Role of Candlestick, Volume and Indicators!

There are many types of analysis in the market to predict future price action. Below are some of that:

• Candle Chart Analysis
• Fundamental Analysis
• Option Data Analysis
• Elliot Wave / Price Cluster

The people say Candle Chart is good, Fundamental is the only way, or Elliot Wave is amazing. Everyone is stating as per their own experience.

I feel all these types of analysis work well. The point is that which one is suit you, everyone has their own thought or grasping power. Personally, I have studied the first 3 of the methods and I am using it as per the situation.

• If I am looking for short to medium-term investment then I love to prefer Candle Chart.
• When my view is medium to long term then I go for Fundamental and for accurate entry point take help of Candle Chart.
• Options Data use to identify the market or stock sentiments for a day or two days.

Today we are going to discuss Candle Chart Analysis (i.e. Technical Analysis). First of all, we will see the required basic + important things for Chart Analysis.

• Candlestick
• Volume
• Indicators / Oscillator

What is the Candlestick?

As everybody knows, the candlestick is the base of Technical Analysis. It is the combination of four value points that are Open-High-Low-Close and each candle having these values. Sometimes Open=Low, Open=High, Close=High, or Close=Low in this case candlestick do not have Low or High. Below are types of the candlestick:

Importance of Candlestick: Each candle gives indication like positive, negative, or neutral. Every candle identifies by its color & shape and having a specific name as well. Below is the table to easily understand.

Open / Close	Signal	Type of candle	Colour
Open price < Close price	Positive	Bullish	Green
Open price > Close Price	Negative	Bearish	Red
Open price >=< Close price	Neutral	Neutral	Green / Red

 

By combining of multiple candles, the chart pattern is created like Harami, Engulfing, Piercing, etc.

What is mean by Volume?

It is the number of shares or contracts traded in a security or an entire market during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume. That is when buyers and sellers agree to make a transaction at a certain price, it is considered one transaction. If only five transactions occur in a day, the volume for the day is five.

Role of Volume: It is essential for Technical Analysis, the volume helps to 

indicate the strength of the candle. For example, if the stock price is cross its resistance and closed above the same then it called a breakout. If the volume of the breakout candle is greater than average volume then we can say that breakout is strong and vice versa.

What is mean by Indicator/Oscillator?

 It is the supportive tools that indicate the overbought or oversold for a stock price. It gives a signal to buy or sell, there are many indicators in the market like MACD, RSI, Bollinger Band, etc. It is working as a secondary tool which helps to make strong confirmation for trade.

Key Points to Take Care:

1. Always buy near support/bottom and sell near resistance/top.
2. A bullish candle or pattern near support is a strong buying signal.
3. Bearish candle or pattern near resistance is a strong selling signal.
4. Volume should be greater than the average volume on breakout or breakdown candle.
5. Buy the stock when the indicator is oversold and sell when overbought.
6. Make a combination of candlestick, volume, and indicator to find a good opportunity.

Frankly, I feel using these 3 things Technical Analysis is the best way for the medium-term player. One thing is for sure you cannot do the long term investment with the help of Technical Analysis.

You cannot become a good trader or investor just by learning things or rules of the market. You have to practice it hard. 

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Disclaimer: The contents produced here are purely for educational purposes. They should not be construed as buy/sell recommendations. I am not a SEBI registered Analyst or Investment Advisor. Readers are advised to consult their Investment advisor before taking any decisions based on the above write-up.
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