In our last lesson we learned how different candlestick formations can tell us different things about whether the buyers or the sellers won out in a particular time period. In today’s lesson we are going to look at some of the basic candlestick patterns and what they mean when looked at in the context of recent price action in the market.
The Spinning Top
When a candlestick with a short body in the middle of two long wicks forms in the market this 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 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 you see this type of candlestick form after a runup or run down in the market it can be an indication of a pending reversal as the indescision in the market is representative of the buyers loosing momentum when this occurs after an uptrend and the sellers loosing momentum after a downtrend.
Spinning top After a Trend
Like the Spinning Top the Doji Represents indecision in the market but is normally considered a stronger signal because unlike the spinning top the open and the close that form the Doji Candle are at the same level. If a Doji forms in sideways market action this is not significant as the sideways market action is already indicative of indecision in the market. If the Doji forms in an uptrend or downtrend this is normally seen as significant as this is a signal that the buyers are loosing conviction when formed in an uptrend and a signal that sellers are loosing conviction if seen in a downtrend. Most traders will place greater significance on the Doji when it forms in a market that is in overbought or oversold territory.
Doji After a Trend
That completes our lesson for today. In our next lesson we are going to look at several more candlestick formations known as the Bullish and Bearish Engulfing Candlestick Patterns and how traders use these in their trading strategies so we hope to see you in that lesson.
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Wed 20 Sep
08:30 GB- Retail Sales
14:00 US- Existing Homes Sales
14:30 US- EIA Crude
18:30 US- Fed Decision Thu 21 Sep
03:00 JP- BOJ Decision
12:30 US- Weekly Jobless Fri 22 Sep
All Day Flash PMIs
12:30 CA- Retail Sales and CPI Sun 25 Sep
All Day German Elections
POTENTIAL PRICE RISK: HIGH WED -- 08:30 GMT GB- Retail Sales. Will be watched very closely after hawkish BOE.
POTENTIAL PRICE RISK: HIGH WED -- 14:00 GMT US- Existing Homes Sales. Top Housing statistic. Closely followed.
POTENTIAL PRICE RISK: MEDIUM WED -- 14:30 GMT US- EIA Crude Inventories. Most important oil statistic each week. Closely followed.
POTENTIAL PRICE RISK: HIGH WED -- 18:00 GMT US- FOMC Decision followed by Press Conference. No rate Change likely. Announcement of timing and details of December QE taper expected. Could see strong reaction.
POTENTIAL PRICE RISK: MEDIUM THU -- 03:00 GMT JP- Bank of Japan- No rate change expected.
POTENTIAL PRICE RISK: MEDIUM THU -- 12:30 GMT US- Weekly Jobless. Claims distorted by storms.
POTENTIAL PRICE RISK: Medium FRI -- All Day Flash PMIs Due. Usually not a major market mover except for US ISM data (due in early October).
POTENTIAL PRICE RISK: High FRI -- 12:30 GMT CA CPI and retail Sales. Both have the potential to move markets if they miss expectations.
John M. Bland, MBA co-founding Partner, Global-View.com
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