Many traders who come to the stock market have a question about how to read the nifty candlestick chart correctly. Here I will tell you how to read the nifty eod chart and you can apply it to other stock charts as well. The procedure will remain the same for other scripts.
Try to understand that nifty 50 candle chart reading is not rocket science, but the more you do it relaxed, the more you will profit.
Nifty candlestick chart reading is essential to stock market analysis; you must do it properly to avoid losing significant amounts. It can provide traders and investors with valuable insights into the direction and strength of the market.
Definition Of Chart Reading And Its Importance In Stock Market Analysis
Chart reading is the art of analyzing and interpreting any nifty candle chart, nifty future chart, options, or stock market chart to confirm trading decisions.
It involves looking at various types of charts, such as line char, bar char and popular candlestick chart. You can add technical indicators and other tools to identify market trends and popular patterns.
By learning nifty technical chart and interpreting with technical indicators, traders can identify potential trade opportunities and manage risk in their portfolios.
However, it’s important to note that only reading nifty candlestick chart should not be the sole basis for taking trades. Consider multiple sources of information and use a combination of technical and fundamental analysis when making trading or investment decisions.
How To Interpret Candlestick Formation To Identify Chart Patterns
Reading and interpreting nifty candlestick chart will come to you with practice, for which you will have to read charts continuously.
Make a chart reading your hobby and include it in daily life. For this, you can choose the top 5 nifty 50 stocks. Additionally, add the chart of Nifty futures and keep studying it with your stocks.
For chart reading of the Nifty 50 you need to see the chart of the Nifty 50 Index and Nifty Futures. If you take a trade by combining both charts, then your trade success ratio will increase harmoniously.
Candlestick chart pattern reading is necessary to understand the trend of the Nifty 50. One should have knowledge of the single formation of each candlestick. You should know which candlestick is making which pattern at which place.
If you do not know then let me tell you about some popular candlestick chart patterns which will help you in both intraday and swing.
First of all, let’s talk about the popular single candlestick patterns:-
Single Candlestick Pattern
A single candlestick pattern is a wave pattern that shows the price through a single candle. From this, this pattern tells the trading session taken over a particular time. You can also take a trade based on a single candlestick pattern and make a profit provided you execute the trade correctly.
Whenever you trade on the basis of a single candlestick pattern, you must consider its length, because length is pure day or whatever time frame you have selected.
Talking in simple words, the longer the candlestick, the more intense buying, and selling will be visible. If the candlestick becomes short, it means trading has been done at a very muted age
You will get more clear from the image given below:-
If you are a trader then you should avoid taking trades above a single candlestick. I will tell you more about this in this blog so that more doubts will be cleared.
Long Lines Candlestick Patterns
- Bullish long line candlestick pattern:- This pattern means that the price closed well above its open point and closed below forming a high point. There are small wicks on both sides of the candlestick. If this candle is green, then it means that the buyers have dominated.
- Bearish long line candlestick pattern:- This pattern means that the price closed well below its open point and closed above by forming a low point. In this, a small wick or shadow can be seen on both sides of the candlestick. If this candle is red, it means sellers have dominated.
The Marubozu Candlestick Pattern
This is the first single candlestick pattern that means “bald” in Japanese. There are two types of Marubozu candlestick patterns, the Bullish Marubozu and the Bearish Marubozu.
You can also identify it with a green candlestick and it is a bullish signal. and it appears when the open is at the low and the close is at the high. In this, the bulls kept their control of the whole trading and kept trying to take the price higher. The reason for this is that the buying interest of the traders was present at every point of the stock on that day and that is why the stock closed at its day’s high.
Sometimes the trend behind Marubozu has nothing to do with the trend of the trading session. It is expected that after this formation, there will be bullishness in the trend and the price may remain in the uptrend for a few days. So if you are a trader then you can consider buying opportunities.
A bullish marubozu candle is formed whenever the Open = Low and High = close
You can also identify it with a red candlestick it is a bearish signal and it appears when the open is at the high and the close is at the low. In this, the bears kept their control of the whole trading and kept trying to take the price down. The reason for this is that the selling interest of the traders was present at every point of the stock on that day and that is why the stock closed at its day’s low.
It is expected that after this formation, there will be bearishness in the trend and the price may remain in the downtrend for a few days. So if you are a trader then you can consider selling opportunities.
A bearish marubozu candle is formed whenever the Open = High, and Close = Low
Spinning Top Candlestick
The spinning top candlestick pattern is also known as the indicator candle. This pattern could not indicate the current trend of the market, hence it also indicates the lack of direction.
This pattern is identified with a small real body. There are big wicks on both its sides and their size is double the size of the body. In this candlestick pattern, the trader cannot make any specific entry or exit point.
Examples of spinning top candlesticks are given below, see them carefully and tell in the comment what is your observation.
A green spinning top candle is created when open and close prices are near the low and the high is much higher. Bulls tried to take the price higher but could not sustain it.
Now Let’s have a look at Bearish Spinning Top Candlestick Pattern:-
A red spinning top candle is created when open and close prices are near the high and the low is much lower. Bears tried to take the price down but could not sustain it.
The spinning top candlestick represents a pattern in which neither the bulls nor the bears win. Both want to keep their control on a specific price point and from there, an attempt is made to reverse the trend.
This is not considered a strong trend reversal pattern, it is important to see where this candlestick pattern is forming. For confirmation of this pattern, you can use technical indicators such as trend indicators, support and resistance levels, and volume.
The Dojis Candlestick
The Doji candlestick is also similar to the spinning top pattern, except that the real body of the candle is shorter than that of the spinning top. Its wicks are long, which are also called upper shadow and lower shadow.
Technically speaking, Doji candlestick is characterized by a real body with open and closed prices at the same or nearly the same level, creating a cross or “+” shape.
Some of the important Doji candlestick patterns are given below:
- Regular Doji
- Long-legged Doji
- Dragonfly Doji
- Gravestone Doji
Like the spinning top candlestick pattern, Doji candlesticks suggest that neither the bulls nor the bears have control over the price action. It may be that a change in direction may be coming, but it is not a strong signal.
Hammer Candlestick Pattern
The hammer candlestick pattern forms at the bottom of a downtrend and indicates the possibility of a trend reversal from here. Bulls and bears want to control themselves and try to take the price in an uptrend.
A Hammer candlestick pattern is characterized by a small real body (green or red) near the top of the candle with a long lower shadow that is at least twice the length of the real body.
The long lower shadow means that the bears tried their best to bring the price down but the bulls brought the price back closer to their open price.
See, the color of the real body doesn’t make any difference but If a hammer candle pattern is formed in green color after the downtrend, then it is considered a signal of a bullish trend.
Inverted Hammer Candlestick Pattern
An inverted hammer candlestick pattern is also formed in both trends as you can see in the example image below.
Paste Image here
This pattern is characterized by a small real body (green or red) near the bottom of the candle with a long upper shadow that is at least twice the length of the real body.
The long upper shadow means that the bulls tried their best to push the price higher but the bears brought the price back closer to their open price. However, even when this pattern becomes more significant in a downtrend, it can be confirmed by adding a technical indicator to the chart.
Hanging Man Candlestick Pattern
This pattern is considered to be the candlestick pattern with the most arguments. A hammer candlestick is a bullish signal if it is formed in a downtrend. But if this pattern is formed in an uptrend, then it is called a hanging candle pattern.
Its real body candle is small and located at the top and its wick is twice or more than its body. In this pattern, there is no wick above the candlestick.
The high point of the Hanging Mind candlestick pattern is its open price.
The Shooting Star Candlestick Pattern
The Shooting Star candlestick pattern is known as a bearish reversal pattern which you identify after an uptrend rally. It is a small real body (Gree or Red) near the top of the candlestick having a long upper shadow (wick) that is at least twice the length of the real candle body and little or no lower shadow (wick).
The pattern is confirmed only when the next candlestick closes below half-way on the body of the first candle.
The color of the candle body remains very variable, whether it is green or red, but if it is made in a red pattern, it becomes more reliable.
Long upper wick means that the bulls tried to take the price upper but the bears Now the thing to note is that from where the price fell back, was there any resistance zone in the previous, you always have to pay attention.
Multiple Candlestick Formations
After a single candlestick pattern, it becomes necessary that you should use them with other candle formations as well. Let us see how one candlestick combines with another candle to create a formation. This not only gives us an idea of the current trend but also allows us to trade reversals.
Multiple Candlestick Formations Types:
- Engulfing Candlesticks Pattern
- Harami Candlestick Pattern
- Dark Cloud Candlestick Pattern
- Piercing Line Candlestick Pattern
Engulfing Candlesticks Pattern:-
You can consider the Engulfing Sandelastics pattern as a simple trend reversal signal in trading. In this pattern, the second candle completely engulfs the previous candlestick. For this, it is important that you use only a one-time frame and find this pattern in that.
Harami Candlestick Pattern:-
You know this pattern by the name of mother baby candle or pregnant lady or you again inside candle.
You can divide this pattern into two parts:-
- Bullish Harami:- This pattern is formed after a double trend. From here the chance of potential reversal (going up) of the price is considered.
- Bearish Harami:- This pattern is formed after an uptrend. From here the chance of potential reversal (coming down) of the price is considered.
Dark Cloud Candlestick Pattern:-
This pattern is formed on the chart after an uptrend. Isme pehle strong green body candle banti hai or second candle (agali candlestick bar) must be more than half way down the body of first the candle. You can also know this by the name of rainy days ahead.
Piercing Line Candlestick Pattern:-
This pattern works exactly opposite to the dark cloud candlestick and it is formed on the chart after a double trend. In this first strong red body candle is formed and the second candle (next candlestick bar) must be more than halfway up the body of the first candle.
Candlestick Star Formations
- Morning Star:- The morning star pattern forms after a downtrend and shows a signal for a bullish reversal. There are three candlesticks in this pattern and together they form a formation. The first candle has a long red body and the real body of the second candle is below the previous candle although the wicks may overlap each other. The third and last candle is long green which closes higher than half of the first candle.
- Evening Star:- The evening star pattern forms after an uptrend and signals a rain reversal. This pattern also consists of three candlesticks and together they form an evening star pattern. The first candle has a long green body and the real body of the second candle is above the previous candle although the wicks may overlap each other. The third and last candle is a long red which closes below half of the first candle.
Suppose you understand how to read candle behavior. In that case, predicting the market direction in any specific time frame will be easier. You can do intraday, swing, or even positional trades.
Overview Of Different Charts Types Used In Stock Market Analysis
We can use several different charts in our stock market analysis, including line charts, bar charts, candlestick charts, Renko, etc. All these charts have their merits and demerits and can provide different insights into the market.
- Candlestick charts
- Line charts
- Bar charts
- Point And Figure Chart
Candlestick charts are most commonly used in the stock market by traders and investors. These charts are similar to bar charts and are plotted with a series of candlesticks showing the opening, closing, high, and low prices for the selected period. It gives a lot of information and allows traders to identify market trends and patterns.
Line charts are the most basic type of chart and are constructed by plotting closing prices over a set period and connecting the closing prices with a line. This chart is handy for those who are new to the stock market. Line charts are simple, easy to read, and less noisy [see example below], but they need more detail and show price gaps.
Bar charts are similar to line charts but provide more information regarding the high and low prices for the specific period and the opening and closing prices.
Point And Figure Chart
Apart from the above charts, many other charts are available. Traders can choose any charts and confirm trades by adding technical indicators. It helps forecast market trends and identify potential trade opportunities.
Technical indicators are mathematical calculations based on the price action. You can plot indicators on the nifty 50 future chart to help identify patterns, trends, or market behavior.
Some common technical indicators include the relative strength index (RSI), the moving average convergence divergence (MACD)
Let’s Discuss Candlestick Charts
As I describe in the above paragraph, traders commonly use candlestick charts in stock market analysis. These charts are similar to bar charts, but they are plotted with a series of candlesticks that show the opening, closing, and high and low prices for the period being charted.
To better understand a candlestick chart, the opening price is plotted as a horizontal line to the left of the vertical line, known as the candle body representing the specific period.
If the closing price is higher than the opening price, the candle’s color will be green, and the top point of the candle represents the closing price.
If the closing price is lower than the opening price, the candle’s color will be red, and the low point of the candle represents the closing price.
Shadow wick is the area formed from the opening price of the candlestick to the top high points or from the opening price to the low point.
The top point of the shadow wick indicates the high price, and the lowest point of the shadow wick indicates the low price.
You can avail a lot of information by using nifty candlestick chart. The best way to utilize it is by practicing the stock, option, or future in different time frames. Each time frame has a different candlestick pattern.
Pros and Cons Of Using Candlestick Charts
Candlestick charts are a popular type of chart used by traders, but like any other tool, they have some pros and cons.
Here are some pros and cons of using candlestick charts:
- Visually appealing format.
- Helpful in identifying trends and patterns
- Effective at highlighting potential trade opportunities
- Used to confirm other technical signals or chart patterns
- It can be complex to read and interpret, especially for beginners.
- It can be subject to subjectivity, as different traders interpret the same chart differently.
- Not including volume data, which can be important for some traders.
- It should not be used as the basis for trading and investment decisions. It’s always a good idea to consider multiple sources of information.
Overall, candlestick charts can be a valuable tool for traders and investors looking to identify trends and patterns in the market. Still, it’s essential to use them in conjunction with other sources of information.
Understanding Stock Charts Patterns
- Reversal patterns:
- Head and shoulders:
- Inverse head and shoulders:
- Double Top Pattern
- Double Bottoms Pattern
- Symmetrical Triangle Pattern
- Bearish Triangle Pattern
Head and Shoulders Chart Pattern:
The head and shoulders chart pattern indicates a bullish-to-bearish trend reversal. It is an important part of technical analysis.
As you can see on the chart, the price created a higher high from a higher low. You can call this high the “left shoulder.” From this high point, the price showed a downward movement and held it for some time after reaching a certain level. We can also call this a higher low point in technical terms.
Price then breaks the previous swing high (left shoulder) with an upward movement and creates a new swing high. Also, it is a higher high created on the chart. It is known as the “head” of the head & shoulder pattern. It can form in any time frame, and you can use it with your intraday skills.
From this high point, the price returned to the previous low point (known as HL), where the price held for some time. After this, the price showed upside movement from here and formed a lower high (LH), also known as the “right shoulder.”
Inverse Head and Shoulders:
The inverse head and shoulders chart pattern indicates a bearish-to-bullish trend reversal. This formation is also called a head and shoulders bottom. It is an inverted head and shoulder pattern by which market reversals are predicted in downtrends.
This pattern is defined only when specific characteristics are met, for example:
- The price falls to a certain point, then rises.
- The price falls below the previous Lower low (LH), then rises again.
- The price falls again till the first certain point, but not as far as the previous lower low.
- Once the final point is made, the price heads upward toward the resistance (called the neckline) found near the top of the previous points.
Double Top Pattern:
After a continuous uptrend, the market retest at a point called the top. It consists of 2 waves, as shown in the Image that the market created a top after a sharp uptrend.
From the top point, the price came down near its previous higher high breakout point and resumed the uptrend from there (the price also can stay here for a while).
After that, the price jumped back to the range of its top point and fell from there till the previous low point. This low point can be called the neckline from where the last uptrend was resumed.
Now there are two ways to trade in this situation:-
- Short near the 2nd top point
- Short below the neckline
Safe traders can wait for a retest in the 2nd scenario. By waiting for retest confirmation, you w. If you choose the 1st option, your risk will be low, but if the market turns, it will take your Stop Loss (SL); however, the reward will be much bigger than the second scenario.
Double Bottom Pattern:
The double bottom pattern is formed on the chart when the market is in a downtrend movement. This chart pattern is considered one of the vital signs of reversals in the market. It can be for stock, options, futures, or even commodities.
As seen in the image, the market showed an upside move after the downtrend and created a swing; however, from there, the market again came down to lower levels.
After this, the price showed an uptrend while respecting the low point and returned to its swing point.
From there, the price continued the uptrend by breaking the neckline.
Now there are two ways to trade in this situation:-
- Buy near the 2nd bottom point
- Buy above the neckline
Safe traders can wait for a retest in the 2nd scenario. Always wait for a retest confirmation to minimize your risk. If you choose the 1st option, your risk will be low, but if the market turns down again, the market will take your Stop Loss (SL); however, the reward will be much bigger than the second scenario.
The triangle pattern is formed on the chart when the top and bottom points are continuously reduced. You will get a better understanding from the example image.
If the trend lines are drawn from the top and bottom points, they will meet at one point. I hope you all understand my point, refer to the example image to get a better idea of this pattern.
This pattern will look like a triangle, and it can break the upside and the downside. You must confirm your pattern before taking any trade order.
Three reasons to recognize this pattern:-
- Bottom prices increasing and top prices constant
- The top price is falling, and the bottom price is making a constant move
- Both the top price and bottom price are converging (i.e., trend lines will meet specific points)
Now, these patterns further can be of three types:-
In technical charts, all these patterns define a continuous trend.
Ascending Triangle Pattern:
In this pattern, the high points remain in the same range while the low price moves towards the upside. An increase in the lows means that the buyers are ready to pay a higher price for that stock or futures.
If more buyers show interest, then the price can move further upside from there. It means that even after the formation of the pattern, the price is still in its upside trend.
Descending Triangle Pattern:
In this pattern, the top price range falls, but the bottom price remains constant. Investors or traders are not willing to buy the stock as selling pressure may increase on the price and may come down further.
If we talk about this chart pattern, the top price falls, and the bottom price moves upside down to form a higher high, and higher low. It means that the existing sellers want to sell more and the existing buyers want to buy more.
After all, if the trendline is drawn, it converges at one point, and the price resumes its trend from that point.
Symmetrical Triangle Pattern:
If we talk about this chart pattern, the top price falls, and the bottom price moves upside down to form a higher high, and higher low. It means that the existing sellers want to sell more and the existing buyers want to buy more.
After all, if the trendline is drawn, it converges at one point, and the price resumes its trend from there.
Bearish Triangle Pattern:
Tips For Reading Candlestick Charts To Identify Patterns
- Identify Patterns: Candlestick chart tells you about many patterns like bullish, and bearish engulfing patterns, dojis, pinbar, hammers, etc. These patterns can also indicate potential trend reversals; you must practice daily on different stock charts.
- Note Down The Size Of The Candle Body: A larger candle body (the vertical line representing the period) can indicate a stronger trend in the market; it could be for any side [bullish or bearish], while a more petite real candle body may indicate indecision or a lack of momentum.
- Look For Confirmation: Candlestick patterns can be more trusted when combined with indicators or chart patterns. For example, a bullish engulfing pattern may be more reliable if it is accompanied by a breakout above a key resistance level and takes a retest.
- Use Trend Lines and Moving Averages: Trend lines and moving averages can help identify market trends or patterns and can be used to confirm or refute candlestick patterns.
- Practice Multiple Time Frames: Candlestick patterns can be more reliable when confirmed on multiple time frames. For example, a bullish pattern on a daily chart may be more reliable if it is also present on a weekly chart.
An important point to remember is that no single chart or indicator can give you 100% results. Use multiple factors to confirm your trade like a professional trader.
However, I am not such a big fan of indicators; you can use them to enhance your trading skills, which will surely help.
Popular Technical Indicators To Use When Reading Stock Charts
You can plot technical indicators on the chart for trade confirmation. These indicators are calculated mathematically based on a financial instrument’s price or volume. They are commonly used in chart analysis to help predict market direction and identify potential trade opportunities.
There are many technical indicators available, and you can use each according to your trading style and availability. Keep one thing in mind: use only a few indicators, use only one or a maximum of three indicators and combine them with price action on the charts.
Here are some examples of popular technical indicators:
- Moving Averages: A moving average is a statistical measure that smooths out price data over a selected time frame, making it easier to identify market trends. You can plot different moving averages on the chart, such as simple moving averages (SMAs), exponential moving averages (EMAs), and weighted moving averages, to identify trend direction, strength, and potential trend reversals.
- Relative Strength Index (RSI): This is the most potent technical indicator, although I don’t use it in every trade. It comes in handy when I need clarification. RSI is a momentum indicator that measures the strength of a price trend. The RSI ranges from 0 to 100, above 70 indicating overbought and below 30 indicating oversold conditions.
- Moving Average Convergence Divergence (MACD): The MACD is a trend-following momentum indicator that compares the difference between two EMAs to identify changes in the strength and direction of a trend. You can use it to identify trend direction, strength, and potential trend reversals.
- Stochastic Oscillator: I’m not a big fan of this indicator, but it works for many traders worldwide. The stochastic oscillator is a momentum indicator that contrasts the closing price of a security to its price range over a set time frame. Its range is 0 to 100; a reading above 80 indicates overbought conditions, and a reading below 20 indicates oversold conditions.
- Bollinger Bands: To be honest with you, this is a fascinating indicator. Because it is most potent when used in higher time frames for swing or positional trades. The Bollinger band is a technical indicator consisting of three bands plotted on a chart. The middle band is a simple moving average, and the upper and lower bands are plotted a certain number of standard deviations above and below the middle band.
- Pivot Points: This is a technical analysis indicator commonly used to identify potential key support and resistance levels on the charts. Pivot Points are calculated using any script’s high, low, and close prices over a given time, such as hourly, daily, or weekly.
Hello Traders, Myself Prashant, doing trading from last 4 years. I’m uploading content from my own experince hope you’ll appericate my efforts. If you have question please leave a comment. Follow @Instagram