Trading 101: Technical Charts and Trendlines in Hindi

Lesson 1: Understanding Technical Analysis

Welcome to our first lesson! In this lesson, we will explore what technical analysis is, its key components, and who uses it.

Trading vs. Investing

Investing: Investors focus on building long-term wealth and use fundamental analysis to identify high-potential stocks.

Trading: Traders seek short-term profits, relying on technical analysis to make daily trading decisions.

What is Technical Analysis?

Technical analysis is a method of evaluating and predicting price movements by examining historical data on prices and volumes. Analysts use this data to identify trends and patterns, helping them forecast whether a market will move up or down, and to what extent.

Key Components of Technical Analysis

- Price Action: Price charts are used by traders to determine if prices are trending up or down, guiding decisions to buy or sell.

- Volume: Volume analysis indicates levels of demand and supply. Analyzing volume helps traders understand where significant buying or selling is occurring, with increasing volume indicating higher trader interest.

- Indicators: Tools like Moving Averages, Bollinger Bands, and RSI provide insights into price direction and potential trade opportunities. These indicators can be applied directly to charts.

- Trends: Identifying trends helps traders decide on entry and exit points by determining if the market is in an uptrend or downtrend.

Usage of Technical Analysis

Technical analysis is widely used across various markets, including equities, derivatives, commodities, and cryptocurrencies. It is employed by intraday traders, positional traders, and even investors to make informed trading decisions.

Chapter 2: Charts and Candlesticks

To trade effectively in the stock market, charts play a crucial role in technical analysis. Various types of charts include line charts, candlestick charts, Heikin Ashi charts, bar charts, and more.

In this chapter, we will focus on line charts and candlestick charts, which are the preferred tools for most technical analysts.

1. Line Charts

Line charts display price changes over time by connecting the closing prices of each period with a line. These charts are simple and useful for investors to track price movements across any time frame, such as daily, weekly, or yearly.

2. Candlestick Charts

Candlestick charts are the most popular charts among traders for technical analysis. They provide detailed information about price action within a specific time frame, which can range from 1 minute to daily, weekly, and beyond.

Reading Candlestick Charts:

- Green Candles: A green candle indicates that the closing price is higher than the opening price. For example, if the open price is 100, the close is 110, the high is 120, and the low is 90, this forms a green candle with the given OHLC (Open, High, Low, Close).

- Red Candles: A red candle indicates that the closing price is lower than the opening price. For example, if the open price is 100 and the close is 90, with a high of 110 and a low of 80, this forms a red candle.

Key Components:

- Body: The body of the candle represents the range between the opening and closing prices. A longer body indicates stronger buying or selling pressure.

- Wicks: The wicks (or shadows) extend from the body and indicate the highest and lowest prices during the period. The top wick shows the highest price, and the bottom wick shows the lowest price.

Candlesticks can vary in appearance:

- Candles with only a body (no wicks).

- Candles with only upper or lower wicks.

- Candles without a body, known as doji, where the open and close prices are nearly identical.

Tools:

TradingView is a widely used charting tool that helps traders analyze price movements across various time frames.

In the next session, we will delve deeper into trading with candlesticks, how to interpret them, and what they reveal about market sentiment (bearishness or bullishness).

Chapter 3: Popular candlestick patterns.

Candlestick forms pattern like bullish patterns, bearish patterns, and neutral patterns which helps to identify trading opportunities.

Bullish Hammer candlestick pattern

A hammer is formed with a small body but with a long wick, which indicates after the market opens sellers try to drag the price down which won't sustain and the price moves up indicating bulls are dominating.

A hammer candlestick pattern formed at the end of a downtrend acts as a support and indicates a strong reversal in the trend towards an uptrend.

The formation of the bullish hammer holds good when formed near the support zone or in a downtrend for a valid confirmation of a bullish trend.

Bullish Engulfing candlestick pattern

The Bullish Engulfing Candle is formed when there is a downtrend and a red candle is formed, the next candle formed is green which engulfs the previous negative candle.

It is a bullish pattern candle where a trade opportunity to enter an uptrend can be spotted with a stop loss at the opening of the green candle.

Morning star pattern

The morning star pattern is a bullish candle pattern formed at a support level with a prior downtrend, it is a multiple candlestick pattern where three candles are involved, the first candle is a red candle and the next is a doji candle followed by a big green candle closing above the previous red candle. As a trading opportunity can enter above the closing of the green candle and stop loss at the low of the doji candle formed.

Bullish Piercing Pattern

It is formed with a prior downtrend forming a red candle, the next green candle formed closes above 50% of the previous red candle formed indicating bullish strength. Traders can enter above the close of the green candle and stop loss will be below the green candle or support levels.

Doji Patterns

Doji is a neutral candlestick pattern that is generally seen on charts. The Doji pattern will have almost the same open and close but with good highs and lows. It indicates that the sellers and buyers fail to move the price in the upward or downward direction.

A Doji candle indicates trend reversal, as a confirmation of the trend reversal one can enter after a bullish or bearish candle formed after the doji.

Evening star

It is a bearish candlestick pattern formed with a prior uptrend followed by a green candle with the next Doji and a red candle. Evening star at the highs of an uptrend indicates a reversal in trend.

Bearish Engulfing Pattern

The Bearish Engulfing Candle is formed with a green candle followed by a red candle that engulfs the previous candle. The downtrend is followed by a bearish engulfing candle pattern.

Dark Cloud cover

In an uptrend market forming a green candle followed by a red candle closing below 50% of the previous candle forms the Dark Cloud Cover, a bearish candlestick pattern indicating trend reversal from uptrend to downtrend.

Gravestone Doji

It is similar to doji but a type of bearish candlestick pattern, buyers try to move prices higher but don't sustain as sellers push the price downtrend forming a candle with an open and close almost same with a big top wick formed. A Gravestone doji formed at a high of the prior uptrend indicates a trend reversal.

Thank you.

Chapter 4: How to use TradingView?

TradingView is a free popular charting tool. To view the charts of any stock you wish, type the symbol of the stock and launch the chart which helps to analyze the technicals of the stock with the chart of any time frame.

Once the chart is opened you can alter the time frame at the top left and also the chart to line chart or candlestick chart.

Once the chart is plotted time frame can be adjusted based on intraday, scalping, or positional trading, for intraday it can be 5 min, 10 min, or 15 min.

For scalping, it can be 1 min to 5 min and for positional it can range from hours to weekly.

To draw important levels on the chart, can choose the lines tool to draw horizontal lines for support and resistance levels, trend lines for downtrend and uptrend, channels, and patterns can also be drawn. To draw lines on your own of any form can use the brush tool, to delete all the drawings in one click press the delete button present at the left bottom.

To write the text on charts can select a text tool and write points on charts to remember.

To keep a record of Entry or Exit with proper risk-reward ratios that can be plotted on charts with the long position tool and short position tool. This tool helps to identify what are the risk-reward ratios and when to exit with profitable targets.

Indicators can be applied to the charts by selecting the indicator on top and typing any indicator symbol. TradingView allows you to add up to 3 indicators in the free version, for good trading 2 to 3 indicators are enough. Selected indicators can be adjusted as per the needs.

A watchlist of selected stocks for easy view, can be set on the right panel of the Tradingview dashboard.

Chapter 5: How to Draw Support and Resistance?

Important levels for buyers and sellers to trade are support and resistance levels.

Support: It is formed when the price of the stock retests the same level failing to move downwards acts as a support level.

Resistance: It is formed when the prices of stock try to move upwards but fail repeatedly at the same level forming a resistance level.

At support levels, buyers activate to trade and try to move prices in an upward direction, and at resistance levels, sellers activate to trade and try to bring prices in an downtrend direction.

Price cannot be fluctuating in the resistance or support levels for the long term, if buyers are strong the price can break the resistance level and move upwards towards a new resistance level and the previous resistance level converts to a support level.

If sellers are more strong, the price breaks support levels and moves downward towards the new support level and the previous support level will act as a resistance to the price.

Support and resistance levels form as a channel during rangebound markets and uptrend or downtrend markets.

Trend lines are formed by joining the highs of the price and lows of the price in trending markets which act as support and resistance levels.

To trade with support and resistance levels, can enter a long at support levels by keeping a stop loss below the support line and targets at the resistance level and on the other side at the resistance level can enter a short position by keeping a stop loss above the resistance level and targets at the support levels, you can trail the targets to next levels on both the sides.

Chapter 6: Trading with Volume.

Volume gives a brief idea of demand and supply, price action along with volume helps to build good trading opportunities in bullish and bearish side markets with increasing or decreasing volumes.

How to trade with volume?

Along with price movements, volumes also benefit traders in sideways and trending markets.

When prices increase along with increasing volumes, it indicates a strong uptrend and here one can enter a long position to follow the uptrend.

When the price increases with decreasing volumes it indicates a weak uptrend and can avoid trading opportunities.

If the price of a stock decreases with increasing volumes it indicates a strong downtrend and here one can enter a short position to follow the strong downtrend.

If the price of a stock decreases along with the decreasing volumes it indicates a weak downtrend and can avoid trading opportunities.

Volumes with significant levels in upside or downside indicate persistent volume flow with price movements. Volume spikes without follow-through volumes indicate fake volume breakouts and should be avoided for consideration.

Indicators can also be used to trade with volumes, for example, Volume Weighted Average Price(VWAP) acts as support and resistance based on volume and price.

In stocks, volumes are based directly whereas in indices like nifty 50, bank nifty, or options the indices futures are used to track volumes for analysis.

Chapter 8: Technical Indicators

1) Moving averages

It is calculated as an average of the past closing price of the security over a specific period. For example, the 5 moving average gives an average of the previous 5 candles. It can be set to 5 candles, 10 candles or 21 candles so on.

Moving averages are two types it is simple moving averages and exponential moving averages.

A simple moving average(SMA) is a simple average of a previous set of candles.

Exponential moving average(EMA) is a weighted moving average which gives more weightage to the previous candles. EMA is more often used for trading.

For intraday trading, EMA can be set to 5, 9 or 13-period length for accuracy.

Generally, 1 moving average plotted on the charts will act as support and resistance, if the prices trade above the moving average it acts as support to move the prices higher.

If the prices break and trade below the moving average it acts as a resistance to bring prices lower.

As the moving averages increase to longer time periods it becomes smoother and moves away from the candles where buy and sell signals can be identified.

Like 50 EMA or 200 EMA can give buy and sell signals as the price crosses the moving average.

The Crossover of two moving averages helps to identify better buy and sell signals.

When the shorter time period EMA crosses above the longer time period EMA a buy signal is generated, and when the shorter time period EMA crosses below the longer time period EMA it indicates a sell signal.

2) Relative Strength Index.

RSI is a technical indicator that oscillates between 0 to 100, it indicates the overbought zone and oversold zone.

When the RSI indicator oscillates above the 70 level, it indicates an overbought zone suggesting the correction to the prices can pull it downwards.

When the RSI indicator oscillates below the 30 levels it indicates an oversold zone suggesting a correction to the prices can push the prices higher.

Here, based on overbought/oversold zones traders can spot entry or exit opportunities.

3) Supertrend

Supertrend identifies the trend of the market, if the supertrend indicator is below the prices it shows green in colour indicating upside markets.

If the super trend indicator is above the prices it shows red in colour indicating a downside market.

Supertrend helps to identify buy or sell signals based on bearishness or bullishness trend views. It also helps to place stop loss above or below the super trend, as the indicator changes traders can exit their positions.

4) Pivot points

The pivot points indicator is used to identify support and resistance levels plotted on charts based on previous price data.

It shows R1, R2, and R3 on the upside indicating resistance levels and on the downside S1, S2, and S3 levels indicating support levels.

When the prices move from the pivot level to R1, R1 acting as resistance can push prices down or if it breaks R1 levels traders can enter a trade by keeping R2 as the target and R1 as stop loss.

If the prices or below the pivot levels, S1 acts as a support and can push prices upwards or if the prices break the S1 level, the S2 level will act as the next support or target the trade.

5) Bollinger Bands

It is a volatility indicator that consists of a band and moving average as it helps to trade in volatile markets.

The prices oscillate between bands, where the upper band acts as a resistance and the lower band acts as a support. If the price moves above the upper band it indicates an overbought zone where price reversal can be seen.

If the prices move below the lower band it indicates an oversold zone where the upward price reversal can be seen.

The combination of two or three indicators gives a better view of identifying entry or exit opportunities with good risk-reward ratios.

Chapter 8: Paper Trading

In the olden days paper trading used to be done on rough paper by writing buy or sell prices, now as the technology developed it is available on platforms to practice trading without loss of real money.

Demo of paper trading in TradingView platform

Login to the TradingView platform and open the chart of any stock to trade, now connect to paper trading from the trading panel.

Once connected, to buy the stock right click on the chart, select trade and buy, the order panel opens, and select the market order to place the order at the current market value and choose the quantity needed and place the order.

Once the order is placed it can be viewed in the orders panel and also on the channels, the order can be altered to change the targets and can select close the position to exit or book profits in the trade. The same holds good for the short position also.

One of the drawbacks of paper trading is, real trading psychology and emotions are neglected which is important in actual trading.

Traders should at least practice strategies and technical analysis for one month in paper trading to manage the risks and rewards in actual trading.

How to build your trading setup?

For intraday trading maximum time frame selected can be up to 30 minutes not more than that, 5 minutes or 15 minutes are preferred.

Multiple indicators generally create confusion, so for an intraday maximum of 3 or 4 indicators are suggested for potential entry or exit opportunities.

• Before you trade draw support and resistance levels by connecting lows and highs from the previous data in the stock, the time frame can be adjusted to daily, to spot more levels.

• Indicators should be selected based on the strategy or setup, as we have discussed moving averages, super trend, pivot points etc. to identify buy and sell setup.

• Volumes should also be taken into consideration for better price movement

For example, support and resistance, moving averages, pivot points, and VWAP indicators can be used as one setup.

Traders should practice the technicals to have good knowledge to build setups and strategies to be profitable with good risk management.