Recognizing Reversal Signals Throw a baseball straight up into air.As the ball approaches the top of its projectile path it will decelerate to a speed of zero, and then reverse downward picking up speed as it approaches the ground.
Now imagine yourself drilling into a piece of wood.You suddenly hit a hard spot in the wood at which time bear down with all of your might to overcome the temporary resistance created by the knot in the wood.
When you penetrate the knot you surge forward and quickly poke through to the other side. These are two analogies to help explain the patterns of stocks as they transition between one move and the next move.
When a stock is completing a move, it experiences a period of deceleration, which is referred to by chartist as price consolidation.
Consolidation is one of the most important signals that a stock is about to begin a new move.
The move can be a continuation in the same direction, or it can be a reversal in the opposite direction.
The area of consolidation represents a battle zone where the bears are at war with the bulls.
The outcome of the battle often defines the direction of the next move.
As short-term traders, it is important to identify these areas of consolidation and enter a trade just as the new move is beginning.
During the consolidation period or 'battle zone', traders, both long and short are patiently waiting on the sidelines watching to learn the outcome of the battle.
As these winners emerge, there is often a scramble of traders jumping in with the winning team.
The candlestick patterns gives the trader excellent clues on when this move is about to take place, and helps the trader time his entry so that he can get in at the very beginning.
There are four different consolidation patterns experienced by stocks.
They are 1) Bearish Continuation, 2) Bullish Continuation, 3) Bearish Reversal, 4) Bullish Reversal.
The Bearish Continuation Consolidation Pattern Several strong bearish candlesticks precede the Bearish Continuation pattern where the bears are clearly in control (Figure 12).
The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.
The narrowing size of the candlesticks toward a line of support indicates that the bears are winning the battle.
The bulls finally weaken and allow the bears to penetrate the line of support, at which time the bears quickly conquer new territory by taking the stock to lower prices.
By recognizing the consolidation pattern the trader is able to short the stock just after the stock breaks the line of support, and profit from the sharp move downward.
The cause of the sharp sell off is fueled by the emotions of the traders watching for the outcome of the battle. Traders who bought the stock in the area of consolidation in hope of a rally off of support, are now scrambling to exit their losing positions.
Traders who are short from the period before the area of consolidation are realizing that their original entries were correct and are adding to their winning positions.
http://www.candlestickshop.com/seminar/Revers12.gif Figure 12 The Bullish Reversal Consolidation Pattern Several strong bearish candlesticks precede the Bullish Reversal Continuation pattern where the bears are clearly in control (Figure 13).
The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.
The narrowing size of the candlesticks toward a line against upward resistance indicating that the bulls are winning territory from the bears.
The bears finally weaken and allow the bulls to penetrate the line of resistance, at which time the bulls quickly conquer new territory by taking the stock to higher prices.
By recognizing the consolidation pattern the trader is able to buy the stock just after the stock breaks the line of resistance, and profit from the sharp move upward.
The cause of the rally is fueled by the emotions of the traders watching for the outcome of the battle.
Additional traders who jump in to buy the stock now that its strength has been confirmed fuel the sharp upward move.
Traders who are currently short the stock in the area of consolidation waiting in hope of a breakdown, are now scrambling to cover their short positions.
This buying action also fuels the fire pushing the stock to higher prices.
http://www.candlestickshop.com/seminar/Revers13.gif Figure 13 The Bearish Reversal Consolidation Pattern Several strong bullish candlesticks precede the Bearish Reversal Continuation pattern where the bulls are clearly in control (Figure 14).
The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.
The narrowing size of the candlesticks toward a line of support indicates that the bears are winning the battle.
The bulls finally weaken and allow the bears to penetrate through the line of support, at which time the bears quickly conquer new territory by taking the stock to lower prices.
By recognizing the consolidation pattern the trader is able to sell short the stock just after the stock breaks the line of support, and profit from the sharp spike downward.
Additional traders who jump in to short the stock now that its weakness has been confirmed fuel the sharp sell off.
Traders, who are currently long the stock in the area of consolidation waiting in hope of a breakdown, are now scrambling to sell their long positions.
This selling action also fuels the fire pushing the stock to lower prices. http://www.candlestickshop.com/seminar/Revers14.gif Figure 14 The Bullish Continuation Consolidation Pattern Several strong bullish candlesticks precede the Bullish Continuation Consolidation Pattern where the bulls are clearly in control (Figure 15).
The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.
The narrowing size of the candlesticks toward a line of resistance indicates that the bulls are winning the battle.
The bears finally weaken and allow the bulls to penetrate the line of resistance, at which time the bulls quickly conquer new territory by taking the stock to higher prices.
By recognizing the consolidation pattern the trader is able to buy the stock just after the stock breaks the line of resistance, and profit from the sharp move upward.
The cause of the sharp sell off is fueled by the emotions of the traders watching for the outcome of the battle.
Traders, who shorted the stock in the area of consolidation in hope of a sell off in the area of consolidation, are now scrambling to exit their losing positions.
Traders who are long from the period before the area of consolidation are realizing that their original entries were correct and are adding to their winning positions.http://www.candlestickshop.com/seminar/Revers15.gif Figure 15 http://www.candlestickshop.com/tradepro/images/Previous.gifhttp://www.candlestickshop.com/tradepro/images/homepage.gifhttp://www.candlestickshop.com/tradepro/images/next.gif
Increasing the odds
As we learned in the last section, the best trading opportunities present themselves just after a breakthrough in price consolidation.
Not every consolidation pattern; however, is tradable.
There are additional patterns, which significantly increase the odds of the trade following through in the desired direction.
The tools, which we present, are 1) support/resistance 2) trends, 3) moving averages.
Support and Resistance Support and resistance are general price areas that have halted the movement of stock in the past.
Support lines are horizontal lines that correspond with an area where stock previously bounced.
Resistance lines are horizontal lines corresponding with an area where stock resisted moving through.
Support and resistance lines are used to help access how much the stock price will remove before it is halted.
There are two main types of support and resistance; 1) Major price support/resistance, and 2) Minor price support/resistance
Major Price Support/ResistanceMajor Price Support is an artificial horizontal line representing an area where a stocks downward movement was halted to give way to a new upward movement (Figure 16).
Therefore, the price level is supporting the price of the stock.
Similarly, Major Price Resistance is an artificial horizontal line representing an area where a stocks u ward movement was halted to give way to a new downward
movement.
Therefore, the price level is resisting the price of the stock.
When considering a stock as a trading opportunity it is important to note the location of the nearest support and resistance levels.
Stocks near areas of support make for better buy opportunities and stocks near areas of resistance make for better short opportunities.
In the same way, the trader should be more cautious about shorting stock above areas of support, and buying stock near areas of resistance.
http://www.candlestickshop.com/seminar/Increa16.gif Figure 16Minor Price Support/Resistance Minor Price Support is an artificial horizontal line representing an area, which previously served as price resistance, but has now transformed to price support (
Figure 17).
Likewise, Minor Price Resistance is an artificial horizontal line representing an area, which previously served as price support, and has now transformed to price resistance (Figure 18).
When considering a stock as a trading opportunity it is important to note the location of the nearest support and resistance levels.
Stocks near areas of support make for better buy opportunities and stocks near areas of resistance make for better short opportunities.
In the same way, the trader should be more cautious about shorting stock above areas of support, and buying stock near areas of resistance.
For an in-depth analysis of how minor support & resistance works, see the free "Educational Section" of our main website at http://www.candlestickshop.com/free http://www.candlestickshop.com/seminar/Increa17.gif Figure 17 http://www.candlestickshop.com/seminar/Increa18.gif FIGURE 18Trends Every stock is in one of three states: 1) Up Trend, 2) Down Trend, and 3) Sideways Trend (Figure 20).
An Up Trend is defined by a series of higher highs and higher lows.
A Down Trend is defined by a series of lower highs followed by lower lows.
A Sideways Trend is defined by a series of relatively equal highs and lows.
http://www.candlestickshop.com/seminar/Increa20.gif Figure 20Even the strongest stocks will need a period of rest through a pullback in price or a period of marking time with little to no price movement.
A strong stock will often pull back in price as short to medium term traders take their profits off the table, and in the process, increase selling pressure, which will temporarily push the stock lower.
A strong stock, after rest will often resume its rally after these slight pullbacks.
The trader has better odds in his favor by playing the stock in the direction of the trend.
For example, stocks in and up trend can be bought, and stocks in a downtrend can be shorted (Figures 21& 22).A stock in a sideways pattern can be either bought our shorted if the stock ison strong price support or resistance.
In otherwise, the trader should enter long positions only on up trending stocks that have pulled back for rest ready to resume the rally.
Likewise, the trader should enter short positions on down trending stocks that have pulled back for rest ready to resume the decline.
http://www.candlestickshop.com/seminar/Increa21.gif Figure 21 http://www.candlestickshop.com/seminar/Increa22.gif Figure 21Moving Averages The most basic form of moving average, and the one we recommend to all our traders is called the simple moving average.
The simple moving average is the average of closing prices for all price points used.
For example, the simple 10 moving average would be defined as follows:
10MA = (P1 + P2 + P3 + P4 + P5 + P6 + P7 + P8 + P9 + P10) / 10
Where P1 = most recent price, P2 = second most recent price and so on
The term "moving" is used because, as the newest data point is added to the moving average, the oldest data point is dropped.
As a result, the average is always moving as the newest data is added.Moving averages can be used as support and resistance levels.
Stocks tend to rebound off of moving averages much in the same way that they rebound off major and minor support and resistance lines.
A moving average can be plotted using any period; however, the periods that seem to provide the strongest support and resistance for short term trading are the
10MA, 20MA, 50 MA, 100MA and 200MA.
http://www.candlestickshop.com/seminar/Increa23.gif Figure 23 http://www.candlestickshop.com/seminar/Increa24.gif Figure 24http://www.candlestickshop.com/tradepro/images/Previous.gifhttp://www.candlestickshop.com/tradepro/images/homepage.gifhttp://www.candlestickshop.com/tradepro/images/next.gif
Candlestick Line Time Frames
One of the beautiful attributes of the candlestick line is that the same analysis can be applied to multiple time frames.
The time frame of a candlestick line is the time duration between the candlestick's opening price and closing price.
For example, a daily candlestick chart would consist of candlestick lines with opening prices corresponding with the day's opening price, and closing prices corresponding with the day's closing price (Figure 25).
A 5-minute candlestick chart would have candlestick lines with time duration of 5 minutes between each candlestick's opening price and closing price.
Most good computer charting software allows easy conversion from one time frame to the next.
As we will see in latter examples, utilizing several different time frames in viewing a stocks candlesticks pattern is a very effective way to read the underlying sentiments behind a stocks movement. http://www.candlestickshop.com/seminar/dissec25.gif
Figure 25
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Dissecting a Candlestick Changing time frames when viewing candlestick patterns is useful tool when looking for patterns leading up to good trading opportunities.
For example, consider the Bullish Harami Pattern that is manifested on the Daily time frame chart(Figure 26).
The same stock plotted on a 15 min time frame chart shows that the stock is actually setting up for a Bullish Reversal Consolidation pattern.
Using the Daily chart and the 15 min chart together make it easier to find possible trade opportunities.
For example, the trader can scan for Harami setups on the Daily chart, and then pull up a 15 min chart to confirm the stock is experiencing a consolidation pattern preparing for a break out.
http://www.candlestickshop.com/seminar/dissec26.gif Figure 26 http://www.candlestickshop.com/seminar/dissec27.gif Figure 27
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Examples:
DAILY CANDLESTICK PLAY INSTRUCTIONS Harami (Bullish) Harami (Bearish)3 Black Crows (Bullish)3 White Soldiers (Bearish)Long Red Candlestick (Bullish)Long Green Candlestick (Bearish)Bullish Thrusting Line (Bullish)WEEKLY CANDLESTICK PLAY INSTRUCTIONS Harami (Bullish)Harami (Bearish)3 Black Crows (Bullish)3 White Soldiers (Bearish)
Bullish Harami Candlestick Play Instructions
http://www.candlestickshop.com/instructions/bullish_harami_instructions/instruction_bullish_harami_setup.gifStep 1 - Look for a BULLISH HARAMI resting on MINOR PRICE SUPPORT, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA) on the daily chart. http://www.candlestickshop.com/images/instruction_bullish_harami_entry.gifStep 2 - Pull up a 15 min. chart of the stock.Step 3 -Note the high price of the previous day's daily HARAMIcandlestick.Your entry point is 1/8th above this price.Step 4 -On the following day, allow the stock to trade for 5 minutes before entering.Enter the stock only if it breaks above the entry criteria (1/8th above previous day's high) and only after it has traded for 5 minutes.If the stock does not break above the entry point, do not enter.http://www.candlestickshop.com/images/instruction_bullish_harami_stop.gifStep 5 -Place the initial protective stop 1/8 below the low of the previous day's HARMAI candlestick.Exit the stock for a small loss immediately if the stock breaks below this price.Step 6 -Monitor the stock as it continues to rally upward.Look for areas of support (either minor price support or base price support) on the 15 minute chart, and re-adjust your protective stop price upward as the stock continues to rally.This will protect your profits, and/or minimize your losses if the stock should turn against you.http://www.candlestickshop.com/images/instruction_bullish_harami_profits.gifStep 7 -Monitor the stock on a 15 min. charts as it climbs upward, and stay in as long as the protective stop is not violated.Allow the stock to achieve 1 point or greater profit, and then look for signs of weakness.A reversal candlestick pattern on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of resistance and weakens, sell half of your position.This may occur on the same day as entry, or on the following day, depending on the strength of the stock.Maintain the latest protective stop price for the remaining half of your position.Step 8 -Allow stock to continue it's rally.After the stock has rallied further, again look for an area of resistance where the stock begins to weaken and reverse.This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart.Sell the remainder of the position for profit.
Bearish Harami Candlestick Play Instructions
http://www.candlestickshop.com/instructions/bearish_harami_instructions/instruction_bearish_harami_setup.gifStep 1 - Look for a BEARISH HARAMI against MINOR PRICE RESISTANCE, and/or against a declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the daily chart. http://www.candlestickshop.com/instructions/bearish_harami_instructions/instruction_bearish_harami_entry.gifStep 2 - Pull up a 15 min. chart of the stock.Step 3 -Note the low price of the previous day's daily HARAMIcandlestick.Your entry point is 1/8th below this price.Step 4 -On the following day, allow the stock to trade for 5 minutes before entering.Sell short the stock only if it breaks below the entry criteria (1/8th below the previous day's low) and only after it has traded for 5 minutes.If the stock does not break below the entry point, do not enter.http://www.candlestickshop.com/instructions/bearish_harami_instructions/instruction_bearish_harami_stop.gifStep 5 -Place the initial protective stop 1/8th above the high of the previous day's HARAMI candlestick.Cover the stock for a small loss immediately if the stock breaks above this price.Step 6 -Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price downward as the stock continues to decline. This will protect your profits, and/or minimize your losses if the stock should turn against you.http://www.candlestickshop.com/instructions/bearish_harami_instructions/instruction_bearish_harami_profits.gifStep 7 -Monitor the stock on a 15 min. chart as it declines downward, and stay in as long as the protective stop is not violated.Allow the stock to achieve 1 point or greater profit, and then look for signs of strength.A reversal candlestick pattern on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of support and strength, cover half of your position.This may occur on the same day of entry, or on the following day, depending on the weakness of the stock.Maintain the latest protective stop price for the remaining half of your position.Step 8 -Allow stock to continue it's decline.After the stock has declined further, again look for an area of support where the stock begins to strengthen and reverse.This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart.Cover the remainder of the position for profit.
3 Black Crows Candlestick Play Instructions
http://www.candlestickshop.com/instructions/3crows_instructions/instruction_3crows_setup.gifStep 1 - Look for 3 BLACK CROWS resting on Minor Price Support, and/or a rising Major Moving Average (10 MA, 20 MA, or 50 MA). Ideally you want to find a series of 3 red candlesticks; however, 2 red candlesticks can also work well.http://www.candlestickshop.com/instructions/3crows_instructions/instruction_3crows_entry.gifStep 2 - Pull up a 15 min. chart of the stock.Step 3 -Monitor the stock's trading during the last 30 minutes before the close, and enter only if the stock is closing strong near it's high price of the day.You will reduce your risk by entering only if the range of the day (high price minus low play price) is narrow.This way, when you set your protective stop at the day's low, you will only take a small loss if the stock should reverse.http://www.candlestickshop.com/instructions/3crows_instructions/instruction_3crows_stop.gifStep 4 -Observe the daily chart after the market has closed.The stock has now formed a BULLISH HARAMI on the daily chart, but you were able to spot the setup on the previous day and enter before the rest of the herd! On the next day, observe where the stock opens.If the stock opens relatively near to the opening price (say within 5/8th), place the initial protective stop 1/8th below the low of the previous day's candlestick.Exit the stock immediately if the stock breaks below this price.If the stock gaps up, proceed to Step 6.If the stock gaps down, proceed to Step 8.Step 5 -Monitor the stock as it continues to rally upward.Look for areas of support (either minor price support or base price support) on the 15 minute chart, and re-adjust your protective stop price to 1/8th under these levels of support.This will protect your profits, and/or minimize your losses if the stock should turn against you.http://www.candlestickshop.com/instructions/3crows_instructions/instruction_3crows_gapup.gifStep 6 -If the stock closes strong on the previous day, there is a good chance that the play will be spotted by other traders (note how a BULLISH HARAMI is formed on the daily chart), and result in a morning price gap upward. If the stock gaps up by over 5/8 point, sell half of the position immediately after the open to lock in your profit. Place a protective stop 1/8th under the first 15 min. candlestick for the remainder ofyour position.Step 7 -Monitor the stock as it continues to rally upward.Look for areas of support (either minor price support or base support) on the 15 minute chart, and re-adjust your protective stop price to under these levels of support.This will protect your profits, and/or minimize your losses.http://www.candlestickshop.com/instructions/3crows_instructions/instruction_3crows_gapdown.gifStep 8 -It is also possible for the stock to gap down on the following day due to overall market weakness.If the stock gaps down and opens 5/8th lower than the previous day's close, DO NOT PANIC AND SELL RIGHT AWAY.In most cases, the stock will rally after a gap down, and the low price of the day will occur in the first 5 minutes of trading. Let the stock trade for 5 minutes and place a protective stop 1/8thbelow the low of the first 5 minute candlestick.Sell the stock immediately if it breaks this protective stop.Step 9 -Monitor the stock as it continues to rally upward.Look for areas of support (either minor price support or base price support) on the 15 minute chart, and re-adjust your protective stop price to 1/8th under these levels of support. This will protect your profits, and/or minimize your losses.http://www.candlestickshop.com/instructions/3crows_instructions/instruction_3crows_profits.gifStep 10 -Monitor the stock as it climbs upward, and stay in as long as the protective stop is not violated.After the stock has achieved 1 point profit or greater, look for signs of weakness.A bearish candlestick on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of resistance and weakens, sell half of your position.This may occur on the same day as entry, or on the following day, depending on the strength of the stock.Maintain the latest protective stop price for the remaining half of your position.Step 11 -Allow the stock to continue it's rally.After the stock has rallied further, again look for an area of resistance where the stock begins to weaken and reverse.This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart.Sell the remainder of the position for profit.
3 Soldiers Candlestick Play Instructions
http://www.candlestickshop.com/instructions/3soldiers_instructions/instruction_3soldiers_setup.gifStep 1 - Look for 3 WHITE SOLDIERS against Minor Price Resistance, and/or a declining Major Moving Average (10 MA, 20 MA, or 50 MA). Ideally you want to find a series of 3 green candlesticks; however, 2 green candlesticks can also work well.http://www.candlestickshop.com/images/instruction_3soldiers_entry.gifStep 2 - Pull up a 15 min. chart of the stock.Step 3 -Monitor the stock's trading during the last 30 minutes before the close, and enter only if the stock is closing weak near it's low price of the day.You will reduce the risk of theby entering only if the range of the day (high price minus low play price) is narrow.This way, when you set your protective stop at the day's high, you will only take a small loss if the stock should reverse.http://www.candlestickshop.com/instructions/3soldiers_instructions/instruction_3soldiers_stop.gifStep 4 -Observe the daily chart after the market has closed.The stock has now formed a BEARISH HARAMI on the daily chart, but you were able to spot the setup on the previous day and enter before the rest of the herd! On the next day, observe where the stock opens.If the stock opens relatively near to the opening price (say within 5/8th), place the initial protective stop 1/8th above the high of the previous day's candlestick.Exit the stock immediately if the stock breaks above this price.If the stock gaps down, proceed to Step 6.If the stock gaps up, proceed to Step 8.Step 5 -Monitor the stock as it continues to decline downward.Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price to 1/8thabove these levels of resistance.This will protect your profits, and/or minimize your losses if the stock should turn against you.http://www.candlestickshop.com/instructions/3soldiers_instructions/instruction_3soldiers_gapdown.gifStep 6 -If the stock closes weak on the previous day, there is a good chance that the play will be spotted by other traders (note that it has now formed a BEARISH HARAMI on the daily chart), and result in a morning price gap downward. If the stock gaps down by over 5/8 point, cover half of the position immediately after the open to lock in your profit. Place a protective stop 1/8th above the high of the first 15 min. candlestick for the remainder ofyour position.Step 7 -Monitor the stock as it continues to decline downward.Look for areas of resistance (either minor price resistance or base resistance) on the 15 minute chart, and re-adjust your protective stop price to above these levels of resistance.This will protect your profits, and/or minimize your losses.http://www.candlestickshop.com/instructions/3soldiers_instructions/instruction_3soldiers_gapup.gifStep 8 -It is also possible for the stock to gap up on the following day due to overall market strength.If the stock gaps up and opens 5/8th higher than the previous day's close, DO NOT PANIC AND COVER RIGHT AWAY.In most cases, the stock will sell off after a gap up, and the high price of the day will occur in the first 5 minutes of trading. Let the stock trade for 5 minutes and place a protective stop 1/8thabove the high of the first 5 minute candlestick.Cover the stock immediately if it breaks this protective stop.Step 9 -Monitor the stock as it continues to decline downward.Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price to 1/8th above these levels of resistance. This will protect your profits, and/or minimize your losses.http://www.candlestickshop.com/instructions/3soldiers_instructions/instruction_3soldiers_profits.gifStep 10 -Monitor the stock as it declines downward, and stay in as long as the protective stop is not violated.After the stock has achieved 1 point profit or greater, look for signs of strength.A bullish candlestick on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of support and strength, cover half of your position.This may occur on the same day as entry, or on the following day, depending on the weakness of the stock.Maintain the latest protective stop price for the remaining half of your position.Step 11 -Allow the stock to continue it's decline.After the stock has declined further, again look for an area of support where the stock begins to strengthen and reverse.This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart.Cover the remainder of the position for profit.
Long Red Candlestick Play Instructions
http://www.candlestickshop.com/instructions/longred_instructions/instruction_longred_setup.gifStep 1 - Look for a LONG RED CANDLESTICK resting on MINOR PRICE SUPPORT and also a rising MAJOR MOVING AVERAGE (10 MA, 20 MA or 50 MA).http://www.candlestickshop.com/instructions/longred_instructions/instruction_longred_entry.gifStep 2 - Pull up a 5 minute chart of the stock.Step 3 - Note the opening price of the stock. If the stock gaps up or down more than 5/8th, DO NOT enter the trade.If the stock opens within 5/8th of the previous day's close, proceed to Step 4.Step 4 - Wait for the stock to trade for 5 minutes.After 5 minutes, note the high of the first 5 minute candlestick.Step 5 - Enter the stock if it trades 1/8th above the high of the first 5 minute candlestick.If the stock does not trade 1/8thhigher than the high of the first 5 minute candlestick, DO NOT enter the trade.http://www.candlestickshop.com/instructions/longred_instructions/instruction_longred_exit.gifStep 6 - Pull up a 15 minute chart of the stock.Step 7 - After entering the stock, place an initial protective stop 1/8th below the low price of the day.Step 8 - Monitor the stock during the next 15 min. candlestick.Step 9 - Adjust the protective stop to 1/8th below the low price of the previous 15 min. candlestick.Stay in the trade as long as the stock trades above this price.Step 10 - Monitor the stock during the next 15 min. candlestick.Step 11 - Adjust the protective stop to 1/8th below the low price of the previous 15 min candlestick. Stay in the trade as long as the stock trades above this price.Step 12 - Continue to monitor the stock during each new 15 min. candlestick, and adjust your protective stop to 1/8th below each previous 15 min. candlestick's low.Step 13 - Exit the stock for profit when it finally trades 1/8th below the low price of a previous 15 min. candlestick.
First post. Alright!
There are a number of candlestick formations that I'm looking at right now, but I think the clearest setup is coming on the part of AUDNZD. After a false breakout above 1.21 and subsequent congestion below 1.22, the pair has now put in for a big engulfing bear. Since this candle has also broke a rising trend from 10/15 and cleared 1.20 at the same time, I'm thinking this could be a medium term market turn. On that basis, I'm targeting 1.18 as a first target with a stop a 100 points up.
Any thoughts on this formation? Any other setups that look better.
Sometimes the candle setups are hard to find because of the continuous markets in FX, but the reflection of market psychology is the same. That being said, the engulfing patterns on the carry crosses is looking suspicious.
Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=9118&stc=1&d=1194297229
Though it is over five hours from closing, the daily candle for USDCAD is putting in for a considerable doji star - an otherwise trustworthy reversal pattern. Looking back over USDCAD historical price action, we haven't seen a tail like the pair is cutting right now (120-plus points) since 6/29 (125) and before that not for years.
Considering the steady drop in USDCAD, this pattern could be indicative of a trend exhaustion before a reversal. Whether it could turn into a short-term reversal (200-400 points to 0.94 or 0.96) or a long-term reversal may rely more squarely on the fundamental factors like central bank interest in the greenback, the Fed's tolerance for further rate cuts and commodity prices.
Taking on a long at this point would be risky (just look at the three black crows on the monthly chart); so I may wait for additional confirmation before taking a trade. For now, I'll look for a small position on long limit order at 0.9235. My risk will be limited to 0.9270 and target will be dependent on how volatility develops. If bullish momentum hasn't built into the retracement a few minutes after the position is triggered, I'll just cut out for for a 35-70 points. On the other hand, if things really start rolling, I'll trail my stop and look for additional entry levels at 0.9460 and 0.9675.
Any one else seeing better dojis in this morning's dollar pullback?
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I noticed that candle too. It looks as close to a doji star as we can get with continuous prices; and depending on how today's bar close, it could even turn out to be an abandoned baby (a very bearish formation). At the very least, it looks like a good reversal signal at least in the short term.
However, I'm debating over whether I should play this aggressively or conservatively. Aggressively, and I could get in right now since we are pretty close to the close of the doji. At the same time, that doesn't take into account the selling momentum of the current daily candle. Conservatively, I shouldn't wait for momentum to take us through 0.91 since we have a build up of support in that area. While 150 points would be good for a few days trade, I think the risk isn't worth it. What's more, if this is truly a good candle formation, we could get 400-600 points out of it at least.Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=9191&stc=1&d=1194540695
And, since I keep seeking out the major reversals, I think it good to point out a lower risk reversal that is building up into a continuation formation. After rebounding from a loose triple bottom on resistance around 0.85, AUDCAD marked a strong rebound. The reversal candle was massive and undoubtedly an engulfing candle. However, this pattern could also be argued to be ladder bottom, which would give it considerably more tout in its upside momentum.
No positions on this formation as I usually only target the 50% mark in ranges and we are already too close. However, I will watch it to see how it unfolds.
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Great looking weekly dojis on many pairs, best looking ones are Cable and Cad for me, any pullbacks is a good time to jump on and ride the wave.
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Just like most of the other majors, EURUSD looks like it is in for a healthy correction. Momentum was really flagging into its new record highs -especially last Wednesday's candle which saw an upper wick nearly as big as its body.
I 1.45 is near-term support on that fib; and that the next floor is on the rising trend coming up to 1.4365. Given EURUSD's heights, I would favor setting short stop orders on moves through 1.45 and 1.4350 to limit risk and jump on a potentially momentous, medium-term retracement.
I want to see how today's daily candle closes. As long as its in the bottom quarter of the range and isn't a belt hold; I'll like the development of the short side. Of course, the weekly bar is very new, so we could be looking at a mere retracement if long-term money doesn't catch on to the potential reversal signaled by technicals and candles on the lower time frame.Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=9265&stc=1&d=1194887094
After yesterday's dollar rally, the probability of a pull back across the majors was high. With many of these pairs already working on considerable retracements, the question now is whether or not this is a temporary bounce or a genuine selling that will take the dollar to new lows.
While there are arguments for each side of this scenario, candle stick formations on a few of the majors is suggesting a very dovish turn is underway for the dollar bulls. Specifically, I'm talking about the bullish belt bottom in GBPUSD, AUDUSD and NZDUSD. This is a formation where a wide-bodied bar has a low equal to its open. The chance of reversal is moderate at best, but the rally potential from such a formation is pretty great - as we have seen already.
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David brought this to my attention. Look at the weekly GBPUSD chart. If we can get a good solid red bar close at the end of this week, we will have a very clear evening star. This is a relatively high probability formation, and considering GBPUSD is considerably overbought and we have come off a channel top and 26-year high, this could mark a big market turn.
If you look at the temporary tops through GBPUSD's steady advance through 2006 and 2007, none have produced as clear a chart formation as this one. We have seen a few piercing lines and engulfing bears, but never a crisp doji like this (which is also pretty close to a shooting star in its own right).
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As a followup to why I thought this was significant:
The last time that this occurred on the GBPUSD weekly chart was in September, 2005 (see chart below), and the GBPUSD subsequently went on to lose 1000 points in the next three months of trading.
See the second chart for where we're at now.
The key here is to wait for a weekly close that satisfies the Evening Star candlestick formation criteria. We can't play candlestick formations on open candles.
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hi all David i have read your article .i think you find direction healthy for analysis candlestick but no with tool fit for this direction,for example if you want travel from usa to Europe ,must choice several selection as airplane or ship or boat ,but i see you chioce slower selection also you must have attention to candlestick chart ,my consideration is for example feriodcity of time H1 MIG or FXCM or dbfx have distinction each other and i have attached for sample see to shadow and body, of course im happy that you have point of view correct to candlestick but you are taking step to world of candlestick.welcome to you
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The GBPUSD closed its weekly candle with an ominous evening star formation. I've posted the last couple examples in which this occurred. Needless to say, it is a fairly bearish sign for the GBP.
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Needless to say, I should probably post the most recent example of the evening star--the past three weeks.Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=9465&stc=1&d=1195508644
Volatility today has produced some interesting candlestick formations in the majors. One of the more significant candles comes on the part of EURUSD. This massive, green candle is a kicking move that comes after a symmetrical wedge. However, a 160 point candle at these heights could quickly turn into an exhaustion move; so I'll remain cautiously bullish on the sidelines.
GPBUSD is another interesting pair. Looking back, last Friday's candle was actually a hammer; so we had the foundation for a rebound. Now with a wide-body, bullish engulfing candle; the upside momentum looks a lot stronger than I had initially thought. Now it rests on the Thanksgiving liquidity effect. If the market acts like it did last year, we could see momentum build with volatility. But if its like 2004 and 2005, the upside momentum could die into the second half of the week and allow the bears time to regroup for next week. I'm still long term bullish on this pair, with a stop entry short below 2.0250 to jump on the eventual turn.
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The AUDUSD is also showing that it has broken below the neckline of a recent head&shoulders formation. Things look to worsen for the Aussie.Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=9555&stc=1&d=1195680395
Are you working off the daily doji from Friday with the large upper wick? I was looking at that this weekend; but I'm skeptical of its accuracy in the formation the pair is laying out. I would have preferred it if the doji had come just after a big up-day.
I'm going to hold a conservative long bias for now, but I'm not looking to get long just yet. At the same time, I have a short stop entry order at 1.4765 to see if that rising trendline can fail while I'm at the computer. May take it off if the move hasn't happened and put it back on in the morning. Although, by that time, the move will likely have already happened. We'll see.
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continue to like the GBPUSD to the downside. Look at those sizeable shadows on those candles to the topside and the progressively lower lows. Let's see if we break recent intraday reaction lows at 2.0638 to open up a move lower.Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=9621&stc=1&d=1196200063
I mentioned this in the GBPUSD thread, but it seems appropriate for the candlestick group as well. After the recent swing high (through this morning), we have a lower high to 11/29's 2.0830 and to 11/23's 2.0760. Altogether, this looks like a messy heads-and-shoulders formation.
However, the daily candles making up this formation are less convincing of this technical formation. The head of the setup is a big engulfing red candle. The left shoulder is series of dojis with no defined direction before their print (to offer a signal of a top or bottom). And, now this right shoulder comes without put in a true rounded high.
All of its is very circumspect, but I like 2.05 support.
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That recent hammer is probably the most interesting development. Looks like, at the minimum, we're gearing up for a test of recent heights.
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hi all although nzdusd weekly tell to us that im up but this pattern is rare in fx.hard is distinguish this pattern in between bullish doji star or bullish tri star or bullish morning doji star . but on nzd arrived very pull for bringdown of course usd have haughtiness for up last week.but double doji star collapsed power shooting star for bring down.this pattern is up with 150 p
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hi all direction of usdyen is uncertain with this koma that have confirmation but we see bearish candle after koma , whether we will see bearish three inside down or identical tree crows bearish for usdyen ?
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hi all of course never myself have position on gbpusd because act this pair is uncertain but gbpusd take place in gate runner up but this shooting star in top trend have meaning that uptrend is ruined even form the second shooting star redoubled confirmation for down again .many from persons deep concentration on candle body but many from formation candle must attention to shadow for example doji or hammer or shooting star and ....of course i think that gbp must not above 2.0500 this time
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hi all without description
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