaking through a resistance level.

Let’s explore some of the main bullish reversal patterns.

1. Hammer

A hammer is a single candlestick pattern that consists of a short body with a long lower wick, and little to no upper wick. It’s seen as a sign of an impending bullish reversal – which means that if you spot one during a downtrend, the market might be about to bounce back up.

Why? Because sellers pushed its price down to new lows during the session but couldn’t keep it there. Instead, buyers fought back, and the market ended up close to its opening price.

If a hammer is red, then the market closed a little below its opening price

If it is green, then it closed above its opening price – meaning the signal is seen as stronger

To find a hammer, look at the length of the body compared to the wick. The wick should be two or three times longer than the body.

2. Inverse hammer

An inverse hammer is a hammer that looks upside down: short body, long upper wick, little to no lower wick.

As the name suggests, the price action within is the inverse of what happens in hammer. Bulls initially took over in the session, sending the market up after a downtrend. But the reversal didn’t take hold, and bears ensured that its price ended up roughly where it started.

However, the sellers couldn’t resume the downtrend – a sign that momentum may be about to change.

3. Bullish engulfing

A bullish engulfing pattern takes place over two candles.

The first is red, appearing as part of a downtrend (or consolidation after a downtrend). The red candle is followed by a green one that entirely engulfs it, meaning that the market opened lower but then sailed past the previous period’s high.

Despite the poor start to the session – as the market opens below the previous close – the second candle in a bullish engulfing demonstrates strong upward momentum. There should be little visible upper or lower wick, as the market finishes at or near the period’s peak and barely drops below the low open.

Technical traders believe that this renewed buying sentiment should turn into a new upward trend.

4. Piercing line

Like the bullish engulfing, a piercing line is formed of two candlesticks that signal a positive market reversal. The first is red, and the second is green.

However, in a piercing line the red candlestick has a long body and isn’t engulfed by the following one. Instead, the market usually gaps down between the red’s close and the green’s open, but then rallies beyond the mid-price of the previous session (the ‘piercing line’).

We’re still witnessing a market reversal. But this time, the bears had total control of the market until part way through the second session, when bulls instigated a rally.

5. Tweezer bottoms

Tweezer bottoms consist of two candlestick that appear identical, except the first is red and the second is green. Both should ideally have a short body and a longer lower wick.

The two equal lower wicks indicate that sellers tried to drive the price lower in each session. But both times, they were driven back by buyers. In the second session, buyers then sent the price above the open, as bullish sentiment overtook the bears.

Tweezer bottoms are easy to spot, as they look like a pair of tweezers. However, they don’t appear as often as some of the other patterns covered here.

6. Morning star

In a morning star, three candles demonstrate a fairly clear shift in sentiment.

The first, a long red stick, shows that a bear trend is continuing

The second has a short body – indecision is undermining the trend

The third is a long green stick, as a reversal forms

The key candle here is the one right in the middle. Typically a spinning top, this is an indication that the downward trend is coming to an end. If the middle candle is a doji, then the signal is seen as even stronger.

To verify that you’ve got a morning star, check that the third candlestick crosses the mid-price of the first.

7. Three white soldiers

The three white soldiers pattern appears after a sharp downtrend. Technical traders believe that it offers one of the strongest indications that a reversal has occurred.

It consists of three green candlesticks that follow a long red session. The first should close at around 50% of the previous candle’s range. The second should close above the open of the red session. The third is a long green stick, signalling that an uptrend is now well under way.

Each of the ‘soldiers’ should have a longer body that the last, as buying momentum builds.

Bullish continuation patterns

Bullish continuation patterns are useful for checking whether an existing uptrend still has momentum.

Say, for example, that you want to buy a rallying EUR/USD, but you’re worried that it might retrace. A continuation pattern is a signal that the trend isn’t over yet.

Here are a few useful examples.

1. Bullish marubozu candlestick

The simplest sign that a pattern is in rude health is a green marubozu stick.

Marubozu are easy to spot. They have zero wick on either side, as the session opened at its lowest point and closest at its peak. This is where the pattern gets its name – marubozu is Japanese for ‘bald’.

In a green marubozu, bulls had almost total control. The longer the body, the more control they had.

2. Bullish harami

A bullish harami is formed of two candles:

A long red stick A short green stick that is completely contained within the previous one

If you spot one during a downtrend, it may signal a reversal. But during uptrends, they’re taken as a continuation pattern.

In a harami, the strong selling sentiment indicated by the first candle gives way, allowing buyers into the market. Those buyers are unable to send its price higher, but do arrest the fall. As bullish momentum builds, an uptrend may resume or form.

3. Rising three methods

The rising three methods is a little bit more complex, consisting of five candlesticks that can look like a reversal at first sight.

In the rising three methods, a long green stick is followed by three smaller red ones. The three red sessions must all fall within the open and close range of the first candle. Then, a final green candlestick takes the market back above the first candle’s close.

While sellers took control of three straight sessions, the momentum is weak, failing to offset the gains made in the first period. When buyers re-enter the market, they easily overpower the sellers – resuming the original bull run.

Bearish candlestick patterns

Bearish patterns signal an impending downward move.

As with their bullish counterparts, they come in two types: reversal and continuation patterns. This time, though, a reversal signals the end of a rally and the beginning of a downtrend. Continuation patterns, on the other hand, can hint that an existing bear run isn’t over yet.

Remember to wait for confirmation before trading a bearish pattern. A simple method of confirming a bear move is to look for a strong red candle immediately after the pattern, or hold off until the market has broken through a key area of support.

Bearish reversal patterns

One useful aspect of candlestick patterns is that they usually have an exact opposite. An upside-down version of a bullish reversal pattern will usually indicate a bearish reversal, and vice versa.

Let’s take a look at the bearish counterparts of some of the bullish patterns covered above.

1. Hanging man

A hanging man looks exactly like a hammer but appears at the end of an uptrend. Like the hammer, it signals an impending reversal – however, this time, a bull run may be about to retrace into a bear market.

Sellers took the asset’s price down in the session, before being beaten back by buyers. But those buyers couldn’t resume the rally, indicating that momentum may be about to shift.

2. Shooting star

What about if we spot an inverse hammer during an uptrend?

This is called a shooting star, and it’s another signal of a potential bullish reversal. The price action is the same as in an inverse hammer, with an early continuation of the rally being beaten back by sellers. Since this is occurring at the top of an uptrend, a reversal may follow.

As ever, you may want to consider waiting for further red candles to confirm the new move before opening your trade.

3. Bearish engulfing

A bearish engulfing consists of a green candle followed immediately by a red one – with the second completely dwarfing its predecessor.

The second session brought a swift change of tide, initially opening higher but quickly falling as bears take over. As more and more sellers pile into the market, supply rises and demand falls – marking the beginning of a possible new downtrend.

As with a bullish engulfing, look for a second candle that has little or no wick on either end.

4. Tweezer tops

In the tweezer tops pattern, two identical candlesticks (except that the first is green and the second is red) appear at the top of an uptrend. Ideally, both have short bodies with longer upper wicks.

Buyers have twice attempted to push the market to new highs but have failed both times. The second time, the market then fell back to the first period’s open. This piece of symmetry is a clue that momentum is on the wane, with a possible bear run imminent.

You might spot tweezer tops in market that isn’t currently trending. They’re still considered a bearish signal, but not as strong as during an uptrend.

5. Dark cloud cover

Similar to the piercing line, the dark cloud cover pattern arises over two sessions.

In the first, a green candle indicates bullish momentum. The next red candlestick then opens above the close of its predecessor, before tumbling down beyond its mid-price. The optimism of the previous period has been dashed, hence the ‘dark cloud’ of the name.

The shorter the wicks on the second candle, the stronger the signal.

6. Evening star

An evening star, meanwhile, is the opposite of the morning star.

This time, only the first and third candles are different. The middle candlestick is still a spinning top or doji of either colour. But the first candle is green and the final one is red.

The market rally continues in the first session, before indecision sets in during the second. By the third, a retracement is underway as more and more traders close their long positions – and sellers open short ones.

7. Three black crows

The three black crows is the bearish counterpart of the three white soldiers. The rules are the exact opposite of the bullish version, with three red candles following a long green one.

Remember that:

The first red candle should close at around 50% of the green one

The second should close below the green candle’s open

Each red body should be longer than the last

If any of these criteria aren’t met, then it probably isn’t a three black crows pattern.

Bearish continuation patterns

The final set of patterns we’re going to cover signal bearish continuations. Again, these are the exact opposite of the three bullish variants we’ve already seen.

1. Bearish marubozu

The bearish marubozu is a red candle with no wick whatsoever. The opening price was the market’s highest point during the session, and it ended at its lowest point.

During a downtrend, red marubozu are a solid sign of strong downward momentum.

2. Bearish harami

In a bearish harami, a long green session is followed by a smaller red one. The red candle is entirely within the open and close of the first period.

In the second candle, bulls and bears tussled for control of the market. Buyers attempted to continue the momentum from the first session, but couldn’t. Instead, sellers pushed price back down – but couldn’t move it much.

Like its bullish counterpart, a bearish harami is often taken as a signal of an impending downward move. If one arises during an existing downtrend, it indicates a continuation. On an uptrend, it indicates a reversal.

3. Falling three methods

The falling three methods is made up of five candlesticks:

A long red session as part of a downtrend Three smaller green candles that all fall within the range of the first session Another long red session as the downtrend resumes

Essentially, the sellers are stepping back before pushing the market back down once more. This allows buyers to control three sessions, but they’re unable to muster enough momentum to break the first candle’s opening price.

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Candlestick patterns FAQs

Which candlestick pattern is the most reliable?

There’s no single candlestick pattern that stands out as the most reliable – but some are thought to predict price action more consistently than others. Of the patterns covered here, the three white soldiers and three black crows are often considered the most reliable.

It isn’t hard to see why – with both patterns, the resulting move is well underway by the time the pattern completes.

Learn how to trade the three white soldiers here.

Do candlestick patterns work?

Candlestick patterns do work – just not all of the time. Some are more reliable than others, but whichever pattern you choose to trade, you should always confirm the move and use a stop loss. This helps reduce your risk if the pattern fails.

How many different candlestick patterns are there?

We’ve covered 22 candlestick patterns here, but there are many many more that aren’t included. Different technical traders use different patterns, and more are added new examples all the time. If you’re just starting out, though, it might be best to focus on a few standard patterns and build from there.

One useful tip: use a demo account to practise trading new potential patterns before you commit real capital. That way, you can decide which work best for you.

How are candlestick patterns used in day trading?

Candlestick patterns are used in day trading in pretty much exactly the same way as anywhere else – spot a pattern form on a market, confirm the resulting move and open your trade. Day traders will tend to use shorter-term charts to spot opportunities, but otherwise the principle is the same.

Market slips on profit taking tracking weak Asian cues, but undertone remains bullish

Sectoral indices traded on a mixed note led by Nifty Metal and pharma with average gains of 1 percent for the day. The top gainers were Hindalco, Dr Reddy’s, Tata Steel, Tech Mahindra whereas HDFC Life, Titan, TCS were the top losers for the day.

According to Sumeet Bagadia, Executive Director, Choice Broking, technically, the index has taken a resistance at Upper Bollinger Band formation that suggests some profit booking for the near term. Moreover, the index has also formed like a Bearish Marubozu candlestick on the daily chart, which indicates further correction for the upcoming session. In addition, a momentum indicator RSI (14) & MACD also indicated negative crossover on the daily timeframe. At present, the Nifty seems to have resistance at 15,900 levels while immediate support comes at 15,650.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities, said, the markets witnessed a range-bound activity near its all-time high level. The weekly opening of the Nifty / Sensex was positive, the benchmark index Nifty/ Sensex opened at 15,915.65/ 53,126.73 but due to lack of follow-through buying it consolidating in the range of 15,800 to 15,910/ 5,2700 to 53,100 levels.

“Technically, on Monday (June 28) the market made a fresh high but failed to sustain above the 15,900/ 53,100 level. However, on the intraday charts the index is still maintains higher bottom series formation which is broadly positive for the market. We are of the view that, as long as the Nifty/ Sensex is trading above 15,750 /52,550 the uptrend texture should intact. We can expect an uptrend continuation wave up to 15,900- 15,950/ 53,100-53,500. On the flip side, below 15,750/ 52,550 would increase further weakness up to 15,700-15,660/ 52,000-51,700,” he said.