Hot Deal A basic treatise on Candlesticks, Moving Averages and MACD

360°
338
12155
126

Let’s just try to understand what does a Candlestick tell us. In India, Exchanges open at 9:15AM till 3:30 PM. According to Google search there are 1600 listed companies get traded in NSE and 8900 listed companies get traded in BSE. Let’s take an example of Hindustan Unilever. If we divide 9:15 AM till 3:30 PM into small time intervals such as 1,2,3,… minutes (as allowed by the charting platform), then we just consider the closing value of HUL at every 5 mins and plot them with respect to time n we get the result like this. https://imgur.com/1...sf and https://imgur.com/E...k6. The second pic is an example of Candlestick chart and former is an example of Line Chart. Line Chart could show us a locus of piece-wise line segments joined together to give us an impression of a Line, which is ofcourse obtained by joining the closes. But a Candlestick gives us information about High, Low, Open and Close of HUL within 5 minutes. So, a Candlestick Chart gives us more data than a Line Chart. There are Bar Charts https://imgur.com/5...dy, which gives us the same info as Candlesticks. I will be honest, I am very comfortable around Candlesticks. Other forms of charts are Renko, Vertex, Point and Figure, Heiken Ashi, Mountain, Baseline, Volume Candle etc. And discussion of those are beyond the scope of this text.

So, what do we exactly interfere from Candlesticks?
We can use the data to make prediction about future outcome. Sounds like Gambling, No? Fortunately a lot of people have spent a lot of time to stitch together various information and they have made it possible to visualize them in form of patterns. And patterns get repeated over time.

Concept of Moving Average
So, market opens at 9:15AM. What happens? Take a min or two. Well, the security gets traded. And because of actions of those people, price becomes manipulated (legally of course) and gets reflected as a form of a candle in a particular span of time. How does it happen? So, let’s say there are some people, who have something to sell, like wise for buyers. So, our friend A purchases from B at 100. And we saw that A bought something and we want a or two pieces for ourselves. What do we do? We start buying, right! Well, seller B is a business person and B chooses to hike the price 10 101. We buy it anyway. There are lot of people like B, they get greedy and as supplies are limited in number either B also gets greedy or his inventory gets emptied. Now, we people have bought the items, and see how much people are willing to pay for them. We also start selling them. People keep on buying them. At a point a person, who hoarded the item at a lower price wants to offload his inventory and starts selling them; people, who bought at a higher price get panicked and they also start selling. As there is a surplus in supply, price plummets. So, this is how stock price fluctuates.

Some genius saw, if we take a sample of closing values for a large period of values, then we can calculate its moving averages, e.g. 5, 10, 20, 50, 100, 200 etc. According to the observation if price holds above a moving average of certain period then price tends to move up, and if price breaches below it then sell off happens.
Ex: https://imgur.com/7...Cr Observe.
The observation is as follows. The Yellow line represents exponential moving average of 100 periods and Red Line is same thing but the average is taken with 50 periods. Another observation is as prices moving up, Red Line is moving up quicker in comparison to the Yellow Line. That’s interesting. Why? Think about it and leave a comment Similarly if we take an example of 3M, same conditions https://imgur.com/6...Mo and observe. Same thing. Actually 100 periods consider more samples and the smaller values drag down the average but 50 period average considers considerably smaller data set and they intentionally skip the past low values and rise much faster.
This simple observation gives out a very powerful technique, when a smaller period moving average crosses larger moving average in upward direction, we can assume that the prices might go up in the future, and if a small period moving average crosses its larger counter part in lower direction then assumption is prices might go down in the future.

This incredible discovery is often exploited by different moving average crossover techniques. Ex: Golden Crossover (https://www.investopedia.com/terms/g/goldencro....) and Death Crossover (https://www.investopedia.com/terms/d/deathcro...sp). Go through the links and plot them on your own charts. And please share your observation.
There are different types of moving averages. Please Google about them. A mathematical treaty on them is beyond the scope of this text as it will be a Herculean task on my behalf to do so. Few variations are Simple, Exponential, Double Exponential, Time Series, Welles Wilder etc.

MACD (Moving Average Convergence and Divergence)
Now after observing the moving averages, we are now ready for a great innovation that exploits moving average crossover technique, i.e. MACD.
https://imgur.com/H...te Observe this. This is default settings of the MACD. Let’s understand a bit or two about them. Fast MA is 12, Slow is 26. Why are they termed as fast and slow? If you have followed the text this far, you could easily answer this. Otherwise, go back and read again. So, let’s go back to the topic. What do we have? Fast MA is 12, Slow is 26 and Signal period is 9. If we recap a bit, what did we observe in the moving average section is, if Fast MA > Slow MA then trend is bullish otherwise the trend is bearish. So if Fast MA > Slow MA then their difference will be positive otherwise the difference will be either 0 or negative. MACD plots the difference of them. Default values are 12 and 26. Signal line is taken as 9, and it is 9 period moving average of the line obtained by subtracting 26 MA from 12 MA, where MA is moving average. https://imgur.com/Y...Id. So, the Signal line being an average of the MACD Line is the slower one (Why?), and as MACD Line crosses the Signal line, we consider the trend is Bullish.
Let’s take a look at this https://imgur.com/3...Vf . These bar like thingy are called Histograms. If the difference between MACD and Signal line is positive and greater than the previous one then it is green otherwise Red. Check it. Plot it on your Chart n tell us your observation.

If one does not have a broker, then where do one can go for the Charts? 1) https://in.tradingvie...m/, 2) https://in.investing.com/?r...ww 3) https://chartin...m/
Some Brokers who allow to use their platforms for free
1) IIFL mobile app (https://play.google.com/store/apps/details?id=c...) Just OTP registration
2) https://www.edelweiss....x3 Just OTP registration
3) https://stocknote.sam...n/
4) https://play.google.com/store/apps/details?id=c...

So, I tried my best to convey my understandings of the above topics in an engaging manner. However if you see a mistake, feel free to rectify it. 🙂

16 Comments  |  
6 Dimers
  • Sort By
0
7946
86

Guess??? It’s mere guess work…. smile … In reality market is on a Bull Run… wink toungueout

338
12155
126
vijkap201 wrote:

Guess??? It’s mere guess work…. smile … In reality market is on a Bull Run… wink toungueout

Pahle istemal karo fir Biswas karo. 🐒🐒🐒

0
7946
86
Expand
bikidas2060 wrote:

Pahle istemal karo fir Biswas karo. 🐒🐒🐒

Aap jante hein ki mein day trading nahi karta… sad toungueout

338
12155
126
Expand
vijkap201 wrote:

Aap jante hein ki mein day trading nahi karta… sad toungueout

This is equally applicable for long time frame. 50 period EMA on weekly charts is nearly equal to a year’s average. That’s the power of data. Aap badi time frame me lijie n observation share kijie if possible. 🙂🙂🙂

0
7946
86
Expand
bikidas2060 wrote:

This is equally applicable for long time frame. 50 period EMA on weekly charts is nearly equal to a year’s average. That’s the power of data. Aap badi time frame me lijie n observation share kijie if possible. 🙂🙂🙂

Hamaare yehan, khilaadi Harshad Mehta ke time ke hein jinhone bahut banaye aur bahut gawaaye… sad … Issliye apun to kuchh door hi rehte hein aur jyada shor gul ho ghar mein to machhli pakad lete hein aur so jaate hein… wink toungueout

338
12155
126
Expand
vijkap201 wrote:

Hamaare yehan, khilaadi Harshad Mehta ke time ke hein jinhone bahut banaye aur bahut gawaaye… sad … Issliye apun to kuchh door hi rehte hein aur jyada shor gul ho ghar mein to machhli pakad lete hein aur so jaate hein… wink toungueout

Har field me bad players hote hain. Kuch galati kiya hoga unhone. Unhe dekhke depressed hone kaa koi matlab nai
0
7946
86
Expand
bikidas2060 wrote:
Har field me bad players hote hain. Kuch galati kiya hoga unhone. Unhe dekhke depressed hone kaa koi matlab nai

Nahi nahi, galat na samjho unhe… Nuksaan mein kabhi nahi gaye… wink toungueout
.
Mera to dil hi kuchh kamjor hai… sad toungueout

338
12155
126
Expand
vijkap201 wrote:

Nahi nahi, galat na samjho unhe… Nuksaan mein kabhi nahi gaye… wink toungueout
.
Mera to dil hi kuchh kamjor hai… sad toungueout

Jo aapke marji

0
1162
12

@bikidas2060 how to remove grid lines permanently from tradingview charts in kite Zerodha

I have only temporary solution of matching grid line colors with the background color but it comes back in new tab/next log-in

338
12155
126
Dastro wrote:

@bikidas2060 how to remove grid lines permanently from tradingview charts in kite Zerodha

I have only temporary soultion of mathing grid line colors with the background color but it comes back in new tab/next log-in

Bhai I use the same technique. But I use ChartIQ charts. 🙂 I just save the theme. So, on next login it does not come back. If we use multiple Zerodha id we ll face this trouble.

0
1162
12
Expand
bikidas2060 wrote:

Bhai I use the same technique. But I use ChartIQ charts. 🙂 I just save the theme. So, on next login it does not come back. If we use multiple Zerodha id we ll face this trouble.

Yes it works on ChartIQ, but doesn’t seem to work in tradingview confused

338
12155
126
Expand
Dastro wrote:

Yes it works on ChartIQ, but doesn’t seem to work in tradingview confused

😔

Missing