Technical Analysis Cheatsheet
Chart Time Frame for Trading
|5 minute chart
|15 minute chart
|1 hr chart(3-7 days)
1 day chart(week-month)
Hanging Man Pattern
In this pattern, we have wick at the bottom with the size as twice as its body. It may have small wick at top.
If we find this candle in uptrend, then its called hanging man candle. If we find the same candle in downtrend, its called hammer candle.
The color of the candle is not much important. But If we get this candle in downtrend and in green color, then it may lead to trend reversal. Similarly if we get this candle in uptrend and in red color, it may lead to trend reversal.
If the next candle’s close is above the close of the hammer candle like in above image, it gives us the confirmation about the pullback. Its a similar case with the hanging man pattern.
Shooting Star Pattern
This is the reverse of hammer/hanging man pattern. It has body at bottom and the wick is at top with size as twice as its body.
If we found this candle in uptrend near resistance level, then they may be a trend reversal. The color of the candle is not significant. But if the next candle’s close is below its candle, then it gives us the confirmation.
If we have a green candle just before the shooting star candle, then there will be high chances of trend reversal like we have in an above image.
Doji candle has the same opening and close prices. This is a significant reversal candle if we found it near support and resistance levels.
Two important variations in Doji candle are
Dragonfly doji is a candle in which open, high and close are same with a long lower wick. This is a bullish reversal candle and gives us a signal like hammer candle.
Gravestone doji is a candle in which open, close and low are same with long higher wick. This is similar to shooting star candle and signals about the trend reversal from an uptrend to downtrend.
This is a momentum candle. it has a long body but no or very small wicks. The green color Marubozu shows strong bullish nature. The red color Marubozu shows strong bearish nature.
- Leading Indicators
- Lagging Indicators
Leading indicators are generally leads the prices which means prices follow the moment of such indicators. The main benefits of this indicators is to get signal of early entry and exit.
This is observed between price and indicator. With the help of divergence, we will get an early signal to exit the trade.
There are two types of divergence.
1. Positive Divergence(bullish)
2. Negative Divergence(bearish)
If the price going down making lower lows but the indicator is in opposite direction, then its a positive divergence. Similarly if the price is moving upwards and the indicator going downwards, its negative divergence which means it may lead to trend reversal. Refer above image.
Best indicator to combine with price in this case would be RSI.
This can be used for all types of trading. This is a volatility indicator. The purpose of this indicator is to provide the relative definition of high and low.
It has 3 bands.
The center one is the 20D SMA and on both sides, are the lines of standard deviation. These two lines provide relative boundaries of highs and lows.
Uses of Bollinger Band
- Indicate Volatility
- Tell us about breakouts
- Continuation of trend
- Achieve trend reversal signal
They indicate high and low volatility. Expansion and contraction of the band indicates the volatility of the particular stock. When bands are expanded, it means there will be a huge volatility. We will notice a sharp up move or a sharp down move in prices.
When bands are closer to each other, it means there’s a less volatility. When ever the price is moving sideways and the bands are also in same movement, we should prefer not trading.
Tell us about breakouts
When bands contract too much, then there’s a possibility of breakout(Refer above image).
Lagging indicators are also known as trend following indicators. These are more suitable in trading market but not effective is sideways market. The main benefit with this indicator is ability to catch a move and remain in a move. The drawback of lagging indicators is they signals late.
Use this indicator only when the stock is trending. Use exponential moving average.
Time frames for moving averages
- Intraday – 3/7/14 days or 5/10/20 days
- Positional – 14/21/50 days
- Long term – 50/100/200 days
Fast MA crosses above a slow MA – Buy Signal
Fast MA crosses below a slow MA – Sell Signal
Use moving averages only in trends(uptrend/downtrend).
It helps us to know the trend and momentum.
MACD is above 0th line – Uptrend / Bullish
MACD is below 0th line – Downtrend / Bearish
If both lines converge – Buy Signal
If both lines diverge – Sell signal
RSI (Relative Strength Index)
RSI< 30 – Over Sold
RSI > 70 – Over Bought
50<RSI<70 – Buy Signal
–I will add more concepts later.