Okay i decided to write this up and share because it makes amazing amounts of sense.
Have you ever wondered why Japanese candle sticks work so well if used properly. Here is a few reasons for this.
1. trapped and exiting traders move markets.
2. Market makers, Banks, and Institutions use the same tricks over and over again and they look roughly the same every time. You cant teach a market new tricks.
3. Patterns fail i know that sounds stupid for a reason that they actually work but youll understand later.
1.Every action is paired with an opposite action. A buyer has bought from a seller and vice versa. The best chances to make money in movements are when people change their mind impulsively. In fact that really is the only time an astute trader should place an order.
I know most would like to believe the market isn't manipulated but it is and its not a bad thing (for the smart traders anyways). The only reason (lets use rallies as an example) rallies occur is because the most heavily invested institutions have to unload or sell their inventory at a good price for their customers. The institution and smart investors/traders follow the sentiment to make money its the only way the path of least resistance.
Trapped and exiting traders are often used create reversals and continuations.
Example one Is the
USD/JPY pair which has been really orderly on the 1HR time frame.
Alpha A notes a classic reversal bar that most would have shorted at the break of its lover limit. So Here we have most of the investing public short (they have sold something they didn't own which would require them to buy to exit). The next two hour more and more went short dropping the price further and further. Most of the traders who bought the support at 1 would have exited at the A reversal bar. So a big majority of interday traders would have been shorting or covering long positions. B notes buyer or Covering Shorts which arguable can be caused by one or the other. Institutions would like to purchase more for their clients they know that if they start buying they will get the Bears nervous and exit and they can scoop up a lot at a great price. Regardless of the actual reason we just trade the movement. So it doesn't really matter. Any who as price action starts moving higher and higher the shorts from A who haven't covered because they HOPE (Hope is an evil thing in trading) to get out at a better price lose all hope and exit in mass. The old shorts and new longs begin a buying frenzy. Remember the bears will have to buy to exit and the buyers who want to enter will buy. There you go Trapped and exiting traders move markets.
2. The tricks nevery change they are always the same. To prove this i will deconstruct a reversal bar on a daily bar. I chose a daily bar because its the easiest to dive deeper into compared to a smaller time frame the premise is exactly the same on all time frames but its harder to demonstarate and is much clearer for beginners.
Classic daily Reversal bar Little or no over lap with the last bar and a giant sign of strength with a large tail.
Here in between the lines is the same bar but now each bar represents 4HRs
There are a few key items to to note here this isn't the best example but try to follow me. Support A has been disproved and is actively being shorted on bar B but something happens deeper in bar B.
RED - HIGH of the day
TEAL - OPEN and Close are very Close
Green - Low of the day
Support A has failed Shorts Galore after the failure Bar B was all shorts but bar C is massive support forcing the less hopeful bears to exit early some held on you can be sure and some even when short later also they the ugly truth rears is head the market has gone LONG!!!!
Most Candle stick traders would have orders placed at this line and because the continuing bars lack lows that are lower than the previous they will not exit quite yet. Hopefull Bears from all the previous days will exit in mass coupled with new buyers as the USD/JPY continues up.
Its the oldest trick in the Market book.
1.Belief "I picked this bottom like a pro look at it go"
2.Hope "oh man i hope it finds support again"
3.Despair "oh SHIT im never going to get out at a good price Abandon ship!"
4.Delusional Isn't marked on the graph but this point is 100 pips lower than dispair.
3.So if everybody could just follow candle signal and make tons of cash NO. Using candle sticks takes experience, patience and humility. Signals fail that is the best thing about candle sticks. Belief is based on your perception of reality. I believe that the euro will reverse because of a candle stick pattern i enter the trade when my limit order is triggered. The euro climbs and fails i need to understand when to exit usually at a profit or break even. Its not taught enough taking losses is GOOD! Everyone wants bullet proof systems that demand profit consistently. THIS IS A BUSINESS YOU RISK MONEY TO MAKE MONEY! Some business venture make money and some dont but a smart business man knows that you never bet the farm. KNOW and love your losses (Failed signals) its the price we pay. Plus you can always reverse your order when possible to take a failed signal and still make money.
The only way to make money in any market is to look for failure and be there to capitalize on scared money.
1.Trapped, exiting, new trend (counter trade) traders move markets.
2.Candle stick signals are reliable because they are the inescapable foot print of price action that may signal a reversal or continuation on when dissected on smaller time frames.
3.Candle sticks do fail you have to know when to pull the plug on a trade or reverse when necessary because you might be the one who will join the scared money.
To Conclude the article Candle stick are the bees knees.
Have you ever wondered why Japanese candle sticks work so well if used properly. Here is a few reasons for this.
1. trapped and exiting traders move markets.
2. Market makers, Banks, and Institutions use the same tricks over and over again and they look roughly the same every time. You cant teach a market new tricks.
3. Patterns fail i know that sounds stupid for a reason that they actually work but youll understand later.
1.Every action is paired with an opposite action. A buyer has bought from a seller and vice versa. The best chances to make money in movements are when people change their mind impulsively. In fact that really is the only time an astute trader should place an order.
I know most would like to believe the market isn't manipulated but it is and its not a bad thing (for the smart traders anyways). The only reason (lets use rallies as an example) rallies occur is because the most heavily invested institutions have to unload or sell their inventory at a good price for their customers. The institution and smart investors/traders follow the sentiment to make money its the only way the path of least resistance.
Trapped and exiting traders are often used create reversals and continuations.
Example one Is the
USD/JPY pair which has been really orderly on the 1HR time frame.
Alpha A notes a classic reversal bar that most would have shorted at the break of its lover limit. So Here we have most of the investing public short (they have sold something they didn't own which would require them to buy to exit). The next two hour more and more went short dropping the price further and further. Most of the traders who bought the support at 1 would have exited at the A reversal bar. So a big majority of interday traders would have been shorting or covering long positions. B notes buyer or Covering Shorts which arguable can be caused by one or the other. Institutions would like to purchase more for their clients they know that if they start buying they will get the Bears nervous and exit and they can scoop up a lot at a great price. Regardless of the actual reason we just trade the movement. So it doesn't really matter. Any who as price action starts moving higher and higher the shorts from A who haven't covered because they HOPE (Hope is an evil thing in trading) to get out at a better price lose all hope and exit in mass. The old shorts and new longs begin a buying frenzy. Remember the bears will have to buy to exit and the buyers who want to enter will buy. There you go Trapped and exiting traders move markets.
2. The tricks nevery change they are always the same. To prove this i will deconstruct a reversal bar on a daily bar. I chose a daily bar because its the easiest to dive deeper into compared to a smaller time frame the premise is exactly the same on all time frames but its harder to demonstarate and is much clearer for beginners.
Classic daily Reversal bar Little or no over lap with the last bar and a giant sign of strength with a large tail.
Here in between the lines is the same bar but now each bar represents 4HRs
There are a few key items to to note here this isn't the best example but try to follow me. Support A has been disproved and is actively being shorted on bar B but something happens deeper in bar B.
RED - HIGH of the day
TEAL - OPEN and Close are very Close
Green - Low of the day
Support A has failed Shorts Galore after the failure Bar B was all shorts but bar C is massive support forcing the less hopeful bears to exit early some held on you can be sure and some even when short later also they the ugly truth rears is head the market has gone LONG!!!!
Most Candle stick traders would have orders placed at this line and because the continuing bars lack lows that are lower than the previous they will not exit quite yet. Hopefull Bears from all the previous days will exit in mass coupled with new buyers as the USD/JPY continues up.
Its the oldest trick in the Market book.
1.Belief "I picked this bottom like a pro look at it go"
2.Hope "oh man i hope it finds support again"
3.Despair "oh SHIT im never going to get out at a good price Abandon ship!"
4.Delusional Isn't marked on the graph but this point is 100 pips lower than dispair.
3.So if everybody could just follow candle signal and make tons of cash NO. Using candle sticks takes experience, patience and humility. Signals fail that is the best thing about candle sticks. Belief is based on your perception of reality. I believe that the euro will reverse because of a candle stick pattern i enter the trade when my limit order is triggered. The euro climbs and fails i need to understand when to exit usually at a profit or break even. Its not taught enough taking losses is GOOD! Everyone wants bullet proof systems that demand profit consistently. THIS IS A BUSINESS YOU RISK MONEY TO MAKE MONEY! Some business venture make money and some dont but a smart business man knows that you never bet the farm. KNOW and love your losses (Failed signals) its the price we pay. Plus you can always reverse your order when possible to take a failed signal and still make money.
The only way to make money in any market is to look for failure and be there to capitalize on scared money.
1.Trapped, exiting, new trend (counter trade) traders move markets.
2.Candle stick signals are reliable because they are the inescapable foot print of price action that may signal a reversal or continuation on when dissected on smaller time frames.
3.Candle sticks do fail you have to know when to pull the plug on a trade or reverse when necessary because you might be the one who will join the scared money.
To Conclude the article Candle stick are the bees knees.
