Technical Analysis
TECHNICAL ANALYSIS
Price is always ahead of news and technical analysis it is the analysis of historical price action with the purpose of studying what the future price action would be. Of course there is apparently the disclaimer that states ' past execution of trades is not an assurance of future results'.
There are two aspect pertaining to technical analysis which are fascinating.
People make up the market
Technical analysis is observed in all market
The human mind and its functions, especially those affecting behaviour in the context of derivative trading plays a big part in the market and from the technical standpoint it controls the buying and selling decisions which in turn gives a reflection of historical price patterns.
On the technical analysis which is seen in all market and is very significant in day to day Forex trading acts as a self fulfilling forecast. Denoting the more the numbers of traders focusing on a technical analysis, the more likely their action will reflect the elucidation of the technical analysis reinforcing the impact of that analysis.
Technical analysis requires a great deal of patience hence no boredom, euphoria, excitement, frustrations and revenge trading.
candlestick charts
Candlesticks pattern styles totally comprises on candlestick charts and are reoccurring chart styles that include few candlestick, normally in the vicinity of one to four candlesticks. And cause candlesticks give a sign of strength and weakness of the current price fluctuation, the candlestick pattern style clearly signals a development of the probability of a trend reversals than any of the other chart design pattern. This tends to increase the profitability of trading these chart patterns and is one of the motives why candlestick charts have grown to be rather popular in the recent times , particularly with the short-term traders.
Candlestick patterns can be both bullish and bearish, contingent upon where they happen on the chart and where they occur within an current trend. They can also be trend reversal or continuation patterns. The reliability of a candlestick pattern depends on the place of the pattern within the price chart, in terms of where it appears in an existing trend, and in relation to support and resistance lines, or other trend lines or pivot points. The time-frame of the chart is also significant as candlestick patterns on short time-frame, intraday charts tend to be less reliable than patterns on charts of a longer time-frame. Another possible consideration in determining the reliability of a candlestick pattern is the volume traded when the candlestick pattern is formed. If the pattern is formed on low volume, the pattern tends to be less reliable.
There are many candlestick patterns but not all of them appear with great regularity, and not all of them have a high level of reliability and profitability. The more commonly occurring candlestick patterns include the engulfing pattern, the harami, hanging man and hammer patterns, doji or star patterns, and the tweezers pattern. We will concentrate more on the frequently occurring and high probability candlestick patterns than the more obscure patterns.
Three White Soldiers
The Three Advancing White Soldiers, which at other times it referred to as the Three White Soldiers, the Advance Block and Stalled Pattern are three identical candlestick patterns that comprise of three bullish candlesticks. These are three moderate trend reversal patterns. The Three Advancing White Soldiers normally indicates a weakness in a confirmed down trend and the development of an uptrend. Nevertheless, the Advance Block and the Slatted Pattern have bearish insinuation, and signals a possible weakness in an uptrend.
Three Advancing White Soldiers
The Three Advancing White Soldiers pattern is different to the Three Black Crows pattern. It is known as the Three Advancing White Soldiers pattern cause it comprises of three relatively long bullish candlesticks. All of the three candlesticks should close on or near the high price for the period and, with all candlestick making continuous advances in price. All candlestick ought not to have long upper shadows or wicks and should ideally open within the real body of the preceding candlestick in the pattern, though the latter is not important. When this pattern shows up in a downtrend, it demonstrates the development of strength and a possible trend reversal. Nonetheless, if the three candlesticks are over extended and make notable progress you may need to be wary of overbought conditions.
THE ADVANCE BLOCK
The Advance Block pattern is identical in appearance to the Three Advancing White Soldiers pattern as it also comprises of three bullish candlesticks. Nevertheless each successive candlestick in this pattern has a shorter real body and possibly longer shadows. The shorter real bodies show an increasing weakness and when it shows up in an uptrend, it cautions of a possible end to a rally. In any case, this is a moderate pattern and does not does not really demonstrate the emergence of a downtrend as the candlesticks are as yet bullish. In this way this example ought to be utilized to secure a long position instead of entering a short position. The presence of a bearish candlestick design, which would flag the beginning of a conceivable downtrend, ought to be used to enter a short position.
THE STALLED PATTERN
The Stalled design, which is likewise alluded to as the Deliberation Pattern, is another candlestick pattern that comprises of three bullish candlesticks that is similar in appearance to the Three Advancing White Soldiers pattern. However, while the first two candlesticks in this pattern have a relatively long real body, the third candlestick has a short real body, showing that the uptrend is coming up short of momentum. The third, smaller candlestick can gap away from the other two candlesticks, of which it turns into a star. As the Advance Block, the Stalled Pattern does not automatically develop into a down trend but more of an early caution that the uptrend is weakening. Therefore the Stalled Pattern should used to secure a long position instead of being utilized to enter a short.
Doji
The Doji is a single candlestick pattern that demonstrates weakness and a likely hood of a trend reversal. It can either be a bullish or a bearish trend reversal, contingent upon where the doji appears on the price chart. A doji is normally a short candlestick with no real body, or very little real body. It stipulates that the opening and closing prices for the period were at the exact same level or very close together. As per the market behaviour, a doji demonstrates that there is hesitation/ indecision and uncertainty in the market with neither buyers nor sellers able, or willing, to move the price to significant levels, which would illustrate a weakness in the current trend and a possible reversal. To have any importance, a doji must appear in an existing trend at a trend line or a support and resistance line, or when the market is oversold or overbought. Nevertheless, the doji is less important if there are already a number of doji in the current trend.
The doji has diverse names depending on the location of its real body, or rather, the lengths of the upper and lower shadows.
A doji with long upper and lower shadows is called a Rickshaw Man or a Long-Legged Doji. The long shadows show that the market rallied and sold off importantly during the session but that neither position was held as the market closed where it had opened. This is a show of great uncertainty and lack of direction.
A doji with a long lower shadow and no upper shadow is called a Dragonfly Doji. It has greater importance in a downtrend as it has bullish connotation and demonstrates that the sellers were able to drive the price lower during the session, but were unable to sustain the price down. Therefore, it is usually an early indication that a downtrend is running out of steam and may soon come to an end.
A doji with a long upper shadow and no lower shadow is called a Gravestone Doji as it has the shape of a gravestone. The gravestone doji is the dissimilar to the dragonfly doji and has greater importance in an uptrend as it shows that the buyers were able to push the price up during the session, but were unable to hold the market at the higher levels, yielding ground to the sellers. It normally illustrate that the uptrend is running out of momentum.
One or more doji can also form part of other candlestick patterns, such as in a Morning Star, which would then be called a Morning Doji Star or an Evening Star, which would then be called a Evening Doji Star, or a Harami pattern, in which case it is called a Harami Cross.
Doji
A doji with a long upper shadow and no lower shadow is called a Gravestone Doji as it has the shape of a gravestone. The gravestone doji is the opposite of the dragonfly doji and has greater importance in an uptrend as it illustrates that the buyers were able to push the price up during the session, but were not able to hold the market at the higher levels, conceding ground to the sellers. It usually shows that the uptrend is running out of momentum.
Dragonfly Doji
A doji with a long lower shadow and no upper shadow is called a Dragonfly Doji. It has greater importance in a downtrend as it has bullish inference and shows that the sellers were able to drive the price lower during the session, but were unable to hold the price down. Therefore, it is usually an early indication that a downtrend is running out of momentum and may to an end.
Long Legged Doji
A doji with a long lower shadow and no upper shadow is called a Dragonfly Doji. It has greater importance in a downtrend as it has bullish inference and shows that the sellers were able to drive the price lower during the session, but were unable to hold the price down. Therefore, it is usually an early indication that a downtrend is running out of momentum and may to an end.
The Hanging Man
The Hanging man is a bearish signal that appears in an uptrend and warns of possible trend reversal. The candlestick pattern is called the Hanging man because it resembles a hanging man with dangling legs. The long lower shadow of the hanging man is generally a bullish signal, indicating that demand for the underlying security forced the prince into the upper third of the price range for that period. For this reason, confirmation of a trend reversal should be sought. At the very least, the candlestick following the hanging man should close below the real body of the hanging man. Confirmation may also take the form of another trend reversal pattern such as engulfing pattern or a piercing pattern.
Belt Hold Pattern
The Belt-hold candlestick pattern is considered a minor trend reversal pattern that can illustrate a bullish or bearish trend reversal, relying on the nature of the pattern and direction of the trend in which it occurs. The Belt-Hold pattern is a single candlestick pattern that is the same as a Marubozu candlestick in that it is has a large real body with little or no shadows, illustrating the strength of bullish or bearish activity. The single Belt-Hold candlestick that shows up in an uptrend is a potential top reversal pattern and the pattern is a Bearish Belt-Hold pattern. The bearish belt-hold line comprises of a single dark candlestick that opens at or near its high and closes at or near its low, leaving very little upper or lower shadows. Contrarily, a Bullish Belt-Hold pattern that shows up in downtrend is a probably a bottom reversal pattern. It comprises of a single rising candlestick that also opens at or near its high and closes at or near its low. The length of these candlesticks illustrates a probable shift in the markets attitude, thus the pattern becomes more important if relying on the size of candlestick in this pattern. Both the bullish and the bearish belt-hold lines are more dependable when they show up near market extremes as illustrated by trend lines, support and resistance, pivot points and moving averages. They are also more important when they form part of other candlestick patterns, such as the dark-cloud cover pattern or the engulfing pattern
Morning Star
The morning star is a bullish, bottom reversal pattern that is the alternative of the evening star. It cautions of weakness in a downtrend that could inherently usher in a trend reversal. Comparable to the evening star, the morning star comprises of three candlesticks with the middle candlestick forming a star. The first candlestick in the morning star pattern must be a dark candlestick with a relatively large real body. The second candlestick is the star, which has a short real body that is separated from the real body of the first candlestick. The gap between the real bodies of the two candlesticks differentiate a star from a spinning top or a doji. Apparently the star does not have to form below the low of the first candlestick and can exist within the lower shadow of that candlestick. The star is the first sign of weakness as it shows that the sellers were not able to drive the price close much lower than the close of the previous period. This weakness is confirmed by the third candlestick, and must close well into the body of the first candlestick.