The hammer candlestick pattern can be recognized by these criteria.

1) The real body is at the bottom of the trading range.
2) It should have a long lower shadow at least twice the height of the real body.
3) It should have a very short or no upper shadow.

Hammer formation occurs at the bottom of the trend & is a bullish trend reversal candlestick pattern. When the market is in a downward trend & a hammer appears it expresses a trend reversal.

The color of the candle can be green or red, but many believe that a trend reversal is more promising if the candle is Green in color i.e. it is of a positive close. Despite all the expert opinions I suggest you to observe Hammer formations of different colors as I have seen that, many a times Red hammers bring reversals too and lead into a perfect upward move. For an example you can refer to the chart below.

When you see a hammer it does not mean that that you should go ahead and place a buy order. One will need a more bullish confirmation to do so.  A appearance of a single hammer candle does not promise an upward trend in the market, in many cases I would look for another candle with which the market confirms the trend.

The second of the many factors that you will have to consider when you choose a time-frame are the operating hours of the market. Let us say that you have a working system designed for the Australian stock market which is a 6 hours market (i.e. the market stays open for 6 hours on a normal trading day), now if you try to apply the same system in some of the European markets, which operate for over 8 and half hours it is not going to function in a similar manner. Considering this you'll have to alter your choice of time frames and other tools in-order to achieve a similar efficiency from your system.

The third & ever changing factor is Volatility. The questions that come to the mind are - how does volatility affect your systems and how choosing a suitable time-frame can help us with that? When the market is volatile we witness sudden changes in direction & large movements. To understand this let's take a look at the very important example of Gold. Before the 2008 crash Gold had never moved within a large range the way we see it move now, it was possible to predict the market using smaller time frames because smaller time frames could not only contain all the movement see in Gold & also give us proper candlestick patterns but the data was also easily compatible with western price patterns. But when the markets turn volatile, as they did after 2008, the smaller time-frames are crowded with a lot of noise & erratic price movements hence we do not get to see proper candlesticks develop. Most candles contain big tails or some times big bodies with big tails which start to create a lot of trouble in reading these candles and predicting the next move of the market. When markets decide to move in such large ranges, where candlesticks fail to produce clear signs, we have to move to larger time-frames to reduce the noise & have clearer candles to be able to catch & decipher the proper patterns.

One other important factor is liquidity. You might have noticed that when liquidity is not stable candlestick patterns don't pan out well, and western price patterns don't seem to provide any help either. Do note that here I'm referring to candlestick patterns & not the individual candles, as you might see individual candles (for example a doiji) forming but you'll be unable to see complete patterns form which are require to take action in the markets. Hence to manage changes in liquidity in our system we have to shift to higher or lower time-frames as necessary. Usually if liquidity goes down we shift to higher time-frames and if liquidity goes up we shift to lower time-frames.

Choosing the right time-frame for trading/investing in an every changing market is a necessary & powerful skill needed to successfully generate profit. On switching time-frames we do face multiple challenges, the first of them is that we'll now have to fine-tune all the technical indicators, that have been used in the trading/investment system to the new time-frame, as calculations for indicators change drastically. Most importantly when we make these changes the duration/length of our trades is also affected, for instance if your trades were lasting 2 to 3 days and you move to a higher time frame, now they might last a week but shifting to different time-frames is key & is the best cure to handle changes in the market.

Posted by : Neha Gupta

The hanging man is a bearish market indicator, which expresses a trend reversal of an uptrend move. Hanging man candlestick formation has a short body at the top of the candlestick with a long lower shadow and little or no upper shadow. The smaller the body and the longer the tail, the more significant the hanging man is as a bearish indicator.

The hanging man candle can be recognized by these criteria.

1) The real body is at the top of the trading range.
2) It should have a long lower shadow at least twice the height of the real body.
3) It should have a very short or no upper shadow.

When the market is an uptrend & a hanging man appears it expresses a trend reversal. Hanging man formation occurs at the top of the trend & is a bearish trend reversal candlestick pattern.

The color of the candle can be green or red but according to experts’ trend reversal is more promising if the candle is Red in color. While trading in the markets I have often observed, that even when a green hanging man appears at the top of the trend, considering other factors for example volume and the following candles, it does promise a reversal.

Given that it is reversal pattern but when you see a hanging man, doesn’t mean that that you should exit your positions. One will need more bearish confirmation to do so. The appearing of a single hanging man candle does not promise a fall in the market, that is why we must look for further candlestick patterns which confirm the reversal.

Posted by : Neha Gupta

This week Nifty futures has traded above the 8000 mark. The Indian market has been performing so well since march that after looking at the charts the first question comes to the mind is; is it gonna go down at all?

A lot of credit of this upwards run goes to India's new elected Prime Minister, Narendra Modi and the hope that everybody has tied-up with his promises of renewing India's economic vigor. The poll results on 16th May 2014 decided that he was going to be the next PM. At this point the market had already rallied a 1000 pts from the levels of 6300 & I believe was too late to enter into the market to catch such a long run. He was Chief Minister of a western Indian state for 3 terms, his policies and his openness for businesses from all over the world was no surprise for many. So technical analysis or India's elections no matter what you follow, there were clear-cut signals to catch 2000 points easily.

If we look back at march, the market broke 6350 levels in the first week of march, which it was trying to hold for more than six months and that was an easy yet very profitable buy. If you could grab an opportunity around these levels you would have had a very small stop-loss and the buy was supported by numerous candlestick patterns, so confidence to enter a buying position here was very high.

Let me give you a highlight of what was happening on the ground here in India, on the 26th of march Mr. Modi visited a goddess temple and announced a 45 day campaign named 'Bharat Vijay Rallies', which he finished on the 10th of may 2014. If you refer to the chart I have posted above and see an area I have marked in saffron, here the markets were flat and were not moving along with the excitement of Indian people for their future Prime Minister. If one could read the charts despite all the political hullabaloo, the first target would have been 7000. When the election results were declared in the favor of Mr. Modi the market also welcomed the 'Modi Era' and smoothly touched levels of 7500. But for those who were waiting for this event to pan-out, it was a little late.

Now after such a long run, with a favorite government or not the markets intend to correct; 7830 is a very crucial level you have to watch if markets move a little lower, further it would be 7460 and 7200. If liquidity continues to flow & India gathers more & more investments our next target would be 8430.

Posted By : Neha Gupta

I have read somewhere that no matter what you learn in life it can always help you trade in the stock market; may be not in the exact same words but this is what the writer meant I suppose. Initial learning of candlesticks can be easier if you apply the basics of mathematics, I have tried in this post to explain the formation of candlesticks with the help of points on line graphs. So let us have a look at how candlesticks are drawn.
Suppose intra-day stock prices move from 9:00 AM to 16:00 PM and they produce an upward moving line graph, as shown below:

Or a downwards moving graph as shown below :

To draw the daily candlestick you require the opening price, closing price, low & high of the daily movement. A green Candlestick expresses that market has closed above the opening price, in other words closing price of the stock is greater than opening price of the stock.

Chart below shows the price movement of a green candlestick formation:

A red candlestick expresses that market has closed below the price of the opening. In other words opening price of the stock is greater than the closing price of the stock.

Chart below shows the price movement of a red candlestick formation:

Each candlestick will have a different shape, red resembles a downtrend & green resembles an uptrend, and each means something different. Candlesticks tell us a stock price movement over a set period of time, for instance one hour, one day or one week. Regardless of the time frame, the form of the candlestick & its combination with the other candlesticks can be used to identify the market’s direction, its relative strength & weakness. That is the main purpose of the candlestick charts.