It uses factors such as price and volume(open interest in the case of futures and options). It faces much criticism by fundamentalists but according to us, technical can provide great insight, if used with fundamentals.

It should be used with great precaution and attention while working with technical, no analyst can confirm that when the next candle or pattern will form. while using technical one should be aware of the risk-reward ratio and proper money management skills.

Technicals can be used to provide information about market sentiments and grateful insights which fundamentals can’t give. we need to understand that every tool has its limitations, so do technical has.

The 3 main assumptions of technical analysis are –

1. Prices moves in trends
2. Price or market action discounts everything
3. History repeat itself (mainly deal with the psychology of traders and investors)

1) Prices moves in trends

It has been seen that prices of the shares always tend to move in trend i.e if the price moves up or down, it will keep on going up or down before a major trend reversal pattern or event. so technicals work well on shares that have good momentum than others.

2) Prices or market action discounts everything

This assumption indicates that the market reflects every possible factor which takes into account. it believes that any factor which can influence the prices of the shares whether it is the fundamental, economic,  political environment etc. Everything is reflected in the market price. it also helps us to understand the bearish and bullish nature of the market.

3) History repeat itself

This assumption mainly indicates the human psychology and behavior of traders or investors in the market. this assumption helps us to understand the logic behind the patterns and market sentiments. it assumed that the pattern that works before will continue to work in near future as well.

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here in the above image, at the red lines, we can identify support levels and at the yellow lines, we can identify resistance level. They help us to understand the major trend reversals pattern that we will discuss in the future.

Support is the trough or the reaction lows below which price loses its tendency to fall more and tend to rise from that point. Support indicates that buying pressure is greater than selling pressure at that price i.e BUYING PRESSURE > SELLING PRESSURE. If support levels are supported by huge volume then the support level is very significant.

Resistance is the peaks or the reaction highs above which price advance is halted. Resistance indicates that selling pressure is greater than the buying pressure i.e. SELLING PRESSURE > BUYING PRESSURE. If resistance levels are supported by huge volume then the resistance level is very vital.

Significance of support and resistance can be judged by the following reasons-

1)If the trading period is large on support and resistance then such levels are significant.

2) If support and resistance levels are accompanied by huge volume, then such levels are very crucial. 3)If such levels are newly formed, they are more important than the initial ones

Now we can see how we can see in the above image if resistance and support level is broken by price uptrend and downtrend respectively, we can see how the resistance and support level become support and resistance level respectively. this concept will help us to understand that how major trend reversals happen in the market.

It has been seen that mostly these resistance and support levels are round numbers i.e 34,45,56, not at34.34,56.4. That’s why it is always preferable to avoid placing an order at such round numbers. 

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From the above image, we can see that this pattern has three peaks. The first peak is known as left shoulder, second peak is known as head(highest of all) and third peak is known as right shoulder. Such a pattern can be easily seen but here volume plays a very significant role or we can say that significance of volume is greater than price.

volume at the left shoulder should be higher than the head and volume at the head should be higher than the right shoulder i.e. VOLUME(LEFT SHOULDER)>VOLUME(HEAD)>VOLUME(RIGHT SHOULDER). Such volume indicates that the market is not in a position to hold the bullish trend anymore. If things keep going like this, it is like yellow light for the trader but the trader should wait until the neckline is broken because at this point rally fails as each break should be above the previous peak to consist as a trend. If the neckline is not broken, it means that the market is in a sideways trend and will again gain its bullish nature.

so the pattern is not complete until and unless the neckline is not broken and the trader should only act after the pattern is formed. at the neckline, again volume plays a very major role, the line should be broken with huge volume as compared to the previous peaks as it indicates the selling pressure and start of the bearish trend.

So from the above discussion, we can conclude that only forming of shape is not important but volume is also necessary.

If the slope of the neckline is downward, it indicates market weakness, hence if the slope of the neckline is downward then the pattern is robust because it shows the bearish nature of the market.

Here price objective can be set for the downfall, it should be the difference between the price at head and the price at the neckline (PRICE at head- Price at neckline).

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Here also neckline should be broken with huge volume to indicate the outburst and completion of the pattern.

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From the above image, we can see 3 peaks at the same resistance level, not like head and shoulder in which each peak is at a different price level, this indicates that extreme selling pressure at this level. The volume will keep on falling till we reach the 3rd peak i.e VOLUME(FIRST PEAK)>VOLUME(SECOND PEAK)>VOLUME(THIRD PEAK).

Here we also need to focus on the support level, price is not able to fall below this level because of buying pressure at this price and this pattern will complete when the price will break this support level( as the neckline is broken in head and shoulder). At this level, the volume should be huge because at this level selling pressure is greater than buying pressure.

The trader should wait for the pattern to be complete because if the support level is not broken with a huge volume, the price can bounce back and continue with the uptrend.

In real situations, such support and resistance level doesn’t need to be formed at the same price for each peak, slight variation in such levels is fine but larger variation should be avoided.

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Both the peaks are at the same resistance level and not able to break these price levels due to selling pressure at this price.

From the above image, we can observe that volume of the second peak is less than the volume of the first peak i.e. VOLUME (SECOND PEAK)<VOLUME(FIRST PEAK), which shows that the uptrend is fading away as volume is kept on falling.

This pattern will complete when the price breaks the support level with a huge volume, again volume is very significant if the break is not followed by huge volume, it may be considered a sideways trend and the price will follow an uptrend.

Similarly, inverse double tops and bottom is the water image of the previous one.  Both the troughs are at the same support level because here buying pressure is greater than selling pressure and the price is not able to fall below this point. The second trough’s volume is less than the first trough’s volume, which indicates that the downtrend is fading as the volume is kept on decreasing. The pattern will complete when the resistance level is broken with the huge volume, thus starting a bullish market from now onwards.

Great care should be taken while using this pattern and should not be confused with sideways movements in prices which usually take place during the major trends.

Moreover, this pattern will become more significant when there is an increase in the time between the two peaks and an increase in the height of the pattern and works well on weekly and monthly charts.

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From our previous discussion, you might get the idea that volume is very important, therefore in this pattern, we will try to understand the volume. From the above image, we can see that volume keeps on decreasing on average as we continue with the chart and there is a sudden breakout of volume as a price break the upper line and when this happens our pattern is complete. Here we need to see that there is a tendency of volume to be high at bounces and low at troughs, this shows that buying pressure is greater than selling pressure.

To set the price target, draw the parallel line to the lower line from the upper tip of the upper line, it will give us the price range for our price objective.

This pattern is neutral, nor too bullish neither too much bearish, as it is more of a validation-type pattern that helps to determine the continuation of the trend.

This pattern is more significant on long-term charts i.e. weekly and monthly charts (less than 2 to 3 months) as compared to hourly charts.

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The volume acts in the same pattern as in the symmetrical triangle,  volume keeps on decreasing on average as we continue with the chart and there is a sudden breakout of volume as a price break the horizontal line and when this happens our pattern is complete.

The main difference between symmetrical and ascending triangles is that this pattern is more bullish. In this pattern, buyers are more aggressive than sellers that’s why the lower line(support) keeps on increasing as buying pressure is more than selling pressure.

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As this pattern is bearish, the volume should be heavier on troughs and lighter on peaks or bounces, as selling pressure is greater than buying pressure.

NOTE: If such a pattern occurs during an uptrend, it can act as a trend reversal. Here the interesting thing, how the continuation pattern can also be used as a trend reversal.

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Components of candlestick:

Open: The price at which the market opens during the specified time frame.

Close: The price at which the market closes during the specified time frame.

High: The highest price reached during the time frame.

Low: The lowest price reached during the time frame.

Each candlestick represents specific time frame that can be 15 minutes, 1 hour, 1 day or 1 year. The body of the candlestick is coloured green for bullish (upward) trend and red for bearish (downward) trend.

The green candle is formed when the closing price is higher than the opening price within a given time frame. It signifies that the price has increased, indicating a bullish movement. On the other hand, the red candle is formed when the closing price is lower than the opening price for the specified time frame. The red candle suggests that the price has decreased, signifying a bearish movement. The above discussion become more clear from the below image.

(Image)

The real body is the core of the price movement, indicating whether it’s a bullish or bearish trend. Think of it as the market’s barometer. As a trader, pay close attention to the opening and closing prices because these are two emotionally charged points during the trading day. Here’s a helpful tip for new traders: consider avoiding trading in the first 15 minutes of the morning. This time is often hectic with a lot of rush, anxiety, and news, making it a period of heightened activity. During the initial minutes of trading, the market can experience increased volatility and unpredictability as traders react to overnight news and other factors. Waiting for the initial rush to settle down can provide a more stable and rational trading environment for those who are new to the market.

Their can be different types of candlestick patterns such as –

Single Candlestick Patterns: These include basic patterns like the doji (indicating indecision), hammer, and shooting star, each providing insight into market sentiment.

Multi-Candlestick Patterns: Patterns like the engulfing pattern and the harami involve combinations of multiple candlesticks and can signal potential trend reversals.

Don’t worry, we will discuss all this patterns in upcoming module.

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