When we had discussed about the candlestick charts, we had said that they have an edge over many other types of charts representation due to recognizable chart patterns which are easy to define and which work beautifully in the market. In this section we will discuss about few chart popular candlestick patterns. Candlestick patterns provide entry and stop-loss criteria, but there are no target setup as available in classical chart patterns.
1- Cup Formation: This is very crucial pattern in stock market. Whenever you see this type for chart formation you can take long position in the stock. Please see the picture:
The stock is consolidated about 100% from first up-movement in the chart. Then it slowly resist to go further downward. At the bottom it’s the time to take a long position in the stock. But many investors couldn’t recognise this pattern but not to worry there is small correction in the stock when it’s forming the cup handle. You can enter in the stock at this time because it’s the confirmation of forming a cup pattern.
2-NeckLine Formation: The neckline is the support line for the side ways market or stock. This pattern is also very important to book the profit. When it’s forming three high means first and third high would be treated as shoulder of the stock and the middle one would be treated as head. After the second shoulder formation you should book your profit in this stock because it’s a sign of correction and stock may go down and break it neckline support.
In the below image neckline would be treating as a resistance and stock comes down first time. You should wait for breaking the resistance at upper level to tak a long position.