Newton's Fiscal

How to Read Price Action in FOREX Charts

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Reading forex price action is as much an art as it is a science. Chart-reading in the foreign exchange market, otherwise known as forex, can be particularly challenging for chart analysts. Chart readers typically analyze the relationship between price and volume. Forex trading is decentralized with trade transactions taking place at various centers around the world. As a result, volume data is unreliable and forex analysts are forced to focus entirely on price action.

Instructions

Things You'll Need

 

1. Forex chart software
2. Forex data feed

1 - Set the chart time frame. Day traders typically use intraday price charts with trade intervals set anywhere from one to 30 minutes.

2 - Choose price measurement type. Japanese candlestick charts generally work better for forex traders, as they allow analysts to see the open, close, high and low information for each price interval.

3 Measure price support. Use your chart-drawing tools and draw a line connecting price lows on the chart. This will give you an idea where buyers have recently supported the price.

4 - Measure price resistance. Draw a line on your chart connecting price tops. This will help you determine the price area where a supply of sellers resides.

5 - Determine whether there is a price trend or a trading range. If the price support line you drew is generally angled higher from left to right, it is safe to assume that the price is in an uptrend. If the support line is flat, the currency pair is likely randomly trading in a range.

Read more: How to Read Price Action in FOREX Charts | eHow.com http://www.ehow.com/how_7566289_read...#ixzz1nQkyRcQi

The Price Action trading strategy: Trading the trend

1 - Bar types
Upward bars: highs and lows are higher than those of the previous bar. The bars are indicative of an an uptrend. Notice how the close is higher than the open until the trend reverses when the close falls below the open.
Downward bars: highs and lows are lower than those of the previous bars. The bars are indicative of a downtrend. Notice how the close is lower than the open until the trend reverses when the close is higher than the open.
Inside bar: also referred to as a narrow range bar; this is a bar with a high lower than the previous bar and a higher low. An inside bar usually represents market indecision .
Outside bar: also called a wide range bar or an engulfing bar; this is a bar with a higher high and a lower low than the previous bar. When the opening price is in the lower third of the bar and the close is in the upper third, it is a bull engulfing bar. When the opening price is in the upper third of the bar and the close in the bottom third, it is a bearish engulfing bar.

Another definition is used for this bar - especially with candlestick charts - when the open and the close have engulfed the open and close of the previous bar, and not just the bar's high and low. With this definition, the engulfing of the bar does not need to have a high or a low to form. The first definition probably arose from bar charts where it is harder to observe the opening and closing prices.

http://www.forex-central.net/img/str...ce-action1.gif

2 - The trend on a 5-min. chart
The following chart shows high and low swings in both trend directions: upward and downward. The price for a given period is in an uptrend if its highs are always higher (HH = higher high) and its lows are always higher (HL = higher low). Prices are in a downtrend if its highs are always lower (LH = lower high) and its lows are always lower (LL = lower low). If prices move differently, it's in a consolidation mode (choppy markets) - ranging or forming triangles, pennants, rectangles, etc...

http://www.forex-central.net/img/str...ce-action2.gif

3 - A change in the trend
The chart below shows how a true test of a high or a low can announce a change in trend.

(A) Price made a HH and a HL and then comes test the previous swing high a second time at A.
(B) Price hits a LL and a LH before coming to test the previous swing low at B a second time.
(C) The price hits a LH (the bar which doesn't touch line C) and then it comes test the previous swing low at C.
(D) Price made a HH and a HL before coming to test the previous swing high at D a second time.

http://www.forex-central.net/img/str...ce-action3.gif

4 - The trend within the trend
When observing a single currency pair, it is possible to see different trends or a consolidation period when you switch between different timeframes. For example, a daily chart shows an uptrend while the H1 chart shows a retracement or a correction. How can this affect your trading? The following exercise is an excellent way to understand what is meant by the expression "trend within the trend".

Take a 15-minute chart and mark the new highs (HH), and the new higher lows (HL), the new lower lows (LL) and the lower highs (LH). You can print the chart and mark it up by hand. Use red lines for downward trends and green lines for upward trends. Remember that prices are in an uptrend if they make HH and HL and they're in a downtrend if they hit LH and LL. If prices are doing otherwise, they may be consolidating, ranging, forming triangles, pennants, rectangles, etc.

1-4 are within a downward trend.
5-8 are within an upward trend.
http://www.forex-central.net/img/str...ce-action4.gif

Take the same chart, but this time with a 5-minute timeframe, keep the same colored marks and numbers as you had in the 15-minute chart. Mark the new highs and lows with green numbers for the upward trends and red numbers for the downward trends.

http://www.forex-central.net/img/str...ce-action5.gif

We can now see a trend in the 15-minute chart with the HH/LL marks and, at the same time, we can also see a trend in the 5-minute chart with the coloured numbers. The price action in the 15-min. chart only shows two trends, while the 5-min. chart shows five different trends!

At first, both charts are in a downtrend until the 5-min. chart shows a new HH at the first green number 1. The downward trend was interrupted when the LH at the black number 3 was passed through. The price then made a new HL (green number 2) indicating the start of an upward trend that continues up to the new LH (red number 1).

In the 15-min. chart, we just made a HH at the black number 5; at this point, we must wait until a HL forms in order to make a purchase order in the 5-min. chart. Two strategies are possible: buy after the pair of reversal bars at the red 2 or wait until the last swing high at red number 1 is passed through (buy here). The stop will be placed under the last HL and pulled up each time a new HL is made in order to follow the trend. It is nevertheless advised that you take half of your profits while following the trend and that you exit your last position with a stop order.

On the climb up to the HH at the black 7, both timeframes are in agreement. Afterwards, though, the 5-min. chart shifts to a downward trend (red numbers 1 to 6) while the 15-min. chart is still considered as being in an uptrend, achieving a HL at the black 8.

Although it is possible to trade trends in a small timeframe, you must wait for price action to demonstrate the same trend in a higher timeframe in order to genuinely trade the trend.
The trend is your friend!

http://www.forex-central.net/price-a...d-strategy.php

Forex Price Action Trading Strategy
Written by Philip Newton

Swing Highs and Lows
The first thing that we need to recognise is what is a Swing High and Swing Low. This is probably the easiest part of price action and bar counting although the whole process gets easier with practice.

http://www.aboutcurrency.com/images/...swing-high.gif

I define a swing high as;
A three bar combination
A bar preceded and succeeded by lower highs

http://www.aboutcurrency.com/images/...xswing-low.gif

I define a swing low as;
A three bar combination
A bar preceded and succeeded by higher lows

Market Phases
There are only three ways the market can go;

 

1. Up
2. Down
3. Sideways

With the swing high/low definition now in mind we can start to build some layers on to the chart to identify these market phases and start to do a simple count of these swing highs and lows.
In short

 

1. The market is going up when price is making higher highs and higher lows
2. The market is going down when price is making lower highs and lower lows
3. The market is going sideways when price is not making higher highs and higher lows OR lower highs lower lows

This may sound like child's play and a statement of the obvious but you will be surprised at how often people will forget these simple facts. One of the biggest questions I get asked is, which way is the market going? By doing a simple exercise you can see which way that price is going and decide on your trading plan and more importantly timing of a trade.

What do I mean by timing? It may be that you are looking for a shorting opportunity as the overall trend is down but price on your entry time frame is still going up (making HH's & HL's). There is, at this stage, no point in trying to short a rising market until price action start to point down (making LH's & LL's. More on this shortly).

http://www.aboutcurrency.com/images/...ias-change.gif

A Short or Bearish Bias Changeoccurs when the following sequence develops.
HH>HL>LH>LL>LH The bias change is confirmed when price moves below the las lower low made as highlighted on the chart.
Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Red Line).
There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

http://www.aboutcurrency.com/images/...s-change-1.gif

A Long or Bullish Bias Change occurs when the following sequence develops.
LL>LH>HL>HH>HL The bias change is confirmed when price moves above the last higher high made as highlighted on the chart.
Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Blue Line).
There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

http://www.aboutcurrency.com/strateg...strategy.shtml

Follow-up

Trending Price Action
After a bias change has been seen and confirmed, one of the phases that the market can then take is to start trending either up or down depending on the bias change previously.
In the chart below we can see what price ideally looks like when price is trending up and trending down. Each phase shows price making HH's & HL's on its way up and LH's & LL's on its way down.

http://www.aboutcurrency.com/images/...rending-up.gif

http://www.aboutcurrency.com/images/...nding-down.gif

Ranging Price action
Now this is where the chart can become interesting. By using the price action counting of the swing highs and lows we can know at a very early stage IFprice is going to start to develop range bound activity.

 

1. Price is not making new highs OR new lows

I don't mean all time highs/lows or new day/week/month highs/lows... just simply a new chart swing high or low. Price will start to stall and not make a new swing high/low and typically will stay contained within the last swing high and low that was made on the chart. Isn't that a simple definition?
Range rule definitions

 

1. Price doesn't make a new high or low on the move
2. If price stays contained within the last swing high and swing low to be made, price will remain range bound until it makes news move highs or lows.
3. Price confirms the range when a lower high and a higher low is made within the previous swing high and low.

In the chart below you can see that from the left side of the chart price is making LH's & LL's all the way to the first blue arrow which in real time would be the latest lowest low. Price then moves higher to make a HH. These two swing levels have been highlighted.
At the point of the chart, in real time, price needs to either start moving higher past the last swing high (red Arrow) making a new high OR move lower past the last swing low (blue arrow) making a new low. Until either of those things happens price will most likely remain range bound. In this example that is what happened.

http://www.aboutcurrency.com/images/...Rangebound.gif

Range considerations
Some considerations for identifying ranges at an early stage in real time are;

 

1. That price could be creating a pullback or bias change and as the chart unfolds for you a new high or low could be made voiding the potential range.
2. There are several definitions of a range one of the more common ones is that you are looking for a double touch of support and resistance. For me this is a little too late in the game as price may not create the double touch as in the example above. With this price action method you can identify the possibility of a range developing VERY early without having to worry IF price does or does not give you the double touch. As you can see with that definition you would interpret that price is not range bound at all but, you can clearly see visually that price is moving sideways without any definition.
   
   What you should have learnt from this short article
   1. A simple rule defined method to identify swing highs and lows
   2. How to use this swing high/low definition to interpret price action market phases
   3. How to identify a bias change
   4. How to identify trending price action
   5. How to identify Range bound price action

   
   
   Bias Change pattern variation
   In the below images we can see the pattern variation and compare them to the outlined pattern above. The only main difference is that you are looking for a breach of a previous swing high or low as the first qualifier to indicate a potential bias change.
   

http://www.aboutcurrency.com/images/...s-change-b.gif
http://www.aboutcurrency.com/images/...s-change-a.gif

Acronyms used

 

1. HH - Higher High
2. HL - Higher Low
3. LH - Lower High
4. LL - Lower Low

By Philip Newton
www.trading-strategies.info

Philip Newton is a professional trader and teaches new and experienced traders the skills needed to trade for a living. His live chat room is amongst the best in the industry. Inside the members area traders can watch videos of his trades and receive support for any question they may have. The live trading room is the heart of the website where the real learning begins. www.trading-strategies.info

http://www.aboutcurrency.com/strateg...strategy.shtml

Spinning top (candlestick pattern)

From Wikipedia, the free encyclopedia
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This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (July 2010) Spinning top is a Japanese candlesticks pattern with a short body found in the middle of two long wicks. A spinning top is indicative of a situation where neither the buyers nor the sellers have won for that time period, as the market has closed relatively unchanged from where it opened; the market is indecisive regarding its trend. The upper and lower long wicks, however, tell us that both the buyers and the sellers had the upper hand at some point during the time period the candle represents. When a spinning top forms after a run up or run down in the market, it can be an indication of a pending reversal, as the indecision in the market is representative of the buyers losing momentum when this occurs after an uptrend and the sellers losing momentum after a downtrend.
[edit] Examples

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Spinning White
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Spinning Black
[edit] See also

 

1. Candlestick chart
2. Candlestick pattern

http://en.wikipedia.org/wiki/Spinnin...ick_pattern%29

Introduction to Candlesticks

History
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The Japanese began using technical analysis to trade rice in the 17th century. While this early version of technical analysis was different from the US version initiated by Charles Dow around 1900, many of the guiding principles were very similar:

 

1. The "what" (price action) is more important than the "why" (news, earnings, and so on).
2. All known information is reflected in the price.
3. Buyers and sellers move markets based on expectations and emotions (fear and greed).
4. Markets fluctuate.
5. The actual price may not reflect the underlying value.

According to Steve Nison, candlestick charting first appeared sometime after 1850. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata. It is likely that his original ideas were modified and refined over many years of trading eventually resulting in the system of candlestick charting that we use today.

Formation
In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display. The hollow or filled portion of the candlestick is called "the body" (also referred to as "the real body"). The long thin lines above and below the body represent the high/low range and are called "shadows" (also referred to as "wicks" and "tails"). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. If the stock closes higher than its opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price. If the stock closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.

http://stockcharts.com/school/data/m...-formation.gif

Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.

http://stockcharts.com/school/data/m...barcompare.png

Long Versus Short Bodies
Generally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

http://stockcharts.com/school/data/m...-longshort.gif

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.
Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.

http://stockcharts.com/school/data/m...1-marubozu.gif

Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

http://stockcharts.com/school/doku.p...o_candlesticks

Long Versus Short Bodies
Generally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

http://stockcharts.com/school/data/m...-longshort.gif

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.
Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.

http://stockcharts.com/school/data/m...1-marubozu.gif

Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

Long Versus Short Shadows
The upper and lower shadows on candlesticks can provide valuable information about the trading session. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlestick with long shadows show that prices extended well past the open and close.

http://stockcharts.com/school/data/m...ongshadows.gif

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, and bid prices higher. However, sellers later forced prices down from their highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.

http://stockcharts.com/school/data/m...1-spinning.gif

Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.

http://stockcharts.com/school/doku.p...o_candlesticks

Doji
Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and future confirmation. The word "Doji" refers to both the singular and plural form.

http://stockcharts.com/school/data/m...dle2-doji1.gif

Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.

http://stockcharts.com/school/data/m...dle2-doji2.gif

Different securities have different criteria for determining the robustness of a doji. A $20 stock could form a doji with a 1/8 point difference between open and close, while a $200 stock might form one with a 1 1/4 point difference. Determining the robustness of the doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the doji should have a very small body that appears as a thin line. Steven Nison notes that a doji that forms among other candlesticks with small real bodies would not be considered important. However, a doji that forms among candlesticks with long real bodies would be deemed significant.

Doji and Trend
The relevance of a doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.

http://stockcharts.com/school/data/m...white_doji.gif

After an advance or long white candlestick, a doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a doji may be more significant after an uptrend or long white candlestick. Even after the doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick's open. After a long white candlestick and doji, traders should be on the alert for a potential evening doji star.

http://stockcharts.com/school/data/m...black_doji.gif

After a decline or long black candlestick, a doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick's open. After a long black candlestick and doji, traders should be on the alert for a potential morning doji star.

http://stockcharts.com/school/doku.p...o_candlesticks

Long-Legged Doji

http://stockcharts.com/school/data/m...leggeddoji.gif

Long-legged doji have long upper and lower shadows that are almost equal in length. These doji reflect a great amount of indecision in the market. Long-legged doji indicate that prices traded well above and below the session's opening level, but closed virtually even with the open. After a whole lot of yelling and screaming, the end result showed little change from the initial open.

Dragon Fly and Gravestone Doji

http://stockcharts.com/school/data/m...ngravedoji.gif

Dragon Fly Doji
Dragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.
The reversal implications of a dragon fly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragon fly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

Gravestone Doji
Gravestone doji form when the open, low and close are equal and the high creates a long upper shadow. The resulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow. Gravestone doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low.
As with the dragon fly doji and other candlesticks, the reversal implications of gravestone doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal. After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations.
Before turning to the single and multiple candlestick patterns, there are a few general guidelines to cover.

http://stockcharts.com/school/doku.p...o_candlesticks

Bulls Versus Bears
A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time. An analogy to this battle can be made between two football teams, which we can also call the Bulls and the Bears. The bottom (intra-session low) of the candlestick represents a touchdown for the Bears and the top (intra-session high) a touchdown for the Bulls. The closer the close is to the high, the closer the Bulls are to a touchdown. The closer the close is to the low, the closer the Bears are to a touchdown. While there are many variations, I have narrowed the field to 6 types of games (or candlesticks):

http://stockcharts.com/school/data/m...3-overview.gif

 

1. Long white candlesticks indicate that the Bulls controlled the ball (trading) for most of the game.
2. Long black candlesticks indicate that the Bears controlled the ball (trading) for most of the game.
3. Small candlesticks indicate that neither team could move the ball and prices finished about where they started.
4. A long lower shadow indicates that the Bears controlled the ball for part of the game, but lost control by the end and the Bulls made an impressive comeback.
5. A long upper shadow indicates that the Bulls controlled the ball for part of the game, but lost control by the end and the Bears made an impressive comeback.
6. A long upper and lower shadow indicates that the both the Bears and the Bulls had their moments during the game, but neither could put the other away, resulting in a standoff.

What Candlesticks Don't Tell You
Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.

http://stockcharts.com/school/data/m...e3-highlow.gif

With a long white candlestick, the assumption is that prices advanced most of the session. However, based on the high/low sequence, the session could have been more volatile. The example above depicts two possible high/low sequences that would form the same candlestick. The first sequence shows two small moves and one large move: a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close. The second sequence shows three rather sharp moves: a sharp advance off the open to form the high, a sharp decline to form the low, and a sharp advance to form the close. The first sequence portrays strong, sustained buying pressure, and would be considered more bullish. The second sequence reflects more volatility and some selling pressure. These are just two examples, and there are hundreds of potential combinations that could result in the same candlestick. Candlesticks still offer valuable information on the relative positions of the open, high, low and close. However, the trading activity that forms a particular candlestick can vary.

Prior Trend
In his book, Candlestick Charting Explained, Greg Morris notes that for a pattern to qualify as a reversal pattern, there should be a prior trend to reverse. Bullish reversals require a preceding downtrend and bearish reversals require a prior uptrend. The direction of the trend can be determined using trend lines, moving averages, peak/trough analysis or other aspects of technical analysis. A downtrend might exist as long as the security was trading below its down trend line, below its previous reaction high or below a specific moving average. The length and duration will depend on individual preferences. However, because candlesticks are short-term in nature, it is usually best to consider the last 1-4 weeks of price action.

Candlestick Positioning

http://stockcharts.com/school/data/m...arposition.gif

Star Position
A candlestick that gaps away from the previous candlestick is said to be in star position. The first candlestick usually has a large real body, but not always, and the second candlestick in star position has a small real body. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action. The two candlesticks can be any combination of white and black. Doji, hammers, shooting stars and spinning tops have small real bodies, and can form in the star position. Later we will examine 2- and 3-candlestick patterns that utilize the star position.

http://stockcharts.com/school/data/m...miposition.gif

Harami Position
A candlestick that forms within the real body of the previous candlestick is in Harami position. Harami means pregnant in Japanese and the second candlestick is nestled inside the first. The first candlestick usually has a large real body and the second a smaller real body than the first. The shadows (high/low) of the second candlestick do not have to be contained within the first, though it's preferable if they are. Doji and spinning tops have small real bodies, and can form in the harami position as well. Later we will examine candlestick patterns that utilize the harami position.

http://stockcharts.com/school/doku.p...o_candlesticks

Long Shadow Reversals
There are two pairs of single candlestick reversal patterns made up of a small real body, one long shadow and one short or non-existent shadow. Generally, the long shadow should be at least twice the length of the real body, which can be either black or white. The location of the long shadow and preceding price action determine the classification.
The first pair, Hammer and Hanging Man, consists of identical candlesticks with small bodies and long lower shadows. The second pair, Shooting Star and Inverted Hammer, also contains identical candlesticks, except, in this case, they have small bodies and long upper shadows. Only preceding price action and further confirmation determine the bullish or bearish nature of these candlesticks. The Hammer and Inverted Hammer form after a decline and are bullish reversal patterns, while the Shooting Star and Hanging Man form after an advance and are bearish reversal patterns.

Hammer and Hanging Man

http://stockcharts.com/school/data/m...erhanging1.gif

The Hammer and Hanging Man look exactly alike, but have different implications based on the preceding price action. Both have small real bodies (black or white), long lower shadows and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.

http://stockcharts.com/school/data/m...erhanging2.gif

The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding volume, is needed before acting. Such confirmation could come from a gap up or long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal.
The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

Inverted Hammer and Shooting Star

http://stockcharts.com/school/data/m...dshooting1.gif

The Inverted Hammer and Shooting Star look exactly alike, but have different implications based on previous price action. Both candlesticks have small real bodies (black or white), long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals, but require confirmation before action.

http://stockcharts.com/school/data/m...dshooting2.gif

The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A Shooting Star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively long and at least 2 times the length of the body. Bearish confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume.
The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

http://stockcharts.com/school/doku.p...o_candlesticks

Blending Candlesticks
Candlestick patterns are made up of one or more candlesticks and these can be blended together to form one candlestick. This blended candlestick captures the essence of the pattern and can be formed using the following:

 

1. The open of first candlestick
2. The close of the last candlestick
3. The high and low of the pattern

http://stockcharts.com/school/data/m...le5-blend1.gif

By using the open of the first candlestick, close of the second candlestick, and high/low of the pattern, a Bullish Engulfing Pattern or Piercing Pattern blends into a Hammer. The long lower shadow of the Hammer signals a potential bullish reversal. As with the Hammer, both the Bullish Engulfing Pattern and the Piercing Pattern require bullish confirmation.

http://stockcharts.com/school/data/m...le5-blend2.gif

Blending the candlesticks of a Bearish Engulfing Pattern or Dark Cloud Cover Pattern creates a Shooting Star. The long, upper shadow of the Shooting Star indicates a potential bearish reversal. As with the Shooting Star, Bearish Engulfing, and Dark Cloud Cover Patterns require bearish confirmation.

http://stockcharts.com/school/data/m...le5-blend3.gif

More than two candlesticks can be blended using the same guidelines: open from the first, close from the last and high/low of the pattern. Blending Three White Soldiers creates a long white candlestick and blending Three Black Crows creates a long black candlestick.

Charts with Current CandleStick Patterns
StockCharts.com maintains a list of all stocks that currently have common candlestick patterns on their charts in the Predefined Scan Results area. To see these results, click here and then scroll down until you see the "Candlestick Patterns" section. The results are updated throughout each trading day.

Additional Reading

ChartSchool: Candlesticks and Support
ChartSchool: Candlestick Pattern Dictionary

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks

Bullish Engulfing Pattern

http://www.swingcurrency.com/wp-cont...engulfing1.png

The third kind of Japanese candlestick formations are bullish engulfing patterns. These patterns offer much less strength than the pin bar, hanging man and inverted hammer, but they can still offer some insight into potential future market movement. Typically have the following characteristics:

 

1. Their real body must engulf the previous candles real body.
2. The real body should be the opposite colour of the previous candle.
3. If the previous candle’s real body is very small and the bullish engulfing candle’s real body is very large, the stronger the formation.

Bullish engulfing patterns show that the buyers overcame sellers and this can be seen by the candlestick completely engulfing the previous candlestick body.

http://www.swingcurrency.com/wp-cont...engulfing2.png

Due to them offering less reliable signals, it would be best to wait for some confirmation before using a bullish engulfing pattern to enter a trade.

http://www.swingcurrency.com/learn-h...lfing-pattern/

Exercise CSC
Candlestick-Scalping System & CCI.
2012 February 27 - 2012 February 28 / March 31

Candlestick
E.g. Belt Hold, Counterattack Candle, Hammer, Shooting Star, Inside Bar, Harami, Engulfing Patterns, Dark Cloud Cover, Piercing Pattern, Falling/Rising Window, Morning/Evening Star, Tweezers Top/Bottom, High Wave Candle, Gravestone Doji, ...


Scalping
Anwendung auf M1, 5, M15.
Auswirkungen auf den Markt verdeutlichen.
Grafik (Auswirlungen auf den Markt verdeutlichen)

Label:
B: Bullish
BR: Bearish
LF: Der existierende Trend verliert an Kraft (Losing Force)
TC: Wechsel des Trends ( Trend Change)

Exercise CSTC
Candlestick-Swing Trading System & CCI.
2012 February 27 - 2012 February 28 / March 31

Candlestick
E.g. Belt Hold, Counterattack Candle, Hammer, Shooting Star, Inside Bar, Harami, Engulfing Patterns, Dark Cloud Cover, Piercing Pattern, Falling/Rising Window, Morning/Evening Star, Tweezers Top/Bottom, High Wave Candle, Gravestone Doji, ...

Swing Trading
Anwendung auf M30, H1, H4, Daily (Weekly, Monthly)
Auswirkungen auf den Markt verdeutlichen.

Swinging Trades
Anwendung auf M30, H1, H4, Daily (Weekly, Monthly)
Auswirkungen auf den Markt verdeutlichen.
Grafik (Auswirlungen auf den Markt verdeutlichen)

Label:
B: Bullish
BR: Bearish
LF: Der existierende Trend verliert an Kraft (Losing Force)
TC: Wechsel des Trends ( Trend Change)

EURUSD, Daily, 2012 February 26

FX3
I am trying something
The EU trades in waves of about 20
In the pic I went out to a D1 chart and just placed some S/R levels Red lines and worked my way back down the TF's

Then I place a inde called spacelines and made the spread 20 Green lines at 1.3363

I noticed how the Red and Green are almost identical
Then I placed a CCI(14) and you can see the rest

If a trader placed PO orders above or below the S/R lines when the CCI warranted it I thing the success rate would be pretty good

Have you ever tried this?

GBPUSD, H1, 2012 February 26

Pattern Recognition

Hy dryclean!
Your idea seems worth to work it out with regard to the MTFA.
You could upload your results at this board this week.
When trading M5, maybe you could take 10/15er lines also into account or compare 10/15/20/25 lines for pattern detection.
FXcube

Sort of what I was doing this week Here is yesterday. Now I have a number of shorts holding, If EU dives like I think it will, I will do pretty good early next week
Time will tell
Alot of what I did yesterday was playing off the top and bottom of the 20 pip range