Gap Theory And Some Important Candlestick Patterns

PART 5 – TECHNICAL ANALYSIS

Candlestick Patterns

1.BULLISH HARAMI : Signifies UP move

First candle should be red and second candle should be green.

Second candle body should be within the range of first candle
body and wick should be within the range of wick

2.BEARISH HARAMI : Signifies Down move

First candle should be green and second candle
should be Red.

Second candle body should be within the range of first candle
body and wick should be within the range of wick.

3.BULLISH ENGULFING : Signifies UP move

First candle should be red and second candle should be green.

Second candle body should be within the range of first candle
body and wick should be within the range of wick.

4.BEARISH ENGULFING : Signifies Down move

First candle should be green and second candle
should be Red.

Second candle body should be within the range of first candle
body and wick should be within the range of wick.

5.MORNING STAR : Signifies UP move

Green candle should close above half of the body of the red
candle .
For safer side we will consider this only when green candle
should close above complete range of red candle so we
can say we have a strong DBR structure.

6.EVENING STAR : Signifies Down move

Red candle should close below half of the body of the green
candle .
For safer side we will consider this only when red candle
should close below complete range of green candle so we
can say we have a strong RBD structure.

7.Hammer : Bullish pattern

8. Inverted Hammer : Bearish pattern

9.Shooting Star : A Hammer at the end of down trend or an inverted hammer at the end of an up trend

GAP THEORY

Real Gaps : The market truly closed and later on truly re-opened providing a difference in price (previous day close
and next days open).
Commodity market are prone to rollover gaps.

Fake Gaps : Generally occurs as a result of mathematical calculation.
These gaps occurs only in global market and do not occur in Indian Markets.

Inside gap : If a gap occurs within the range of the previous candle, it is called as an Inside Gap.

Outside gap : If a gap occurs outside the range of the previous candle, it is called as an Outside Gap

Novice Gap : A gap in the same direction of the trend, it is called as a Novice GAP.

Pro Gap : A gap in the opposite direction of the trend, it is called as a PRO GAP

APPLICATION OF GAPS ( NOVICE & PRO GAP )

APP 1. A novice gap into the zone makes that particular trade a high probability trade.

APP 2. A novice gap into the a pro gap makes that particular trade a high probability trade.

APP 3. A pro gap from the zone makes that particular trade a high probability trade

ANOTHER IMPORTANT GAP

Significant Gap : A gap that occurs beyond the range of previous candle is called as significant gap.

Window Gap : A pro gap can also be a window gap.

LOTL – ( LEVEL ON THE TOP OF THE LEVEL /

LEVEL OVER THE LEVEL )

Case 1:

Case 2:

Case 3:

TRAP LEVELS

Bull Trap – These are supply zone where conventional technical analysis people will make
novice buying mistake.

Bear Trap – These are demand zone where conventional technical analysis people will make
novice selling mistake.

Common Mistakes to Avoid

1. Ignoring Trend Direction: Always trade with the trend to increase success probability.
2. Using Indicators in Isolation: Combine multiple indicators to confirm signals.
3. Overcomplicating Analysis: Too many indicators can create conflicting signals.
4. Failing to Manage Risk: Always use stop-loss and proper risk-reward ratios.

Stay tuned for more insights on advanced trading techniques in our upcoming blogs!

PART – 6 TECHNICAL ANALYSIS

PART – 4 TECHNICAL ANALYSIS