Marc Walton on October 20, 2013
Oh great another post about candle stick formations. Which one now
Omar?? The “multiverse-reversal-with-a-flip formation??” The internet
is chocked full of blogs, sites and training courses that include a
well-known approach to market analysis using candlestick formations. For
those of you who don’t know already, candlestick formation usage in
trading attempts to look at a certain type of candle or group of candles
and make a prediction on where the instrument may head after this given
formation.They have catchy names like “gravestone doji”, “hanging man”, and “shooting star” just to name a few of the myriad out there. Problem is, when you go out and look for these formations, they don’t always seem to work as advertised. So are they useful or not? Depends on HOW you use them! So instead of me sharing with you what it both available already on this site (which was done par excellence), and a number of other sources, here is what ISN’T usually written to go along with the candlestick formation discussion.
So here are some tips in getting those well-talked about formations into action you can use in your trading decisions:
Take The Long View: Although candlestick formations theoretically should work on any timeframe, from my experience they really only consistently provide useful information on the bigger timeframes like daily and above. By focusing on higher timeframes, you will find the candlestick formations more relevant and with higher consistency in the information they provide.
Go With What You Know: Instead of trying to memorize 30 different formations and then attempt to recall them all in a live market, select 2-5 key formations and only focus on those. Personally, I only use 3: The pin-bar reversal candle (very long wick, body in opposite direction of wick); The engulfing candle (the body of the second candle completely engulfs prior candles body in opposite direction), and the “Railroad Track” (where second candle neatly reverses prior candle but doesn’t qualify as an engulfing). When you have less to look for, you will likely find more of them and be stricter on their usage.
The Past Impacts The Present: This is maybe the MOST important tip. Rather than simply finding candlestick formations that appear at “random”, try to locate candlestick formations AFTER a established move in one direction or another. It makes no sense to put too much stock into a reversal candle if price is moving sideways. It makes much more sense to find a big reversal candle after a move has been made, and henceforth, can be reversed.
It’s STILL About Support And Resistance: By continuing to view the market from its structural makeup around support and resistance, we can use candlestick formations to confirm a reversal or breakout against or through a particular major support and resistance area. For example, it makes no sense to put faith in a reversal formation if a breakout has just occurred, and likewise makes no sense in looking for a continuation formation if price has dramatically failed at a S/R point.
Use ALL Your Tools: Don’t depend on candlestick formations by themselves to make trading decisions. Just as you cannot build a house (or a birdhouse for that matter) by using one tool, great trades are generally not the result of any single piece of information. Use candlestick formations to complement or confirm trading decisions based on your complete use of many or all of the methods available to find a trade.Hopefully by following these tips you can turn those once obscure candlestick formations into actionable and usable trading information. Remember that like anything else in the trading world, they are not going to work 100% of the time so just because they don’t create a winning trade the first time you use them, doesn’t mean they don’t hold value. By using all your abilities and methods together in a synergistic way, you will surely find a place for candlestick formations in your trading toolkit.
Forex Weekly Analysis for Week Beginning October 20th, 2013
Despite the continued trickery on the US political front, the market seems to finally be “waking up” a bit and I saw some bigger daily moves on many pairs last week than I had seen in quite a while!! Although we do NOT have “ideal” market conditions at the moment, things are certainly looking better than they were a month or two ago!! We sometimes must be flexible in our approach and I have been taking some smaller range trades lately that I would not normally look for in a “bigger” Fall market. There are some pairs with potential out there, but be careful as there are also many pairs doing silly sideways dances.
Euro/$: Nice bullish move last week, stopped cold at 1.3715 just where we predicted several weeks ago. I would use this area to look for trades first as there might be a nice counter-trend trade there for a short. If price makes it back down to 1.3485 I will long there, but I have my doubts after last week’s move it will get back there. To the upside, if we M2 break above 1.3760, I will look for a long somewhere in the 1.3715-.13760 neighborhood. Explained in the video.
Gbp/$: Continues its bullish run upwards and plenty of reasons to think long on this pair going forward, especially a pullback to 1.6075-1.6100, BUT I have outlined an alternative approach. Many of you have asked in the past “why this area, but not this one instead?”. It’s all about perspective. Multiple perspectives can be different and they can all be right, none of them be right, or any mix in between. The key is sticking to what you have confidence in and not “approach hopping”. Check my breakout trades in the video.
Aud/$: I hold great hope in my heart that many of you grabbed that trade from .9400 I reported a couple of weeks ago. Has rushed onward for almost 300 pips!!! Yaaahhooeey!! But moveon.com because that’s already happened. What now?? Pullbacks to .9600 would be ideal for longs OR shorts form .9750-.9700 area. This pair really seems to be bullish so that short is a counter-trend, but that area seems to have quite a bit of traffic so could put up a big fight. Check the vid for more details.
Euro/Gbp: Booooooorrring!! This pair has been a snoooozer. Up a little, down the same amount. Those adventurous among you can trade the range between .8435 and .8500-8480. Not for me, but look for solid breaks of these areas before taking this pair seriously again.
$/Yen: This pair has been a bit of pain in the rump lately, but I grabbed some good trades last week short from 98.50 EVEN THOUGH, I was looking for a pullback to there for a LONG!! Staying flexible is key and I seek to long at 97.50 and check out what happens to price if the pair reaches 98.50 again. A topside daily breakout of 98.50 would have me seeking a long until 100-100.50.
Euro/Yen: 132.50 exerted its strength last week, but going forward this pair looks “yucky”. Stay away, better trades elswhere.
Aud Yen: So you didn’t catch the almost 300 pip ride on the Aud/Usd at .9400. Don’t beat yourself up, because 93.60 on this pair looks to be a similar situation. Price hadn’t stayed above this area on the weekly……….until last week. Not only that, we have a trendline and 93.00 (a strong S/R) below!! I’m going to be very interested to see if I can grab a trade on this key zone to the long side sometime this week. Check the video for more info.
Cad: Voting time……If there are those among you who would rather see me do analysis on Eur/Cad (my CAD favorite pair to trade), please let me know and the weeks that I do my analysis I will include it in addition to this pair OR replacing this pair. Looking at this pair this week………looks ridiculous in only the way the USD/CAD can. But that shouldn’t stop us from trading it. Aggressive traders look for 1.0290 to long and 1.0400-1.0375 to short from to continue this range. Conservative- minded among you check out my Eur/Jpy written analysis for cues as to what to do.
New members please note: If I am looking to take a trade long, at for example 1.5000 , I place my order 10 pips above & 10 pips below for a short. This is because price often does not quite reach a major line and you need to allow for spreads.
We are NOT a “tipping service” our aim is to teach you how to trade for yourself. For more up to the minute updates do not forget to drop by the forum
Hope you enjoy the analysis!! See you Wednesday for an update!! Best wishes and happy trading to all!!!