How to Make Money Trading with Candlestick Charts

Bearish Engulfing signal near
overbought conditions in Hindustan

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Motors
As you can see, candlestick charting clearly
depicts investor sentiment changing in the
stock. A candlestick trader could have long
seen the deterioration in the health of this
stock before the bearish engulfing signal
finally broke it down.
Figure 6.8
clearly reveals the exuberance of
the novice investors buying into the top of the
trend.

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Figure 6.8:
ITI Ltd. showing Bearish
Engulfing signals after exuberant buying
How often do we get caught in this situation?
When the stock rallied from below 
`
30, the
novice investor wanted to wait to see if this
was a good stock. The investor was finally
convinced that this stock deserves his or her

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money somewhere in the 
`
70 range. Finally,
when it looks like everybody in the
neighbourhood is buying in the stock, the
novice jumps in. This is the last panic
buying. Smart money then starts selling to the
inexperienced investors.
JCT Ltd shows a Bearish Engulfing pattern
in 
Figure 6.9
.

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Figure 6.9:
Bearish Engulfing signal in
JCT Ltd.
Notice the gap up in overbought condition
forming the white candle. The volume
expanded showing a lot of shares changing
hands. Finally, the bearish dark candle
completed the pattern. What should a trader
see after the Bearish Engulfing pattern? More

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selling!
The candlestick signals have been tested
through 400 years of trading. They signify a
high degree of probability that the trend is
about to reverse. The trader should always
keep this in mind. This will help build
confidence while actually placing a trade.
In the case of Manali Petro in 
Figure 6.10
,
one can visually observe the climactic
buying in the stock.

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Figure 6.10: