How to Make Money Trading with Candlestick Charts

A Hanging Man in overbought

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condition in Satyam Computer
Firstly, you can see the climactic buying as
shown by the above average volume on the
day before the signal. Secondly, stochastics
are in the overbought area. The day after the
Hanging Man signal, the stock gapped down,
validating the fact that bears had taken
control.
Notice in the chart of Punjab Tractors Ltd. in
Figure 4.9
, that the stock gapped up on the
day it formed the Hanging Man signal.

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Figure 4.9:
Hanging Man stops the up
trend in Punjab Tractors
Though it was a relatively small candle, it
satisfied all the requirements of the
formation. Also notice that this signal was
formed at the same area where the stock met
resistance a few days back. This type of

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confirmation should give a trader a high
degree of confidence that the trend is
reversing.
What can we see in 
Figure 4.10
? Can you
glean any information as a trader from the
candle the day before the Hanging Man
signal formed?

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Figure 4.10:
Hanging Man confirms
spinning top in Jaiprakash Associates
That particular day visually depicts the battle
between bulls and bears. The bears finally
took control with the Hanging Man
formation, which was confirmed the
following day with a lower close.

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After going through these charts and getting
familiar with the Hammer and Hanging Man
signals, think and analyse in your mind the
signal formation day. This will reinforce
your confidence as you will now know the
reasoning behind your trade. Traders can
only be so much successful if they don’t
understand their trades. Eventually, their
losses will mount more than their profits.
Understanding candlestick signals will give
a big boost to your confidence and help you
pull the trigger at the right place and at the
right time.

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5
Inverted Hammer and Shooting
Star Signals
The Inverted Hammer and the Shooting Star
signal also belong to the class of one-day
reversal signals. We will basically flip the
Hammer and the Hanging Man signals upside
down to generate these new signals.

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Inverted Hammer
Description
Figure 5.1
shows the Inverted Hammer
formation.
Figure 5.1: