BEGINNER

3. U
 nderstanding Single
Period Chart Patterns
H A N TE C R E SE A R C H WE BINARS - Technical Analysis Series

Line Charts, Bar Charts and Candlestick Charts

The price chart can be presented in a variety of different ways. The vast majority of
analysts use either line, bar or candlestick charts.

Line charts are the most basic chart format. They

a single data point to represent a whole session (or
trading period), usually the end of day Close price.
This data point is then connected to the equivalent
point of the previous session to form a line.

Bar charts give much the highest price for the day
more price information closing price

than line charts.

Containing data for the opening price
Open, High, Low, and the lowest price for the day
Close (OHLC) prices, bar
charts give a gauge of
how price has moved through the whole day.

Candlestick charts
high upper
again use OHLC but shadow
open close
also have different real
colours to represent up body
close open
days (or periods) and lower
down days (or periods) low shadow

for the Open versus

the Close. A candlestick has two parts: the Body (the
difference between the Open and Close) and the Tails
or Shadows. A candle with the Close higher than the
Open (i.e. an up day) has a white body, and one with
a Close lower than the Open (i.e. a down day) has a
black body.
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 3. Understanding Single Period Chart Patterns

H A N T E C R E SE A R C H WE B INARS - Technical Analysis Series

Single Period Bar Chart Patterns

There is much that can be ascertained from the towards the bottom of the range, this would suggest
analysis of a single bar. Where the price opens, where that the sellers have gained control. Alternatively, a
the price closes and the size of the daily range are all close price near the high of the range would suggest
important in assessing whether it is the bulls that are that the buyers have ended in control. If the closing
in control or the bears. price is around the middle of the range this suggests
uncertainty with the current move.
The Open/High/Low/Close bar can reflect the
psychology of the market. The single day bars shown However we can also look at the close price compared
below show what can be determined from the close to the open. The tables below set out the implications
price compared to the daily range. If the price closes of certain moves.

Buyers strongly Buyers lacking Buyers beginning Sellers strongly Sellers lacking Sellers beginning
in control conviction to lose control in control conviction to lose control

Additionally, if the open price is towards the

middle of the range, this suggests uncertain
trading. However where the price closes can
suggest who is beginning to gain the upper hand.
No overall control The buyers are The sellers are
by the buyers or gaining control gaining control
the sellers

Inside Days and Outside Days to the Inside Day and is where the entire daily
range swallows up the previous session. This is then
An “Inside Day” (or inside bar if you are trading compounded by a close price that is again outside the
intraday) is a signal of uncertainty with the current previous day’s range. If the price is in an uptrend, a
trend. This is where the entire daily trading range bullish outside day will have the close above the high
is swallowed up by the previous day’s range. The of the previous day’s high. In a downtrend, a bearish
psychology is that it is an uncertain move and could outside day will have a close below the low of the
signal a stalling in the trend. There are two ways previous day low.
to trade Inside Days. Firstly you can put a buy order
above the high of the previous day high. A move
such as this would signal that following the bout of
consolidation the bulls are ready to back the price. Or
alternatively, you could put a sell order just under the
low of the previous low, signalling that the bears are The Inside The Outside
gaining the ascendency after the consolidation. Day/Bar Day/Bar

An “Outside Day” (or outside bar if you are looking at

intraday trading) is a signal that reflects the strength
of the underlying trend. It is the complete opposite
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 3. Understanding Single Period Chart Patterns
6. Bollinger Bands
H A N T E C R E SE A R C H WE B INARS - Technical Analysis Series

Key Reversals
One of the most powerful single bar patterns is A bearish key reversal is the opposite, coming
the key reversal. Coming at the end of a trend and at the top of an uptrend and marks a culmination
ideally at either the high or the low of the move, a in buying pressure as selling pressure is renewed.
key one day reversal marks a significant change in A bearish key reversal will often mark important
sentiment. Key reversals can also work across chart reversal towards a new downtrend. The signal can be
with a variety of different time frames, such as a key traded by going short and placing a stop above the
one day reversal, key one hour reversal, or even a high of the key reversal bar.
key one minute reversal.

A bullish key reversal will come at the end of a The figure below illustrates a both a bullish and a
downtrend. The price makes a new low, below the bearish key reversal.
previous session low, only for the selling pressure
to become exhausted and the move to be rejected.
The buying pressure then returns during the same
session, to result in a close above the previous session
high. This suggests a significant swing in sentiment
towards the bulls and will often mark the bottom
of major downtrends. They can often be traded by
going long and placing a stop below the low of the
key reversal.

The daily chart of Euro/Dollar shows a series of outside days, inside days and a bullish key one day reversal
from February to April 2013. Note how the outside days in February are powerful trend continuation
patterns. Then, right towards the bottom in late March there are two consecutive inside days which reflect
the uncertainty that is building up. This was then followed by the big trend changing bullish key one day
reversal.

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 3. Understanding Single Period Chart Patterns
6. Bollinger Bands
H A N T E C R E SE A R C H WE B INARS - Technical Analysis Series

Single Period Candlestick Chart Patterns

There are literally hundreds of candlestick patterns that have been identified, many of which have weird
and wonderful names. Japanese traders love their candlesticks and subsequently, many candlestick patterns
have Japanese names, such as “doji” and “marubozu”.

There can be one day candlestick patterns, two day patterns, in addition to three day patterns and multi-day
patterns. However, for the demands of space, and to keep it relatively simple, we have listed some of the
more common single day candle patterns that traders should be aware of.

Some traders set up their candlestick analysis using different colours, however for the purpose of this
document, we shall use white candles to signify a bullish day and black candles for bearish.

A long white candlestick indicates strong buying pressure. The further the close Long versus Short
is above the open, the longer the white candlestick is. This shows that prices
advanced significantly from open to close and implies that buyers were aggressive.
Although long white candlesticks are generally bullish, much depends on their
position within the broader technical picture. After an extended decline, a long
white candlestick can mark a potential turning point or key support level. A long
black candlestick is the opposite pattern and is negative.

A Marubozu candlestick is very potent long candlesticks. The Marubozu has Marubozu
no upper or lower shadows, and the high and low are therefore represented by
the open and the close. A White Marubozu forms when the price opens at the
low and closes at the day high. This strongly bullish candlestick indicates that
buyers controlled the price action from the first trade to the last trade. A Black White Black
Marubozu forms when the price opens at the high and closes at the low. This Marubozu Marubozu

strongly bearish candlestick indicates that sellers controlled the price action from
the first trade to the last trade.

Doji candlesticks signal uncertainty with the current trend. They form when the Doji
price opens and closes at (or almost at) the same level, and usually around the
middle of the candlestick. It shows that the price has tested moves both higher and
lower, but indecision has ultimately been the winner. The length of the upper and
lower shadows can vary and the resulting candlestick looks like a cross, inverted
cross or plus sign. The longer the shadows, the more significant the uncertainty,
whilst shorter shadows can represent either equilibrium throughout or a lack of
trading (so volume also needs to be checked). Any bullish or bearish bias is based
on preceding price action and future confirmation.

Dragonfly doji form when the open, high and close are equal and the low creates Dragonfly Gravestone
a long lower shadow. The resulting candlestick looks like a “T” with a long lower doji doji
shadow and no upper shadow. Dragonfly doji indicate that sellers dominated
trading and drove prices lower during the session. By the end of the session, buyers
resurfaced and pushed prices back to the opening level and the session high. It
suggests a failed attempt.

Gravestone doji form when the open, low and close are equal and the high
creates a long upper shadow. They are the opposite of a Dragon fly doji.
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 3. Understanding Single Period Chart Patterns
6. Bollinger Bands
H A N T E C R E SE A R C H WE B INARS - Technical Analysis Series

The Hammer is a bullish reversal pattern that forms after a downtrend. Hammers Hammer
can also mark bottoms or support levels. The low of the long lower shadow shows
that sellers drove prices lower during the session. A strong finish shows that buyers
then regained control to end the session on a positive note. However, hammers
require additional bullish confirmation as the low of the hammer shows that
plenty of sellers remain. Further buying pressure, preferably on good volume, is
recommended before acting. Hammers are similar to selling climaxes, and heavy
volume can serve to reinforce the validity of the reversal.

The Shooting Star is a bearish reversal pattern that forms after an uptrend. It is Shooting Star
the opposite pattern to the Hammer. A Shooting Star can mark a potential trend
reversal or resistance level. The candlestick forms when prices move higher on
the open, advance during the session but closes well off the high. The resulting
candlestick has a long upper shadow and small black or white body. After a large
advance (the upper shadow), the ability of the bears to force prices down is a
warning. Bearish confirmation is required after the Shooting Star and can take the
form of a gap down or long black candlestick preferably on heavy volume.

Hanging Man
The Hanging Man is a bearish reversal pattern that acts as a warning signal
that can mark a top or resistance level. Forming after an advance, a Hanging
Man signals that selling pressure is starting to increase. Even though the bulls
regained their poise to push prices back up by the close, the appearance of selling
pressure is a warning. A Hanging Man requires bearish confirmation before action
is recommended. This could be a gap down or long black candlestick on heavy
volume.

Inverted Hammer
The Inverted Hammer looks like a Shooting Star, but forms after a decline or
downtrend. Inverted Hammers represent a potential trend reversal or support
levels. After a decline, the long upper shadow indicates buying pressure during the
session. Although the bulls were not able to sustain the buying pressure and prices
closed well off of the high to create a long upper shadow, the warning sign is that
the buyers are ready to move once more. Due to the failure of the initial move
higher, bullish confirmation is required before action.

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 H A N T E C R E SE A R C H WE B INARS - Technical Analysis Series

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Figure 4: Range trading using the Bollinger Bands on Silver

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