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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WEEKLY HIGH IMPACT NEWS: 25-Oct Tue
08:00 DE- IFO
14:00 US- CB Consumer Confidence 26-Oct Wed
All Day flash SVC PMI
00:30 AU- CPI
14:00 US- New Homes Sales
14:00 US- Pending Homes Sales
14:30 US- EIA Crude 27-Oct Thu
08:30 GB- GDP
12:30 US- Weekly Jobs
12:30 US- Durable Goods
23:30 JP- CPI 28-Oct Fri
12:30 US- GDP
14:00 US- University of Michigan 30-Oct Sun
00:00 RZ/GB Clocks turn back one hour
Monday has seen the first round of global PMIs with flash data from the EZ and Japan. These reports have been mixed to better. Also, the U.S. Markit flash PMI beat expectations.
Tuesday features the highly respected German IFO sentiment Survey. The U.S. releases the Conference Board Consumer Confidence Survey.
Markets are still trying to reconcile the prospects for a Fed policy tightening in December with Yellen's new notion of a high-pressure economy. In either case, the USD has been moving to a higher level, perhaps because the markets are finally seeing one country considering new things finally to break out of the global low growth malaise.
The highlight of trade last week was the Thursday ECB policy board meeting outcome. While the ECB statement included no surprises, markets took the Draghi comments to be dovish. The ECB used its standard rhetoric and said no decision on a "taper" would be announced until the December meeting. Markets reacted by taking out stops above and below the markets in EURUSD.
U.S. Bond yields remained depressed following mixed U.S. data and the recent Yellen comments. Both the Fed and BOE have started to make it clear that they would ignore an inflation overshoot to get their economies growing again.
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