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.
Donald Trump all but secured the Republican nomination to run for President Tuesday with a decisive win over Ted Cruz in the State of Indiana. In the Democrat race, Bernie Sanders beat Hillary Clinton in the primary, but it appears that Clinton still will be able to limp first across the finish line to become the Democrat candidate. As the shape of the Presidential race becomes clearer, markets will start to pay more attention.
The Eurozone final April PMI's were revised slightly lower from their flash estimates from a week ago. These data remain lacklustre, but continue to grow. The U.K. April Construction PMI was considerably weaker than expected and weighed on the GBP. The upcoming Brexit vote could adversely impacting spending decisions in the U.K.
Markets have been trying to digest the one way movements up and the down in the EURUSD this week in the absence of important economic developments. All I can say is that it appears that some players, perhaps for reasons other than economic, continue to push the currency in one direction, and then another. This could be for political or safety reasons. It might also be an effort to run stops by algos.
John M.Bland MBA, CTA, co-founder global-View.com
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