How to Make Money Trading with Candlestick Charts

Point 3:
The Nifty had a very good run till
May 2006, where an ugly Evening
Star formation broke its trend.
Point 4:
This particular downtrend was
broken in June 2006 by a Morning
Star signal.

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Point 5:
In February 2007 you can witness a
Doji type week, followed by a
Hanging Man signal.
Figure 12.4
shows the weekly chart of
Jaiprakash Associates. Notice the strong up
trend till 
`
500 was broken with the
formation of a Bearish Harami. The chart
also points out a Bearish Engulfing signal
prior to where the up trend reversed. At this
point, and ask yourself, if one should have
shorted the stock? Looking at the chart it is
obvious that you should not have. What is the
significant difference between the Bearish
Harami and the Bearish Engulfing on this
chart? Confirmation of the candlestick
signal!

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Figure 12.4:
Bearish Engulfing signal
topples Jaiprakash Associates
It is very important for any candlestick signal
to be confirmed before initiating a position.
Notice that the Bearish Engulfing signal was
negated with a Bullish Harami formation.
The Bearish Harami formation was
confirmed with another bearish candle and
lower close. This would be the place to go

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short anticipating a down move.
Observe the weekly chart of GMR
Infrastructure in 
Figure 12.5
.
Figure 12.5:
Trading with candles signals
in the weekly chart of GMR Infrastructure
After a few Spinning Tops and small body
candles throughout March 2007, the stock
formed a Hammer signal. This was
confirmed in the next couple of weeks

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indicating the possible start of an up trend.
This rally ended with a Shooting Star
formation, confirmed by a bearish candle in
the following week. Could this possible
pullback have been anticipated? Maybe.
Where do most investors buy? Near the top!
Notice the candles getting larger as the rally
gained steam and the stock more than tripled.
This is where the common man decides to
jump in so as not to miss the boat. A very
good sign that the stock is about to reverse.
One more point to emphasize is that technical
analysis can be applied to weekly charts, just
as it would to daily charts. Support /
resistance lines, trend channels, technical
patterns are formed by repetitive and

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unchanging human behaviour. Fear is fear
whether on a daily chart. a weekly chart or
even on a 15 minute chart. There is nothing
magical about it. We are prone to act the
same way, no matter what our trading time
horizon is.
Figure 12.6
shows Infosys Technologies
breaking out of a long downtrend on a
weekly chart. Here are some key points to
observe:
Point 1:
An Evening Star formation starts the
downtrend.

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Figure 12.6: