How to Make Money Trading with Candlestick Charts

Resistance becomes support
in L&T
The Bearish Engulfing signal at the beginning
of November (Point 1) was an excellent
point to short sell the stock. The stochastics
were in over bought conditions and the

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signal confirmed a previous resistance point
from mid-September. Let us analyze what
happened from then on:
A Morning Star signal stopped the
downtrend. The trader would still be
okay at this point.
We then witnessed a Doji, then a
Spinning Top, another Doji and another
Spinning Top. All these indecisive days
occurred at the same resistance level.
Then a Shooting Star was formed. At this
point the candlestick trader should be
comfortable that the bears are not giving
up on the stock. Though the bears are not
too forceful in driving the prices lower,
they are still the dominant party.

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The trader would then have witnessed
the big dark candle confirming the
Shooting Star. Everything is still
implying that the supply exceeds the
demand at around the 
`
1,360 price range.
Then we see a Bullish Harami occur. No
reason to panic yet. The trader is still in
the trade.
The next day prices gap up over the
resistance area indicating a change in
investor sentiment. This is not what the
stock should have been doing if the bears
were still in control. It’s time, therefore,
for the trader to get out. The market has
handed over control to the bulls.
Figure 11.17
shows the chart of Hindustan

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Petroleum Ltd.
Figure 11.17:
Failed trade in Hindustan
Petroleum
You will notice that a bullish Harami formed
at the beginning of December 2006.
Stochastics were in oversold conditions. The
next day provided confirmation buying for
the candlestick trader to get in. What should

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be expected after that? Continued buying!
However the trade fizzled out and the trader
should have been stopped out as shown in
the chart.
I would like to ask you to look at the chart in
Figure 11.17
 again in a different perspective.
Should you have even made this trade?
Analyze the chart thoroughly. I have defined
the “buy point” and the “stop out point”
earlier. What is the target point in this case?
Where do you expect the stock to reach?
Hint:
Use concepts from the previous
chapter.
Figure 11.18
 is the same as 
Figure 11.17
, but
with the target point.

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Figure 11.18: