TABLE OF

Contents

Formation of the candles
What is the Demand & Supply
Types of the zone
Strength of the zone & pattern of the zone
Zone Marking
Trade Setup
Logic + Price Action (behind the candle)
Market Psychology
Trend Analysis
Trading on different time frames
How to look on chart for overall bigger picture
Trade Score
Different types of entry
Credibility of zone
Risk Management
Sector analysis
Dhanalyst AI Indicator

FUNDAMENTALS OF CANDLE FORMATION

Structure of the Candle

Open →

Close →

Red Exciting
Candle

← Upper wick

← Body

← Lower wick

Close →

Open →

Green Exciting
Candle

← Upper wick

← Body

← Lower wick

Red Candle : Candle closes lower from its opening price.

Green Candle : Candle closes higher from its opening price.

TYPES OF CANDLES

Exciting Candle Formation

Green
Exciting
Candle

1

Green
Exciting/
Explosive
Candle

2

Red
Exciting
Candle

3

Red
Exciting/
Explosive
Candle

4

Exciting candle = Body part > 50% of Range of the candle

1. Candle No.1 & 3 in above mentioned diagram has more than 50% body of overall candle which makes it Green Exciting Candle and Red Exciting Candle respectively.

2. Candle No.2 & 4 in above mentioned diagram has same structure as candle No.1 & 3, but there is a big difference between opening and closing price hence, it is known as Green Explosive Candle and Red Explosive Candle respectively.

Base Candle Formation

Base candle = Body part < 50% of Range of the candle

1. This structure occurs when Buyers are marginally higher than Sellers i.e. 80,000 Buyers / 60,000 Sellers.

2. This structure occurs when Buyers are marginally higher than Sellers i.e. 80,000 Buyers / 72,000 Sellers.

3. This structure occurs when Buyers are marginally lower than Sellers i.e. 60,000 Buyers / 80,000 Sellers.

4. This structure reflects when there are minor changes between opening and closing price (No of buyers ~ No of sellers).

Candle Formation

GREEN EXCITING
CANDLE (NORMAL)

GREEN EXCITING
CANDLE (STRONG)

RED EXCITING
CANDLE (NORMAL)

RED EXCITING
CANDLE (STRONG)

Base Candle

STRENGTH OF THE ZONE (DEMAND ZONE)

NORMAL BUYING

STRONG BUYING

VERY STRONG BUYING

STRENGTH OF THE ZONE (SUPPLY ZONE)

NORMAL SELLING

STRONG SELLING

VERY STRONG SELLING

PATTERNS OF ZONE

1. DBR – DROP BASE RALLY

(REVERSAL PATTERN)

D.Z

2. RBR – RALLY BASE RALLY

(CONTINUOUS PATTERN)

D.Z

PATTERNS OF ZONE

3. RBD – RALLY BASE DROP

(REVERSAL PATTERN)

S.Z

4. DBD – DROP BASE DROP

(CONTINUOUS PATTERN)

S.Z

ZONE MARKING

Demand Zone ( DZ )

While marking the Demand Zone, Highest Body of all base and Lowest Wick of all base will be considered.

* Line marked at the Highest Body of all base is called Proximal Line.

* Line marked at the Lowest Wick of all base is called Distal Line.

Demand Zone area
of pending orders

Green exciting candle formation
takes place after base candle

ZONE MARKING

Supply Zone area
of pending orders

Red exciting candle formation
takes place after base candle

Supply Zone ( SZ )

While marking the Supply Zone, Lowest Body of all base and Highest Wick of all base will be considered.

* Line marked at the Lowest Body of all base is called Proximal Line.

* Line marked at the Highest Wick of all base is called Distal Line.

STEPS OF MARKING ZONES

Identification & Marking of Demand Zone

Mark a horizontal line at current market price.
Look left & down for an explosive upmove (green exciting candle).
Mark all three components of the zone (leg in, base and leg out).

Now we have 2 ways of marking

Proximal Line Distal Line

Body to Wick

Wick to Wick

Highest body of all base

Highest wick of all base

Lowest wick of all base

Initially we will focus on body to wick marking.

STEPS OF MARKING ZONES

Identification & Marking of Supply Zone

Mark a horizontal line at current market price.
Look left & up for an explosive drop (red exciting candle).
Mark all three components of the zone (leg in, base and leg out).

Now we have 2 ways of marking

Proximal Line Distal Line

Body to Wick

Wick to Wick

Lowest body of all base

Lowest wick of all base

Highest wick of all base

Initially we will focus on body to wick marking.

Important point :

- In demand zone legout will be green while in supply zone legout will be red.
- Legin may be either green or red depending on the pattern.

Booster point :

Legout should be explosive, so we can say we have maximum pending orders in our zone and our zone is powerful.

Trade Setup

After marking demand zone or supply zone, the trade setup needs to be marked as:

ENTRY

After marking the Demand Zone, entry point should be marked just above the proximal line.
After marking the Supply Zone, entry point should be marked just below the proximal line.

STOP LOSS

Stop Loss should be just below the distal line of the demand zone and just above the distal line of the supply zone with some room.

TARGET:

Target should be marked, equivalent to the double of the difference between Entry point and Stop Loss (1:2) and make sure our trade setup should permit this.

Entry line Rs.125/-

Stop Loss Rs.120/-

Target Point Rs.135/-

Rs.5

In the above example, Entry is marked at Rs.125/-, Stop Loss is marked as Rs.120/- and the Target is marked at Rs.135/-.

EXCEPTIONAL MARKING OF THE ZONE

Demand Zone (Exceptional marking for Reversal Pattern)

PROXIMAL LINE

DISTAL LINE

( D‑B‑R ) NORMAL MARKING

PROXIMAL LINE

DISTAL LINE

Distal line – lowest wick of legin

( D‑B‑R ) EXCEPTIONAL MARKING LEGIN

PROXIMAL LINE

DISTAL LINE

Distal line – lowest wick of legout

DBR – EXCEPTIONAL MARKING LEGOUT

For Continuous Pattern

PROXIMAL LINE

DISTAL LINE

( R‑B‑R ) NORMAL MARKING

PROXIMAL LINE

DISTAL LINE

Distal line – lowest wick of legout

( R‑B‑R ) EXCEPTIONAL MARKING LEGOUT

Supply Zone (Exceptional marking for Reversal Pattern)

DISTAL LINE

PROXIMAL LINE

( R‑B‑D ) NORMAL MARKING

DISTAL LINE

PROXIMAL LINE

Distal line – Highest wick of legout

( R‑B‑D ) EXCEPTIONAL MARKING LEGOUT