A paper umbrella is a single pattern of candlesticks that traders can use to set up directional trades. The position of the paper umbrella on the chart will affect the interpretation.
Two trend reversal patterns are found in a paper umbrella: the hanging man pattern and the hammer pattern. The hanging man pattern is bullish while the hammer is more bullish. The paper umbrella has a long shadow and a small body.
The paper umbrella that appears at the bottom of a down rally is known as the"Hammer".
The paper umbrella that appears at the top of an uptrend rally is known as the"Hanging Man".
A candle can be classified as a paper umbrella if its lower shadow is at least twice as long as the actual body.This is named as The ratio of shadow to real body OR The Shadow to real body ratio.
Let's take an example: Open = 100; High = 103; Low = 94; Close = 102 (bullish candle).
This is the length of your real body.Close - Open, i.e. 102-100 = 2The length of the lower shadow.Open - Low, i.e. 100 - 94% = 6. The length of the shadow below is twice that of the actual body, so we can conclude there has been a formation.
Bullish hammer is a prominent candlestick pattern that occurs near the bottom of the trend. A hammer is a small, real body that sits at the top of the trading range and has a long shadow. Bullish patterns are more bullish if they have a longer shadow.
The blue hammer's upper shadow is very small.This can be accepted for given the" quantity and verify -be flexible" rule
As long as the hammer meets the'shadow to real body' ratio, it can be any colour. It is more comfortable to see a blue-colored real body.
The previous trend for the hammer should have been a downtrend. The curved line highlights the previous trend. This is the thought process behind a Hammer:
This is the trade setup for hammers:
Buy Price to take risk - He trades on Hammer candle at - Rs.444/.
If you are a risk-averse, buy price - After evaluating the candle's blueness at - Rs., he takes the trade. 445.4/-
Both traders have a stoploss at Rs.441.5 /-,,, which is the low point of the hammer formation.
Notice how the trade evolved and yielded a desirable intraday profit.
Both hammers were qualified on the preconditions for a hammer (i.e. These are the hammers:
Thanks to Rule 1 of candlesticks, the risk-averse trader could have avoided a loss-making trade with the first hammer. The second hammer would have attracted both risk-averse traders and risk-takers to trade. The stock didn't move up after initiating the trade; it remained almost flat and eventually cracked down.
You must keep the trade open until the target or stop loss is reached. It is best to not alter the trade after one of these events has occurred. This trade is a sure-fire way to lose. This is a calculated and real risk, not a speculative one.
Another chart shows a perfect hammer; however, it doesn't satisfy the previous trend condition and is hence not is not a pattern.
A Hanging Man is a paper umbrella that appears at the top of a trend. A bearish hanging man is one candlestick. It also signals a top reverse pattern. A hanging man is a sign of a high market. A hanging man is classified as an indicator of a high market.Only if there is an uptrend before it. The bearish hanging man pattern indicates that you should sell pressure since the hanging man is usually seen following a high.
Any colour is acceptable for a hanging man, as long as it meets the ratio of 'the shadow and real body'. The Hanging Man's previous trend should be an uptrend shown by the curve in the chart, it is. This is the thought process behind a hanging person:
The hanging man is a strong argument for shorting the stock. This is how the trade would look:
After the short is initiated, the candle's highest serves as a stoploss.
Both the risk types would have made a profit from the trade.
Both the hanging man and the hammer are valid candlestick patterns. However, I depend a lot more on the hammer than the hanging man. If there were two trading opportunities on the market, one that was based on the hanging man and one that was based upon the hammer, I would choose to trade with the hammer. Based on my trading experience with both patterns, I believe it is reasonable to do so.
The only problem with a hanging man? If the bears were truly influential during the day why did the price rise after hitting a low? This, I believe, reaffirms the bull's dominance in the market.
You should develop your own thesis, based on the observations you make in the markets. This will allow you to calibrate your trades more accurately and enable you to develop structured market thinking.
Before we move on to more candlestick patterns, the shooting star will be our last candlestick pattern. The shooting star's price action makes it a popular candlestick pattern that you can trade.
The shooting star is a paper umbrella inverted.
The shooting star has a shorter shadow than a paper umbrella. It has an extended upper shadow, where the shadow is at least twice as long as the actual body. Although the body's colour doesn't matter, the pattern will be slightly more reliable if it is red. The pattern will be more bearish the longer the upperwick is. A common feature of the paper umbrella and the shooting star is the small body. According to the textbook, the shooting stars should not have a lower silhouette. A small shadow is acceptable, as shown in the chart. The shooting star is a bearish pattern.Therefore, the previous trend should be bullish.
This is how the thinking process behind the shooting star works:
We have already discussed that once a trade is set up, it is important to wait for the stoploss or target to be activated. It is best to not do anything other than trailing your stop loss. We have not yet discussed trailing stoploss. Later we will discuss it.
Here's a chart showing how both the risk-averse as well as the risk-taker could make a huge profit on trades based upon a shooting star. The stop loss has been violated. Remember that the trader must exit the trade if the stop loss is reached. The trade will no longer be valid. Exiting the trade when the stop loss triggers is often the best option.