How to Make Money Trading with Candlestick Charts

Punjab National Bank rallying
after a Hammer
Figure 4.4
 shows a Hammer signal in Biocon
Limited. Notice the stochastics were not in
the oversold region, but were moving up.
This was due to the price steadying around
the 
`
330 area. What can be deduced from

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this chart is that the investors lost patience
with the stock. After weeks of downtrend,
and then no movement at all, the investors
finally gave up. That was the time smart
money moved in and generated the classic
Hammer signal. Strong profits would have
been generated for a trader buying on
confirmation of this signal.

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Figure 4.4:
A Hammer and volume
explosion in Biocon
What do the candlesticks in 
Figure 4.5
 show
you? Can you see any sign before the actual
Hammer signal that should have alerted you
that the downtrend might be approaching its
end? The big black candle the day before the

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Hammer in oversold condition shows you
visually the panic selling as a result of the
fear experienced by novice traders.
Remember, from now on, you are trading
fear and greed, not stocks. That is what the
market is all about — and successful traders
take advantage of that everyday.

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Figure 4.5:
A Hammer in oversold
condition in Hindustan Lever
We will conclude the Hammer discussion
with the chart of ABB in 
Figure 4.6
. By now,
hopefully, I have drilled into your psyche the
conditions you need to be looking for when
trading the Hammer signal. So, go ahead and
analyze this chart for yourself. Candlestick
signals are very simple if you know exactly
what you are looking for.

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Figure 4.6: