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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23:30 JP- CPI
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Germany says there are no informal Brexit talks underway with the U.K. I take that denial with a grain of salt. It is only logical that both sides might want to feel the other side out to get an idea about what the outlines are of an accord that might fly. However, to admit that they are talking could step on many toes, so they deny it. Furthermore, both sides have a lot to gain from an agreement.
Calls by some of the louder voices in the EU for the UK to invoke Article 50 immediately were rejected Monday by U.K. PM Cameron in an address to Parliament. He also rejected calls for a second referendum. He said that the U.K. is a democracy and the people have spoken. A new government will have been formed by October.
Markets will have to figure out by trial and error on their own what to do now. Key financial markets remain in a risk-off posture wuth equities, the GBP and EUR trading weak. Prices in safe-haven sovereign debt markets continue to rise (lower yields). Some are talking now about "twin parities" in EURUSD and the GBPUSD. I view that as a doomsday scenario.
This is a fairly active week on the U.S. data front which ends with the long Independence Day weekend. Next week will see the critical June U.S. employment data.
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