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Reading Forex Chart Patterns Part 2

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www.sm-forex.com

www.sm-forex.com
This is part 2 of my series in how to read a forex chart and recognise chart patterns. Included here are Japanese candlesticks and channels.

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  • To be on screen during arrival of potential delegate
  • Candlesticks are formed using the open, high, low and close.   If the close is above the open, then a green candlestick is drawn. If the close is below the open, then a red candlestick is drawn. The filled section of the candlestick is called the “real body” or body. The thin lines poking above and below the body display the high/low range and are called shadows or wicks. The top of the upper shadow is the “high”. The bottom of the lower shadow is the “low”.
  • Long green candlesticks means lots of buying is going on. The longer the body, the father apart the close price is from the open price. This means bulls are being aggressive and winning the battle with the Bears. Long red candlesticks means lots of selling is happening. The longer the body, the farther apart the close price is from the open price. This means that prices fell a great deal from the open. In other words, the bears were the aggressors this time and were winning
  • Show short bodies on chart Easy on the eye compared to other types of charts Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Green candlesticks, where the close is greater than the open, indicate buying pressure. Red candlesticks, where the close is less than the open, indicate selling pressure.
  • Go back one slide and show examples
  • Bearish pattern at the top of an uptrend. What does “Bearish Reversal” mean?
  • Note hammer half way along. Explain difference
  • Find these at the bottom of a downtrend.- What does “Bullish Reversal” mean?
  • The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain.
  • Find these at the bottom of a downtrend. Note the inverted hammer or “Shooting Star”.
  • Find these at the bottom of a downtrend
  • Find these at the top of an uptrend
  • Find these at the top of an uptrend Sometimes called Shooting Star The shooting star is a bearish reversal pattern that looks identical to the inverted hammer but occurs when price has been rising. Its shape indicates that the price opened at its low, rallied, but pulled back to the bottom. This means that buyers attempted to push the price up, but sellers came in and overpowered them. A definite bearish sign since there are no more buyers left because they’ve all been murdered. 
  • Could be red too.
  • Long-legged doji have long upper and lower shadows that are almost equal in length. These doji reflect a great amount of indecision in the market. Long-legged doji indicate that prices traded well above and below the session's opening level, but closed virtually even with the open. After a whole lot of yelling and screaming, the end result showed little change from the initial open.
  • Gravestone doji form when the open, low and close are equal and the high creates a long upper shadow. The resulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow. Gravestone doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low. As with the dragon fly doji and other candlesticks, the reversal implications of gravestone doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long red candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal. After a long uptrend, long green candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations.
  • Dragon fly doji form when the open, high and close are equal (or nearly equal) and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.
  • Tweezer tops and bottoms indicate the failure to achieve new price levels Reversal signs
  • Tweezer tops and bottoms indicate the failure to achieve new price levels Reversal signs
  • Lots of exhaustion candles
  • Trendline clearly shows the points of S and R Must have 3 contact points to confirm. - The more the better. Horizontal and diagonal
  • Connects the lower highs Bounces are trade-able Contact points will mainly be major highs Trendline as the name suggests shows the direction of the trend more clearly.
  • Connects the higher lows Bounces and then breaks through Contact points will mainly be major lows
  • Contact points will mainly be major lows Mention Key Levels. Clustering.- More than one code at once. Above we have trendline support, and S becomes R. Class must do exercises of drawing trendlines
  • Don’t be clever, be obvious
  • Downward channel Mention you very often get retests of the line. Don’t panic. Good chance to get in trade if missed it first time!
  • Upward channel Mention you very often get retests of the line. Don’t panic. Good chance to get in trade if missed it first time!
  • To be on screen during arrival of potential delegate

Reading Forex Chart Patterns Part 2 Reading Forex Chart Patterns Part 2 Presentation Transcript

  • Copyright © 2007 Stephen Margison www.sm-forex.com “ IT’S TIME TO GET MORE OUT OF LIFE” www.sm-forex.com Reading Charts 2
  • The Forex Codes Japanese Candlesticks (intro) Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks (intro)
    • The Japanese began using technical analysis to trade rice in the 17th century. Candlestick charting first appeared sometime after 1850
    • Long bodies indicate strong buying or selling and a faster move. The faster buying or selling activity occurs, the longer the body becomes. 
    Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks (intro) Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks (intro) Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks
    • Useful for identifying Reversals
    • Good “tool in the box” for Bounce trading
    • Not to be used as a stand alone indicator
    • Psychological depiction of trader mentality at the time
    Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Hanging Man Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Hammer Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Inverted Hammer Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Railroad Tracks
    • Railroad Tracks are one of the strongest patterns there is
    • A trend comes to a halt with a tall bar with long real body and little or no shadow and is followed by a similar tall bar going the other way
    • This pattern shows many traders feel the market should reverse
    Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Doji
    • A Doji indicates indecision in the market and struggle between bulls and bears
    • Open and close prices are the same or nearly the same
    • Four main types Of Doji
    Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Tweezer Tops Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Tweezer Bottoms Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candles – Spinning Tops
    • When a trend is running out of momentum , its exhaustion is shown by short real body candles
    • In a “Spinning Top” price opens and closes near to the middle of the candle leaving little real body
    • The shadows on these candles can be quite long and about the same length
    Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Japanese Candlesticks Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Trendlines
    • A trendline is a good way to show S and R
    • Price action can only do one of two things:
    • It can break through the trendline
    • It can bounce off the trendline
    Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Trendlines Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Trendlines Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Trendlines Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Channels
    • Parallel Support and Resistance Trendlines with the price action enclosed
    • It is possible to trade bounces within the channel or breakouts out of the channel
    • Pick simple formations – be obvious
    • VERY POWERFUL for trading
    Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Channels Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Channels Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Channels Copyright © 2007 Stephen Margison www.sm-forex.com
  • The Forex Codes Channels Copyright © 2007 Stephen Margison www.sm-forex.com
  • Copyright © 2007 Stephen Margison www.sm-forex.com “ IT’S TIME TO GET MORE OUT OF LIFE” www.sm-forex.com Reading Charts 2