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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03:00 JP- Bank of Japan
09:00 EZ- GDP, flash HICP
12:30 US- GDP
14:00 US- final U of Mich
All Day Final PMIs 2-Aug TUE
04:30 AU- RBA Decision
12:30 US- PCE Deflator 3-Aug WED
All Day Final Service PMIs
12:15 US ADP Jobs 4-Aug THU
11:00 GB- Bank of England Decision 5-Aug FRI
12:30 US/CA Employment and Trade
Trading Themes --
The Bank of Japan meeting has disappointed markets looking for aggressive actions today. The BOJ kept its overnight deposit rate steady at -0.1 percent. Some were expecting rate cuts in rates and additional quantitative ease (QE). The yield on the 10-yr JGB increased to -0.18% +11bp in the wake of the decision. USDJPY was last 103.72, -156pts.
PM Abe is now expected to announce a fiscal stimulus of what is touted to be around JPY 28 tn on Tuesday, August 2. Analysts say the underlying stimulus is likely to be one-quarter of that amount. Its exact size is yet to be determined and probably is still being finalized.
The Federal Reserve policy decision Wednesday saw no surprises yesterday with rates held steady. More importantly, they did not signal a September rate hike. The Fed continues to say that policy is data dependent and that future rate hikes will only be gradual.
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