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Market History Predicts Forex Trends
Technical traders rely on the fact that market history predicts Forex trends. Long ago in ancient Japan rice traders recognized price patterns and saw that certain patterns reliably predicted subsequent price action. They found that, to a degree, one did not need to understand or deal with fundamentals. One only needed to recognize and act on any of a variety of signals. These traders originated the Japanese candlestick system. This approach was the start of technical trading, which traders today use in Forex, stock, commodity, and options markets. As market history predicts Forex trends, traders can anticipate a Forex market reversal with the Doji signal or forecast uptrends with the Bullish engulfing signal from the Japanese candlestick arsenal of trading tools. Although there are many more examples of candlestick signals in which market history predicts Forex trends, we focus here on the Doji signal and the bullish engulfing signal.
A Japanese candlestick is a rectangle superimposed on an equity price chart. The candle body is white if the equity closed up for the day and black if it closed down. The top and bottom of the rectangle, the body of the so called candle, are the opening or closing prices of the day depending on whether it was an up or down day. Lines, shadows, extending above and below the candle represent the extremes for trading for the day.
The Doji candlestick has a very flat candle body with shadows of varying lengths. This means that the Forex pair that the candle represents opened and closed at nearly the same price. Although Japanese candlestick signals may comprise several candles the Doji signal is only one candlestick. The Doji signal tells us that the market is at a moment of indecision. The signal helps predict the turn of a trending market. It does not tell us much in flat market.
Bullish Engulfing Signal
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