Lesson 4: Candlesticks, Chart Patterns, and Small Accounts

Question 1

a type of chart used to represent price movements of a security, derivative, or currency over a period of time; can help traders identify patterns and make decisions based on potential future price movements

Answer 1

candlestick

Note: these are good for gauging price action (the what) and not the why (the news, financials, etc.); many of the technical analysis patterns traders rely on come from candlesticks

Question 2

4 key pieces of information derived from a candlestick

Answer 2

1) opening price
2) closing price
3) high price
4) low price

Note: the body of the candlestick represents the range between the opening price and closing price; the wicks (or shadows) show the high and low prices

Question 3

True or False: Price action of a candlestick always reflects the true value

Answer 3

False.

Price action of the candlestick may not reflect true value

Question 4

Big green candlesticks indicate strong __________ (buying/selling) pressure.

Answer 4

buying

Note: this indicates that buyers were in control

Question 5

Big red candlesticks indicate strong ____________ (buying/selling) pressure.

Answer 5

selling

Note: this indicates sellers were in control

Question 6

a dragonfly doji is _________ (bearish/bullish)

Answer 6

bullish

Question 6

Often referred to as a reversal candlestick, forms when the open and close are virtually the same

Answer 6

Doji candlestick

Note: indicates that neither buyers or sellers could take control

Question 7

a gravestone doji is __________ (bearish/bullish)

Answer 7

bearish

Question 8

___________ (bearish/bullish) pin bars indicate that sellers were in control, but buyers stepped in and pushed prices higher. This is a strong/___________ (bearish/bullish) sign

Answer 8

bullish,

bullish

Question 9

____________ (bearish/bullish) pin bars indicate that buyers were in control, but sellers stepped in and pushed prices lower. This is a weak/_________ (bearish/bullish) sign.

Answer 9

bearish,

bearish

Question 10

candlesticks that contain:
- a long lower shadow/wick
- a long upper shadow/wick
- a small body

Answer 10

spinning tops

Note: these can signify a REVERSAL in price action
Note: these indicate neither buyers or sellers could take control

Question 11

What are some examples of candlestick patterns?

Answer 11

• bearish engolfing
• bullish engolfing
• bearish pin bar
• bullish pin bar
• bearish harami
• bullish harami

Note: there are many more, but these are the one’s Jdun likes to use

Question 12

also known as demands; prevents stock from falling

Answer 12

support

Note: think of support like the floor - if you kick the floor, your foot will probably bounce back up but if you kick it hard enough, you will break through the floor and go down

Note: buyers are the ones not letting the stock drop

Question 13

also known as supply; prevents a stock from rising

Answer 13

resistance

Note: think of resistance like a ceiling - if you punch the ceiling your hand will probably get rejected but if you punch hard enough it will go through and go up

Note: sellers are the ones not letting the stock go up

Question 14

True or False: The more times a stock touches support/resistance, the more explosive a potential move becomes, indicating that pressure is building up to break that level, and it will be explosive when it does.

Answer 14

True

Question 15

a price pattern that denotes a temporary interruption of an existing trend

Answer 15

continuation pattern

Note: can be thought of as a pause of a prevailing trend

Question 16

some examples of continuation patterns include:

Answer 16

• falling wedge
• rising wedge
• bullish rectangle
• bearish rectangle
• bullish pennant
• bearish pennant

Question 17

a price pattern that signals a change in the prevailing trend

Answer 17

reversal pattern

Note: the established trend will pause and then head in a new direction, as a new energy emerges from the other side (bull or bear)

Question 18

some examples of reversal patterns include:

Answer 18

• double top
• double bottom
• head and shoulders
• inverse head and shoulders

Question 19

examples of bilateral patterns

Answer 19

• ascending triangle
• descending triangle
• symmetrical triangle

Note: Jdun likes these patterns because it “paints a clear picture”

Question 20

True or False: Jdun recommends never risking more than 10% of your account on a trade. “YOLOs” should be 1% or less of your account

Answer 20

True

Question 21

True or False: Jdun recommends swing trading and day trading on separate accounts

Answer 21

True