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 Forex Economic Calendar: 24 Feb Fri
13:30 CA- CPI
15:00 US- New Homes Sales
15:00 US- final Univ of Mich Survey
13 Feb Mon
No Major Data 27 Feb Mon
13:30 US- Durable Goods 28 Feb Tues
07:00 DE- Retail Sales
10:00 EZ- flash HICP
13:30 US- GDP
15:00 US- CB Consumer Confidence
15:30 US- EIA Crude 1 Mar Wed
All Day- final Mfg PMIs
08:55 DE- Jobless
13:30 US- PCE Deflator
15:00 CA- Bank of Canada Decision
15:30 US- EIA Crude
19:00 US- Beige Book 2 Mar Thu
13:30 US- Weekly Jobless
23:30 JP- CPI 3 Mar Fri
All-Day SVC PMIs
In response to the latest Fed policy Minutes yesterday, some are pushing the date for the next rate hike back to May. I don't see this sentiment shift in Fed Funds futures. In respnse to this chatter, the EURUSD is trading well of its Tuesday lows. I still feel the Fed hikes in March barring a significantly weaker than expected February jobs report on March 10. The FOMC Minutes left open the door to the RISK of a Rate hike as early as the March 15 FOMC ("very soon"). However, no clear signal was sent.
The Fed appears to want to embark on a policy "normalization" soon. Traders have trouble believing the Fed has the courage to go through with a rate hike. For Yellen build any market credibility, she should hike rates soon.
Fed Funds futures odds for a March Fed rate hike are only 38% (34%), suggesting they are skeptical. Markets now place the odds for rate hikes by June at 112% (116%). That is 100% for one hike (March?) plus 12% for a second move, or possibly something in-between.
On top of the Fed muddle, investors have begun to worry about the risk from key leadership elections in Europe over the rest of the year. Many worry about the possibility of a swing to right as has been seen in the U.K. (Brexit) and U.S. (Trump). Such could be a challenge to the status quo in the EU.
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