Basic concepts

Technical Analysis is one of the most important weapons of Trading along with
Fundamental Analysis and Automatic Operating Systems.

In this module we are going to focus exclusively on Technical Analysis and Price Action,
since everything is based on the price or quote of the security or currency pair in which we
are going to make our investment.

The most important object or tool to do our Technical Analysis is the Graph, also called
Chart and this analysis finally shows us how to read the graphs.

It makes no difference whether we read our graphs in days, weeks, hours or minutes, all
graphs, regardless of their temporality, have something to tell us. If you look at the graphs,
they are like electro encephalograms.

The market repeats the candlestick patterns, always stopping in the same areas in which it
stopped previously.

The graphs capture all the emotions that human beings have and as we have said before,
these candle patterns are repeated over and over again, which is why we assume that if we
want to be Trading professionals we have to study those patterns and pay attention to the
price to make the entry into our operation at the right time.

If the basis of technical analysis had to be defined, it could be said that it involves
identifying which of the three possible stages the market is in at that moment and operating
accordingly.

We have to determine in principle if the market at that moment is:

Usually the market is usually in lateral movement, however when they enter an upward or
downward trend, traders begin to have opportunities within the market. There is a saying
that is “THE TREND IS OUR FRIEND”, so we will have to learn to distinguish when a
trend begins to take advantage of it. This has to be our main criterion.

In this module we will learn to recognize the signals, doing an in-depth study and then we
will combine them so that finally this composition gives us the experience of reading and
understanding the graphs.

Understanding charts is what we need to be able to trade and make money on the stock
market.
We have to be clear that money is made in the Stock Market both when the market goes up
and when it goes down, it is totally indifferent.

Finally, in this first lesson I will tell you that Technical Analysis is not as infallible as we
believe, but it actually works even if it is not 100%, that is why we are going to dedicate
ourselves to the task of learning it and we will focus on the really effective candles and
patterns.
Dow theory

Technical analysis was born at the beginning of the 20th century, when Charles
Dow wrote rules to understand the markets.

The rules were very simple but they summarize the most important things you need
to know about Technical Analysis.

It is convenient that you understand and memorize these rules to use them during
your time, not only as students, but also during your later career as traders.

Dow determined that the Stock Market was an entity with its own personality and
that although the values or currencies that determine it have their own uniqueness,
in the end all or almost all of them move more or less at the same time. In short,
what it tells us is that:

1 .- The market consists of three trends: The main or primary one, the secondary
one in which we find corrective rebounds against the trend and the day-to-day
trend, which are the intraday fluctuations from which we can obtain very good
benefits.

2 .- We will never observe a graph in which there are not successive peaks and
valleys.

The most important thing to keep in mind from the previous statement is that
in an Uptrend, the lows (only the lows) have to be in an ascending position .

In a Bearish Trend , the highs have to be descending

All of these repeated highs and lows, whether ascending or descending, can
almost always be linked through a line called a bullish or bearish guideline or flip,
depending on the trend that draws its trajectory.

When the price candle crosses that guideline or flip, we find the first sign that the
trend in which the value was at that moment has ended.
3 .- Moving averages are the most important tool that we find and that all traders
have, because they summarize all the necessary information. All information on the
graph is contained in the averages.
4 .- Trends are made up of 3 phases: Accumulation Phase, Intermediate or
Trend Phase and Distribution Phase , later we will talk about these phases at the
end of this lesson because they are of great importance.

Trend Formation
4 Impulse? Distribution. Stage 3 (SIDE!

The price after a significant decline will enter an Accumulation zone (Stage 1). Then it will enter Stage 2 or the bullish
trend. Once the rise is over, the price will enter the Distribution zone (Stage 3). Finally comes the decline, the
downtrend or Stage 4

5 .- We can observe that a trend is in momentum as long as there is no sign of it

having turned around. We have to take this concept into account because it is
absolutely important

The market never moves in a straight line, it always moves like the teeth of a saw,
in a zig-zag pattern.

Whenever we have entered a trade, we must know that rebounds against the trend
constantly occur and that is when we begin to get distressed.

We have to be able to know what a rebound represents, which should not make us
exit our operation or position and what is actually a trend change, which is what
should really lead us to make an urgent position closure and position opening in the
opposite direction.

6 .- We have to take into account the volume, since it is what will confirm the trend
because the volume has to develop in the direction of the trend.

Volume is essential and we always have to consider it.

When there is a significant rise or fall and there is very little volume, the most
common thing is that we find ourselves faced with manipulation by large
corporations or large investors and we have to be very careful in situations like this,
which is why it is essential that we take into account the volume.

Now I am going to explain the three phases that we said previously:

In the Accumulation Phase , large investors and large corporations begin to

become interested in a certain value.

To take their position, the volume they need to add to that market or value in which
they have been interested is very high, since we are talking about large
corporations or investors.

They cannot enter the market impulsively when there is a lack of volume, because
they would cause large increases and they would have to buy at very high prices,
which means that the profitability they are looking for would be nullified by violently
entering the market, for example. Their option is to buy moderately and that is what
is called the accumulation phase.

In this way they try to ensure that the price never rises excessively and every time
it rises, they reserve small quantities to make it go down again and this is always
repeated.

For example, if you hear on the news that there is a value that does not have the
strength to continue rising, it is the moment in which the purchasing phase at
advantageous prices has ended, then these large investors and corporations with
their remaining money in this phase of accumulation are forced to buy at any price
and that is what causes the great explosion of purchases by other smaller buyers
who follow them on their path.

In most cases, this action causes the beginning of an upward trend and with it we
enter the Intermediate or Trend Phase.

Once those same large corporations or investors who knew when they had to buy
and did so much lower, they know that the value they bought will not go up much
more and that is when they begin the opposite procedure, which is what is called
called the Distribution Phase and again they have to do the same operation they
did before. The volume they have to invest to make the trend change from bullish
to bearish is enormous. They cannot sell everything at once because their sales
would cause such a collapse in prices that they would not be able to make the
appropriate profits.

In this way, what they do is that they sell when there is a large volume, but when
the price drops a lot, they buy again quickly and with little volume, so the market is
able to assimilate it and when the market returns to being in price again they sell
with the volume that the market itself is capable of assimilating and this is
constantly repeated.

These distribution phases by large investors and corporations occur when the news
speaks of enormous increases in the future and euphoria is at its maximum
expression. For them it is urgent to sell so that other investors buy it, so when
large corporations and investors sell , small investors buy.

When the big ones have sold everything they had to sell, they let the market
collapse quickly, then the small ones also sell very quickly, thus accelerating the
speed of the market's collapse and they do the big ones a favor because they start
again with a new cycle in which the big ones will continue trying to eat up the small
investors.

In a next lesson, we will see how to identify with great reliability when any of these
phases occur.

The graph that identifies this process is the following:

Basic training of technical analysis

SUPPORT AND RESISTANCE

SUPPORT is identified as a quote area on the chart where the price, when it reaches that
height, stops falling and acts as a rebound and rises again.

RESISTANCE is called the level that when touched by the price quote, stops rising and if
it rebounds, it begins to fall.

These levels are usually reached when there are many investors positioned.

When supports are crossed downwards by a bearish candle, they become resistances and
when resistances are crossed by a bullish candle, they become supports.

COMPLEX PULLBACK AND PULLBACK

It must be taken into account that when a value crosses a support or resistance before
starting a trend in the direction in which it broke, it generates a figure called Pullback.

It is a corrective price after breaking through a support zone to continue falling.

The Pullback is based on the price exceeding the downward support and with that initial
impulse, it reaches lower. At that moment and generally it begins by making a violent
movement in the opposite direction to the breakout and it usually takes it back to the level
of support that it had lost and at that moment it acts as resistance.

Once the Pullback has been made, it is a moment in which we have to be very attentive
to the chart since if it returns to position itself above the support level we are facing a
false breakout, but if it reaches that support level and acts as resistance, the breakout
is confirmed and the decline is almost assured.
Simple Pullbacks or Complex Pullbacks can be given.

The image represents two types of bearish Pullbacks

BULLISH THROWBACK OR PULLBACK

The so-called bullish Throwback or Pullback is exactly the opposite of the bearish Pullback.
It occurs in a resistance break. It crosses the resistance line and continues to rise, turning
again towards the resistance point that has now become support. At the moment it reaches
that resistance level, now converted into support, and rises above that level again, it
confirms the breakout and we make an upward entry, which represents a practically
guaranteed entry as in the case of a bearish pullback.
 TYPICAL DEVELOPMENT OF A PULL BULL MARKET
BACK IN A

CONFIRMATION OF THE
PULL BACK WITH THE
BREAK OF
EXCEEDING OF THE
ENDURANCE
MAXIMUMS THAT
INITIATE THE REVERSE

RECOIL OR PULL BACK TO

OVERCOMED RESISTANCE

Breaks of support or resistance are not always in the form of a Pullback.

CHANNELS

Channels are a variety of trend lines.

The trend lines, as we have already said, are the line that we call the guideline or flip and
that joins the cyclical descending maximums in the case of being a bearish guideline and in
the case of being a bullish guideline, it joins the ascending maximums, being in some cases
more regular than in others.
SIDE CHANNEL EXAMPLE
Complex Figures

COMPLEX FIGURES

In this lesson we are going to see the most important patterns or figures. There are many
others but we will give priority to the most common figures that mark the entry into an
operation with a change in trend.

THE GAPS or HOLES

In short-term operations, the opening gaps that occur especially in European stock markets
because they are subject to what happens on the New York Stock Exchange.

In many cases they are very dangerous since when the markets in Europe close, the markets
in the United States remain open for five hours, a time in which many things can still
happen.

For this reason, these opening gaps occur in the opposite direction of the trend that the
previous day's closing seemed to follow. These gaps cause large losses in positions that
were left open the previous day.

ISLANDS

An especially effective figure that is seen on many occasions is the Island, also called islets.

This figure represents, in most cases, a change in trend and is usually a fairly violent change
in trend that can occur both upwards and downwards. It is produced as seen in the following
images. When we see this type of figure, there is always a practically immediate trend
change.

SHOULDER-HEAD SHOULDER

This figure is also a trend change figure and must meet the following requirements:

Left shoulder. First of all, there has to be an initial rise with strong volume, with the
minimum being higher than the average of the last few days. Then a drop must appear,
which is what ends the drawing of the left shoulder, and at the same time a drop in volume
must occur.

Head. An increase occurs again with a large volume but generally the increase is not as
large as that of the left shoulder and the head is drawn making another decrease and the
volume begins to decrease again.

Right shoulder. Once again there is a new rise but the volume is much lower than in the
two previous rises and again another fall occurs, finishing drawing the right shoulder.

This figure can also occur inverted and is a very good buy signal if it breaks the clavicle line
that occurs where the price stops in the reaction of the left shoulder and head.

Following the images we have below, you will be able to detect the moment of entry
whether upward or downward.
See the following figures and analyze:

DOUBLE FLOOR AND DOUBLE CEILING FIGURE

Double roof. It is created when two maximums occur that are arranged practically at the
same level. The separation of these maximums can be an indeterminate number of bars.

If we look at the volume, we can see that the normal thing is that the volume grows a lot in
the first maximum generated, then falls in the following decline, which means that investors
have been waiting when the maximum has occurred and do not sell, They are staying in that
position. It represents that the decline is only profit-taking by investors who bought when
the price was much lower. Later, if the support that has been formed by the turning point in
the intermediate fall is broken, fear arises and all investors decide to sell.
Double floor. It is practically the same as the double roof but ON THE BACKWARDS

RECTANGLE FIGURES

In this case, the price remains trapped in that intermediate area of the rectangle and bounces
again and again. That zone is called fluctuation.

With this pattern you can make a lot of money if you buy when it breaks the resistance or
sell when it breaks the support with very low risk, because you can place the stop loss very
close to those support and resistance levels.

At the end of this module you have a video on how to operate in this pattern, which is very
interesting for scalping operations.

Bullish rectangle Bearish rectangle

PATTERNS OF FLAGS AND PENNANTS

These two patterns are very common in the markets. They can be generated, as you can see
in the following figure, both upwards and downwards. They are called trend continuation
patterns and they are very clear.

They generally occur in the middle of a trend and usually occur when there is fundamental
news in which the price where the pattern begins has a very abrupt movement and investors
do not risk continuing to enter the market at that price. produces a consolidation period and
once the consolidation period ends it breaks upwards in the highest part of the mast (candle
produced with the sudden movement of the price) or downwards if it breaks in the lowest
part of the mast (candle that has occurred with the abrupt price movement).

The difference between Flag and Pennant is that the consolidation period of the pattern
creates a triangle.

IMPORTANT NOTE: The volume has to be high in the neck and in the subsequent break
and low volume when the triangle is formed

TRIANGLES

In this pattern, we find three different kinds of Triangles:

• Symmetrical Triangle
 • Descending Triangle
• Ascending Triangle

SYMMETRIC TRIANGLE.- It is generated when the market is very uncertain and many
sellers are trying to exit the market because they detect that the rise has ended, however
there are also buyers who, unlike sellers, foresee that what is happening is simply a bearish
rebound and they try to buy as quickly as possible so as not to miss the opportunity. It is at
this point that the graph creates a triangle shape.

In these formations, the highest lows can be combined with a flip or bullish trend and the
highs that are increasingly lower through a flip or bearish trend. We have to verify that
almost always during the time that the price remains inside the triangle, the volume has a
very significant decrease and later rises again very strongly when the triangle is broken.

The price is consolidating. We are on the verge of a break

towards

DESCENDING TRIANGLE

In the case of the descending triangle, the pattern changes considerably. There is a support
here where large investors or corporations enter the market, but they do not enter above that
support.

Here the buyer's interest is less than the seller's interest.

This pattern can break on either side, but it is normal for it to break below, since the sellers
are the ones really interested and this interest is not compensated by the buyers.

In any case, and although this is normal, this rule is not always followed and we have to be
careful, since it does not always break below.
The price finally breaks the support, and the
sellers win the battle.
ASCENDING TRIANGLE

On this occasion, the sellers who are in no hurry to enter the market enter, but not further
down. Here buyers have much more interest and are reaching higher minimums to buy,
which is why we can draw a flip or bullish trend at the minimums, but the maximums are
not descending.

Also, as in the previous case, it can break on either side, although unlike the previous one, it
is normal for it to break upwards, since the pressure from buyers is much greater than that
from sellers.

You have to check the context in which the chart moves because it can also break below.

Price breaks resistance

and continues the upward path.
Buyers win the battle!
Moving averages and Bollinger bands

EXPLANATION AND USE OF MOBILE MEDIA

In this section we are going to study what Moving Average and its classes mean.

Moving averages are one of the indicators that we usually use for trading. They identify the
average of the prices that occur over a period of time. They are normally calculated based
on the closing price of the market, but they are also usually calculated based on the
maximum and minimum prices as well as the opening prices.

1 .- ARITHMETIC OR SIMPLE MEAN or SMA . It uses all prices exactly the same
within the same period of time and averages them. That line that is formed smoothes the
price curve.

The formula is the classic one to make an average:

Examples:

1+2+6+3 = 12 : 4 (prices) = 3 Average

15 + 12 + 25 + 30 + 32 = 114: 5 (prices) = 22.80 Average

Traders often use simple moving averages with long periods of time (50, 100, 200 periods)
and thus identify long-term trend changes.

2 .- WEIGHTED AVERAGE OR WMA. This moving average is very similar to the

simple average, the difference is that the prices are weighted differently and it gives much
greater weight to the most recent prices than to the oldest prices, which is why a 7-day
weighted moving average For example, it gives much more weight to the current price than
to that of 7 days ago.

We use weighted moving averages to accentuate the direction of the trend and mitigate
price and volume variations, which is what is called in financial jargon “market noise”,
since in many cases they can confuse the interpretation of the price action.

• We can say that when the price is above the Weighted Average or WMA and has an
upward direction, we can consider it a buy signal.
• If, on the other hand, the WMA and the WMA are marking a bearish direction, it
can be considered a sell signal.

We will get used to working with moving averages in markets with a trend, whether bullish
or bearish, because in lateral markets they usually give rise to false signals.

In general, WMAs are more likely to create missing signals compared to simple moving
averages.
A common practice in many strategies is to plot, for example, a weighted average (WMA)
of 15 periods in red and another simple average (SMA) in yellow (we can choose the colors
to our liking), but in this case we would have that when the red WMA (15 periods) crosses
the yellow SMA (15 periods) with a downward movement, it is giving us a downward entry
signal.

If the red WMA crosses the yellow SMA with an upward movement, it is giving us an
upward entry signal.

Image from the previous example:

3 .- Exponential Mean or EMA. The exponential average or EMA is the most appreciated
by the vast majority of traders since it gives greater weight to the changes closest to the
current change. This average gives fewer false signals than if we use a simple average or
SMA, however we should not use it in lateral market movements either.

It is very effective in the long term, as long as we study the context of the graph.

5.2 EFFECTIVE STRATEGY USING TWO OR MORE MOBILE MEDIA

5.2.1 SIMPLE MOBILE MEDIA STRATEGY

1. SMA - 4 Periods - Blue

2. SMA - 9 Periods - Red
 3. SMA - 18 Periods - Yellow

The market entry signal (buy or sell) occurs when all moving averages turn in a single
direction

SMA - 4 Periods - Blue

SMA - 9 Periods - Red SMA -18 Periods - Yellow INPUT:
All averages rotate in one direction

BASS
GUITARIS

BULLISH

TRIPLE CROSSING STRATEGY

This strategy is also very effective. It is valid for upward and downward entries, it is more
effective in downward entries but it also works very well.

It can be used perfectly in any time frame (time frame) from 5-minute candles to one-day
candles.

Its configuration is:

1. EMA - 4 Periods - Blue

2. EMA - 18 Periods - Red
3. EMA – 40 Periods – Yellow

ENTRY INTO THE OPERATION: All the EMAs have to come together at the same point
and immediately confirm the entry, breaking the support or resistance closest to the point
where they have come together, depending on whether it is an upward or downward
movement.

When the operation begins, it is convenient to have it open until the price crosses the 40
period EMA, where we can close if we are talking about a Forex operation, we can also use
it in shorter periods in Binary Options.
 EMA-4 PERIODS

UNION POINT

EMA – 40 PERIODS

ENTRY CANDLE

CLOSING OF THE OPERATION,

HERE IT CROSSES THE 40 EMA

MOBILE MEDIA SUMMARY

• Exponential Averages of 4, 18 and 40 periods to use in the Triple Cross strategy.

• Average of 40 periods.
• Closing of the operation in the Triple Cross strategy
• During the time that the trend remains active, it is used as a bullish or bearish
guideline and support or resistance.
• Average of 200 periods to detect the trend.

BOLLINGER BANDS

Bollinger bands are lines that form a band and are created around a moving average, they
change depending on the volatility of the market.

It is recommended that the period of the bands be 20 with a standard deviation of 2 in both
the upper and lower bands.

Generally, the quote price remains within the channels they form most of the time.

The most relevant price movements are created when the bands are narrow, since when they
are wider, the price tries to correct itself in a short period of time.

When the price is outside the band, it tells us that the currency pair or stock is trending very
strongly.

It is important to use them as creators of market entry signals, on their own they generate
good signals although they are generally used in combination with some other indicator.

By looking at the context of the market at that moment we can enter into an operation.
If the price leaves the bands, we wait to enter a counter operation at the moment when it
confirms entry into the channel again.

In the following image we can see the effectiveness in entering the market that Bollinger
bands give us.
Oscillators

Basic criteria about oscillators.

Oscillators are a type of very effective indicators since, as we have seen previously with
averages, we see that the main thing in them is to detect and operate in favor of the trend.

In addition to this, we will see that it is the oscillator that generates signals for us to operate
when there is a lateral trend. This indicator is the only one we can use reliably at this time.

As on all occasions, the first thing we will have to do is determine the trend that the market
has at that moment in which we decide to operate or if there is no trend or we are in a
sideways market.

We are going to talk in depth here only about three oscillators, later I will go over the rest of
the oscillators so that you know them, but since they have no practical use, we will only
review them. It is important that you know that these other indicators do not work correctly
either in charts of weeks or months or in stock charts with low volumes or in indices, which
is why we will simply name them so that you know they are there.

These are the three most important oscillators:

• Stochastic Oscillator
• Accumulation-Distribution Oscillator
• Trix Oscillator (Triple Exponential Average)

STOCHASTIC OSCILLATOR

This oscillator gives us buy or sell signals and its formula is simple.

It is based on the fact that when there is a price increase, the closing price is very close to
the maximum of the day and vice versa. It is calculated from the following formula
 CURRENT CLOSING - PERIOD LOW
Line %K = ---------------------------------------------------------------------------------x 100
MAXIMUM PERIOD - MINIMUM PERIOD

ADVISABLE PERIOD = 14

Line %D = AVERAGE OF THE PREVIOUS LINE OF 3 PERIODS

You may never need the formula for anything, but I wanted to put it here so you can
understand what its creation is based on.

SETTING UP THE STOCHASTIC ON THE CHART

This oscillator appears on the chart with the configuration that we make ourselves according
to our preferences, but here I put the most appropriate configuration for our operations.

Apart from this configuration, in the graph

Period = 14

%K = 6

%D = 3

Mean = exponential

Apart from this configuration, two drawn bands also appear on the graph, the ones that
come by default and the ones that we must maintain are:

• Top line = 80
• Bottom line = 20

If % K > 80, the signal it gives us is a sell signal

If % K < 20, the signal it offers us is a buy signal .

It is also a good option not to set the bands so exaggerated, also observing overbought and
oversold in them, being able to configure them in:
 • Top line = 70
• Bottom line = 30

Here I put an image of the difference between configuring them with 80/20 or 70/30, I
personally prefer to see it more clearly in the last configuration: 70/30

As you can see, the formation of buying and selling and overselling is more evident in the
70/30 option than in the 80/20 option, which is the reason for my preference for the 70-30
option.

r • 1617

Thanks to this indicator, we know with certainty when a security is in an overbought or

oversold situation, which also tells us when a correction in the opposite direction may be
near. It is a great tool regardless of the time period we choose for our operations.

There is a simple system of using stochastics that I am going to present to you below. It is
based on the operation of observing when the stochastics are overbought and oversold. In
the first moments when they enter those areas and the price is in a strong and rapid trend,
we are going to take advantage of it by making a quick operation since the last movements
of the trend are the most violent and effective.

Here I leave you an example of how to make an entry on these occasions.

It is also very useful in Divergences.

Below we see the two types of divergences:

BEARISH DIVERGENCE: When the price is rising and the stochastic is falling, if a
bearish divergence occurs, we will be facing a downward operation
BULLISH DIVERGENCE: When the price falls and the stochastic oscillator rises, if a
bullish divergence is generated we will be facing an upward operation.

The lack of coordination between the price and the indicator tells us that we are facing a
signal close to a correction in the price to correct the lack of coordination created.

Criteria to follow in each of the options :

1st.- When the two lines have well exceeded the 70 overbought level and subsequently cross
downwards, that is the time to sell and it is confirmed when they cross again at least below
70 or 80, if This does not occur and cannot be confirmed since it can remain overbought for
a long time by making many false crosses.

2nd.- When the two lines have surpassed the level of 30 downwards and subsequently cross
in an upward movement, crossing again at least the level of 30 upwards, a buy signal is
produced. As long as it does not exceed the level of 30 upwards, we cannot enter the
operation.

3º.- With the previously given configuration of the stochastic, we have another third signal
which is the downward or upward crossings at a medium height of the indicator, without the
lines having reached overbought or oversold.

Despite being a very useful tool, we cannot use it as a universal panacea, we will always
have to use it with other indicators, which is why we will have to see several indicators at
the same time to confirm our entries.

RSI OSCILLATOR

This is another very popular oscillator and is often used, it means Relative Strength Index.

It also works like the stochastic. If it moves above 70 it means that it is overbought and if it
moves below 30 it also tells us that it is oversold.

It increases its reliability when price divergences form.

The stochastic oscillator is much more reliable since it is more complete because the more
we increase the period it is less sensitive and the more the period is lowered it behaves more
sensitively.
MACD OSCILLATOR (Moving averag convergence-divergence)

This is a very effective oscillator and can give extraordinary results, it compares two
exponential moving averages that occur at two speeds.

The first line is created with a 9-period exponential average and should not be changed.

The periods of the two exponential averages are usually 9 and 18, however each trader must
choose the one that best suits their operation.

It generates many input and output signals and the most effective combinations are:

Entries in operations:

Fast period 9

Slow period 18

Signal period 9

Outputs in operations:

Fast period 14
Slow period 28

Signal period 9

The best combination is created with the second option of the outputs, it can also be used in
the inputs indicating that the averages must be exponential (in IQOption they are given by
default)

It is not advisable to put much shorter stockings because the crossovers are smaller and the
MACD is distinguished by following the trend in an extraordinary way.

This indicator anticipates trend changes much earlier than other indicators; it practically
works the same as the stochastic oscillator. Its operation is practically the same although its
formula is different.

The entry into the operations is the same, the crossing of lines from overbought to make a
sale operation and the crossing of lines from oversale to make a purchase operation.

This oscillator should always be taken into account.

Below you can see an image with the two configurations and apply them to both the inputs
and outputs.

There are other oscillators such as:

• Accumulation-distribution oscillator
• Momentum oscillator
• TRIX
• Larry Williams %R Oscillator
BEARISH DIVERGENCE: When the price is rising and the stochastic is falling, if a
bearish divergence occurs, we will be facing a downward operation

Technical indicators

AVERAGE TRUE RANGE (ATR)

This indicator, despite being very little known, is very useful for avoiding false signals. It is
based on the arithmetic mean of the true range of a period of time.

True range is the measure of volatility between two given days, which means it is the
evolution of volatility.

If its value is very high, it reflects that there is great volatility in the price of the security we
are trading and if its value is very low, it represents low volatility.

The average period that we are advised to use is 14 but each of the traders has to try to find
it by optimizing it+
Parabolic SAR (Stop and reverse)

This indicator was also developed by Wilder in his desire to find the exit points in
operations since it is something of utmost importance and is so difficult to achieve, it is
more difficult to know at the moment that we should exit than when we should enter, That's
where the name Stop and Reversal comes from.

The formula for this indicator is tremendously complex and we are not going to put it here
since the platforms we usually work with do it for us.

Its method of use is as follows:

• If we are in an upward trend, the Parabolic SAR provides us with repeated points
below the stop. If it does not touch the stop, we continue leaving the trade open until
at a certain point the stop collides with one of the points, then it is time to close and
turn the trade.
• If, on the other hand, a downward trend is generated, The Parabolic SAR will
provide us with repeated points above the stop and when one of the points is
touched by the stop, we must close the operation and rotate it.

This indicator, as I said before, is best used for exits of operations and not for entries,
although a large majority of traders use it for both entry and exit of their operations.

It is not an indicator that we should use exclusively, but rather it must be accompanied by
others to confirm both operations in one direction and the other.
 Exit of the
operation once
the change in
Rising entry after a trend is
pullback confirmed,
confirmed by the
2* bearish
candle

There are other types of indicators that we are only going to relate here:

• Time Series Lenear Regression

• Directional Movement
• Triangular Moving Average
• Keltner channels
• Chaikin Volatility Indicators
• Trend continuation factor.

Cycles

IMPORTANT NOTE:

At this point we would have to talk about the Fibonacci Cycle , but it is already developed
in module 3.

THE BENNER CYCLES

In this course we are not going to study them in depth but we will tell you that they are
based on patterns that are repeated globally in the markets and do so with a frequency of 8-
9 10 years, curiously, if we look at the Dow Jones industrial average, we can see the
amazing coincidences that exist in the movement of prices based on this theory.

Below I will relate all the types of cycles without dwelling on them due to their complexity,
which we can leave for a later study if necessary.

• Kondratieff cycle
• Seasonal cycles
• Elliot waves
• Cycle of presidents
Most important candle figures

In this lesson we are going to see the most important figures with which we are going to
work. There are a large number of candles, but we are not going to learn all of them, we will
only practically learn by heart all the patterns and candles to detect and confirm them with
all the moving averages, technical indicators, oscillators and in short everything that we
have learned in this module and in module 3 with the Fibonacci series, so we have to know
that to understand the candles on a chart they have to be used in combination with the other
tools that we have studied.

We begin our journey with the most relevant candles and figures.

DOJI

This candle, in which the closing and opening are located in the same place, has no body.

They have the following variants:

* “Long-legged” doji

* Doji “funerary stone” or “tombstone”

* Doji “Dragonfly”

With these doji and the mixture with other candles, we get two very valuable candle
patterns, although they are not easy to see on a chart:
“Evening Star” or “Doji star of the night”

This pattern is very important since it is a change from bullish to bearish trend.

As I said before, it is not easy to see a doji candle, so this pattern can also be replaced by
another small-body candle regardless of its color. To enter a trade with this pattern it would
be convenient for a “gap” to form from one part of the star to another, but it is only
convenient, not mandatory.

What is most important about this pattern is that the last candle (the third of the pattern)
invades the body of the first candle deeply. The more invaded the first candle is by the body
of the third, the stronger the trend change occurs.

EVENING STAR

The following image is a graph in which an Evening Star formation is faithfully reproduced,
including the gaps that we mentioned previously
“Doji Morning Star” or “Doji Morning Star”

On this occasion we find the inverse pattern of the Evening Star, since it is an important
figure of change to an upward trend.

MORNINIG
STAR

As we can see, here a doji has also been replaced, as in the previous pattern, by a small
body bar that performs the same function as the doji. The conditions are the same as in the
previous pattern.

Here is a chart to identify it directly on the candlestick chart.

“Long Shadow Doji” also called “Long Legs” or “Water Carrier”

This candle usually appears on the charts and represents great indecision among investors in
the market, which is why it is very normal for a change in trend to occur after its formation.

This candle usually marks the bottom of the market once there has been a big drop and in
turn causes a big swing to the upside.
“Hanging Man” and “Hammer”

These candles, like the other previous ones, warn us of a change in trend. They have a small
body where there is no upper wick or it is very small, however the lower wick is large. It
has to be at least twice the size of your body.

The larger the lower wick, the more important the trend change movement will be to occur
later. The color of the candle is not important but it has to act as a minimum of a
bearish trend with an upward or maximum turn.

of an upward trend with a downward turn.

“Hanging Man”
“Hammer
Candle”
“Inverted Hammer.”

As we can see, it is the opposite candle to the normal hammer. It has a small body, without
a lower or very small wick or pabule and a large upper one.

This type of candle shows us an upward trend change after a bearish movement.

In this case also the color of the body is indistinct.

Let's now see an example in a real graph

“Shooting Star or Wandering Star”

If we find the inverted hammer at most in an upward trend and it shows us a change
in downward trend , in this case the color of the body is also indifferent.

dp Provia Bullish Trend... ... a Bearish Trend

KShooting Star 73

1 162205
MAXIMUM UPWARD TREND

SHOOTING STAR

IMPORTANT NOTE :

These candles, both the Shooting Star and the Inverted Hammer, have no value if they are
not preceded by a trend. It doesn't work for the side market.

BULLISH OR BEARISH ENVELOPE CANDLES

These are also trend reversal candles.

If the market is drawing candles with small bodies in both the bullish and bearish trends, it
indicates that this trend is running out of strength, and that is when an engulfing formation
appears with the highest probability.

7.1.- Bullish envelope

After a bearish trend, a first red or black candle appears (depending on the color of our
chart), a white or green candle appears, which is larger than the previous candle, giving the
sensation of enveloping the black candle completely. The larger the candle that surrounds
the previous one (black or red), the stronger the trend change occurs. The size of the wicks
has no importance in this case. Entry into the operation must occur at the breaking of the
maximum of the engulfing candle. The change occurs from a downward trend to an
upward trend.
Bearish Envelope

After an uptrend, we encounter a first white candle and then a black candle, the size of
which is larger than the previous white candle. The larger the black candle will be, the more
important the trend change is.

The change occurs

from a bearish to
bullish trend and the
wicks of the candles also
have no importance as
does the bullish
envelope.

HARAMI or INTERNAL CANDLES

These candles occur with the opposite effect of the enveloping candles that we have seen.

Enveloping candles: a large candle engulfed a previous smaller one.

In the case of Harami, this pattern occurs when a candle of the opposite color is much
smaller than the previous candle. The smaller it is, the change in trend it produces is much
stronger.

8.1 Harami or Bullish Internal

If it comes from bearish candles, we find a small green or white candle, contained in a
larger previous candle that has to be red or black. The ideal pattern is created when a doji
appears after the large black candle.
 Will make
my bullish

Bullish Simple
Harami

Harami Bullish Doji "-"--"-"-"-"-"-

A--" *e"--mdA

Example in graph:
Harami or Internal Bassist

When coming from an uptrend, we find a red or black candle contained in the previous
candle which has to be green or white. We see their training below. The ideal pattern is also
like in the previous case that a doji appears after the large white candle.
Summary candle patterns

SUMMARY CANDLE PATTERNS

Below, I give you a summary of all the existing candlestick patterns collected from
Murphy's book.

These candle patterns below collect the names used to recognize signals in the form of
candles.

The number that you can see in parentheses at the end of the name tells you the
number of candles that are used to determine that particular pattern.

As you can see, the Bullish and Bearish patterns are divided into two groups that
imply patterns of change or continuity.
Bullish changes dark cloud cover
Long white body (1) Doji Star (2)
Hammer (1) Meeting lines (2)
Inverted hammer (1) Three black crows (3)
Belt fastening (1) Evening Star (3)
Surround pattern (2) Evening Doji Star (3)
Harami (2) Abandoned baby (3)
Harami cross (2) Tri-star (3)
Penetrating line (2) Getaway (5)
Doji Star (2) Three inside down (3)
Meeting lines (2) Three out down (3)
Three white soldiers (3) Kicks (2)
Morning star (3) The last stop (5)
Morning Doji Star (3) Maximum matching (2)
Abandoned baby (3) Two separate crows above (3)
Tri-star (3) Three identical crows (3)
Getaway (5) Deliberation (3)
Three inside up (3) Advance block (3)
Three out up (3) Two crows (3)
Kicks (2) Separation lines (2)
Lower three rivers only (3) Three top-down methods (5)
Three stars in the south (3) Tasuki bottom hole (3)
Hidden Swallow (4)
Stick sandwich (3)
Carrier pigeon (2) Bearish continuity
Bottom step (5) White lines side to side (3)
Minimum matching (2) Hit three lines (4)
Separation lines (2) Three bottom hollow methods (3)
Three bottom-up methods (5) On neck line (2)
Tasuki upper hole (3) In neck line (2)

Bullish continuity
White lines side to side (3)
Hit three lines (4)
Three top hollow methods (3)
On neck line (2)
In neck line (2)
Bearish changes
Long black body (1)
The Hanged Man (1)
Shooting star (1)
Belt fastening (1)
Surround pattern
Harami (2)
Harami cross (2)
This lesson concludes our tour of the Price Action-Technical Analysis module and I would
also like to tell you that your knowledge and understanding of candles and their patterns is
very important, but they do not have to be so weighted in relation to their use.

We must be professionals and for that we have to be clear that in the financial markets you
can win a lot, but we also have to know that losing operations is part of their nature. The
market is often capricious and you have to know how to wait for the moment to enter and
exit a transaction, but even knowing this it is easy for us to both win and lose it.

If we carry out a good study of price action, technical analysis, capital management and
psychotrading, we have many conditions to be truly profitable in a profession as exciting as
Trading.