Currency War

Single Candlestick Patterns in forex

Hammer and Hanging Man

The hammer and hanging man look exactly alike but have totally different meanings depending on past price action. Both have cute little bodies (black or white), long lower shadows, and short or absent upper shadows.

The hammer is a bullish reversal pattern that forms during a downtrend. It is named because the market is hammering out a bottom.

When price is falling, hammers signal that the bottom is near and price will start rising again. The long lower shadow indicates that sellers pushed prices lower, but buyers were able to overcome this selling pressure and closed near the open.

Just because you see a hammer form in a downtrend doesn't mean you automatically place a buy order! More bullish confirmation is needed before it's safe to pull the trigger.

A typical example of confirmation would be to wait for a white candlestick to close above the open to the right side of the hammer.

Recognition Criteria:

• The long shadow is about two or three times of the real body.
• Little or no upper shadow.
• The real body is at the upper end of the trading range.
• The color of the real body is not important.

The hanging man is a bearish reversal pattern that can also mark a top or strong resistance level. When price is rising, the formation of a hanging man indicates that sellers are beginning to outnumber buyers.

The long lower shadow shows that sellers pushed prices lower during the session. Buyers were able to push the price back up some but only near the open.

This should set off alarms since this tells us that there are no buyers left to provide the necessary momentum to keep raising the price.

Recognition Criteria:

• A long lower shadow which is about two or three times of the real body.
• Little or no upper shadow.
• The real body is at the upper end of the trading range.
• The color of the body is not important, though a black body is more bearish than a white body.

Inverted Hammer and Shooting Star

The inverted hammer and shooting star also look identical. The only difference between them is whether you're in a downtrend or uptrend. Both candlesticks have petite little bodies (filled or hollow), long upper shadows, and small or absent lower shadows.

The inverted hammer occurs when price has been falling suggests the possibility of a reversal. Its long upper shadow shows that buyers tried to bid the price higher.

However, sellers saw what the buyers were doing, said "Oh heck no" and attempted to push the price back down.

Fortunately, the buyers had eaten enough of their Wheaties for breakfast and still managed to close the session near the open.

Since the sellers weren't able to close the price any lower, this is a good indication that everybody who wants to sell has already sold. And if there are no more sellers, who is left? Buyers.

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. This is a definite bearish sign since there are no more buyers left because they've all been murdered.

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How to read and interpret a weekly economic calendar in currency market

Major Indicators

APICS Survey – Composite diffusion index of national manufacturing conditions. The APICS survey gives a detailed look at the manufacturing sector. This survey is less well known that the ISM, but can also indicate trends in production. The diffusion index does not move in tandem with the ISM index every month, but sometimes the two do move in the same direction. Since manufacturing is a major sector of economy, investors can get a feel for the general economic backdrop for various investments. An index level of 50 means no growth, but every 10 points signals gains of 4% in manufacturing

Business Inventories – Dollar amount of inventories held by manufacturers, wholesalers and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. The business inventory data provide a valuable forward-looking tool for tracking the economy.

Chain Stores Sales – Monthly sales volumes from department, chain, discount and apparel stores. Sales are reported by the individual retailers. Chain store sales are an indicator of retail sales and consumer spending results. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you will have a pretty good handle on where the economy is headed. Sales are reported as a change from the same month a year ago. It is important to know how strong sales actually were a year ago to make sense of this year’s sales. In addition, sales are usually reported for “comparable stores” in case of company mergers.

Construction Spending – Dollar value of the new construction activity on residential, non-residential and public projects. Data are available in nominal and real (inflation-adjusted) dollars. Businesses only put money into construction of new factories or offices when they are confident that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home. That’s why construction spending is a good indicator of the economy’s momentum.

Consumer Confidence – Survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by The Conference Board. Five thousand consumers across the country are surveyed each month. The level of consumer confidence is directly related to the strength of consumer spending. Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it’s easy to see how this index of consumer attitudes gives insight to the direction of the economy. Changes in consumer confidence and retail sales don’t move in tandem month by month.

Consumer sentiment – Survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by the University of Michigan. Five hundred consumers are surveyed each month. The level of consumer sentiment is directly related to the strength of consumer spending. Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it’s easy to see how the index of consumer attitudes gives insight to the direction of the economy. Changes in consumer sentiment and retail sales don’t move in tandem month by month.

Consumer Price Index (CPI) – Measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. The CPI is the most followed indicator of inflation in the United States. Inflation is a general increase in the price of goods and services. The relationship between inflation and interest rates is the key to understanding how data like the CPI influence the markets. By tracking the trends in inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform.

 Current account – Measure of the country’s international trade balance in goods, services and unilateral transfers. The level of the current account, as well as the trends in exports and imports, are followed as indicators of trends in foreign trade. U.S. trade with foreign countries hold important clues to economic trends here and abroad. The data can directly impact all the financial markets, but especially the foreign exchange value of the dollar.

 The calendar lists the important economic events for the day, by the time at which they occur (or at midnight if they do not have a specific time).

You use technical analysis to trade but the currency markets are driven by major fundamental announcements. Therefore, it is important to know exactly when these announcements will be made so you can take advantage of the big moves that follow or avoid losing through a sudden surprise reaction.

Sometimes consolidation takes place before a major fundamental announcement and you can benefit from a straddle trade. Economic calendars show in advance what time the economic data release will take place.

If traders are expecting an interest rate to rise and it does, there usually will not be much of a movement because the information will already have been discounted by the market. However, if the interest rate does not rise as expected, then the market may react violently.

Live Trading Screenshot

Dual Candlestick Patterns in Forex

The bullish engulfing pattern is a two candle stick pattern that signals a strong up move may be coming. It happens when a bearish candle is immediately followed by a larger bullish candle.

This second candle "engulfs" the bearish candle. This means buyers are flexing their muscles and that there could be a strong up move after a recent downtrend or a period of consolidation.

On the other hand, the bearish engulfing pattern is the opposite of the bullish pattern. This type of pattern occurs when bullish candle is immediately followed by a bearish candle that completely "engulfs" it. This means that sellers overpowered the buyers and that a strong move down could happen.

Tweezer Bottoms and Tops:

The tweezers are dual candlestick reversal patterns. This type of candlestick pattern could usually be spotted after an extended up trend or downtrend, indicating that a reversal will soon occur.

Notice how the candlestick formation looks just like a pair of tweezers!

Amazing!

The most effective tweezers have the following characteristics:

The first candle is the same as the overall trend. If price is moving up, then the first candle should be bullish.

The second candle is opposite the overall trend. If price is moving up, then the second candle should be bearish.

The shadows of the candles should be of equal length. Tweezer tops should have the same highs, while tweezer bottoms should have the same lows.

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forex market is the world’s largest market

The forex market is the world’s largest decentralized market, with an average daily turnover of around $4 trillion. The trades do not go through any central exchange or clearing house. Rather, currencies are traded over the counter directly between the buying and selling parties over a vast electronic network. Currencies are traded against each other according to their relative value, and two currencies together are known as a currency pair.

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Triple Candlestick Patterns in forex

Evening and Morning Stars

The morning star and the evening star are triple candlestick patterns that you can usually find at the end of a trend. They are reversal patterns that can be recognized through these three characteristics:

1. The first stick is a bullish candle, which is part of a recent uptrend.
2. The second candle has a small body, indicating that there could be some indecision in the market. This candle can be either bullish or bearish.
3. The third candle acts as a confirmation that a reversal is in place, as the candle closes beyond the midpoint of the first candle.

Three White Soldiers and Black Crows

The three white soldiers pattern is formed when three long bullish candles follow a downtrend, signaling a reversal has occurred. This type of candlestick pattern is considered as one of the most potent in-yo-face bullish signals, especially when it occurs after an extended downtrend and a short period of consolidation.

The first of the three soldiers is called the reversal candle. It either ends the downtrend or implies that the period of consolidation that followed the downtrend is over.

For the pattern to be considered valid, the second candle should be bigger than the previous candle's body. Also, the second candle should close near its high, leaving a small or non-existent upper wick.

For the three white soldiers pattern to be completed, the last candle should be at least the same size as the second candle and have a small or no shadow.

The three black crows candlestick pattern is just the opposite of the three white soldiers. It is formed when three bearish candles follow a strong uptrend, indicating that a reversal is in the works.

The second candle's body should be bigger than the first candle and should close at or very near its low. Finally, the third candle should be the same size or larger than the second candle's body with a very short or no lower shadow.

Three Inside Up and Down

The three inside up candlestick formation is a trend-reversal pattern that is found at the bottom of a downtrend. It indicates that the downtrend is possibly over and that a new uptrend has started. For a valid three inside up candlestick formation, look for these properties:

1. The first candle should be found at the bottom of a downtrend and is characterized by a long bearish candlestick.
2. The second candle should at least make it up all the way up to the midpoint of the first candle.
3. The third candle needs to close above the first candle's high to confirm that buyers have overpowered the strength of the downtrend.

Conversely, the three inside down candlestick formation is found at the top of an uptrend. It means that the uptrend is possibly over and that a new downtrend has started. A three inside down candle stick formation needs have the following characteristics:

1. The first candle should be found at the top of an uptrend and is characterized by a long bullish candlestick.
2. The second candle should make it up all the way down the midpoint of the first candle.
3. The third candle needs to close below the first candle's low to confirm that sellers have overpowered the strength of the uptrend.

Forex Market & Major Currencies

Definition of Important Terms in Currency Market

Pip

Price Interest point (Pip) is the term used in currency market to represent the smallest price increment in a currency. It is often referred to as ticks or points in the market. In EUR/USD, a movement from .9018 to .9019 is one pip. In USD/JPY, a movement from 128.50 to 128.51 is one pip.

Pip Values – according to your trading platform from $7.00 to $10.00 USD.

Pip Spreads – according to your trading platform from 3 to 20 pips.

Volume

The trading volume measures how much “money” is being traded. During some types of news breaks and when the New York’s exchange is open, the volume is obviously higher. The volume indicates us that more things can change. There no real strong correlation for volume, good trades is being developed even when the Forex volume is relatively low.

Buying and Selling short

Buying = term to use when buying a currency pair to open a trade.
Selling short = term to use when selling a currency pair to open a trade.

Both terms, refer to things we do to open a trade.

On the other hand, to exit a trade, you will have to use the terms “selling” and “buying-back”. The term “selling” refers to what we do to exit a trade that initially started by “buying”. The term “buying-back” refers to what we do to exit a trade that initially started by “selling-short”.

Basically the term, “selling-short” can be referred to the futures and commodities market. For instance the mentality of buying a field to plant vegetables that will grow in the future is the same thing than buying a currency and to predict that it will eventually go short.

Bid/Ask Spread

A spread is the difference between the bid and the ask price. The bid price is the price at which you may sell your currency pair for. The ask price is the price at which you must buy the currency pair. The ask price is always higher then the bid price. Profits in the market are made from charging the ask price for a currency pair and buying it from someone else at the bid price.

The bid/ask spread increases when there is uncertainty about what is going to happen in the market.

Technical Definitions

Trading Platform

A trading platform is, along with the charts, one of the most important tools that a trader will be using while trading on the Forex market. By definition, a trading platform is an exchange account where you can buy and sell a currency.

Entry Stop

An entry stop is executed when the exchange rate breaks through a specific level. The client placing a stop entry order believes that when the market’s momentum breaks through a specified level, the rate will continue in that direction. The execution of a stop entry order may involve a limited degree of slippage, usually two pips or less.

Entry Limit

An entry limit is executed when the exchange rate touches (not breaks) a specific level. The client placing a limit entry order believes that after touching a specific level, the rate will bounce in the opposite direction of its previous momentum. Limit entry orders are always executed at the specified level.

Types of Forex Orders

Market Order – An order where you can buy or sell a currency pair at the market price the moment that the order is processed.

Example: If you are looking to place an order for JPY when the dealing price is 104.00/05, a market order will request to buy JPY at 104.00 or will request to sell JPY at 104.05.

Entry order – An order where you can buy or sell a currency pair when it reaches a certain price target. In theory, this can be any price. You can set an entry order for the low price of a time period or the high price of a time period.

“I want to buy this currency pair at a certain price, if it never reaches that price, I don’t want to purchase the pair”.

The entry order allows you to choose a price and place an order to buy at that price.

 Stop Order - An order that becomes a market order when a particular price level is reached and broken. A stop order is placed below the current market value of that currency.

Example: If you have an open buy JPY position, which you bought at 104.00 and you want to set a stop order in case JPY’s value starts to depreciate (to stop your loss). Since the JPY’s currency appreciates when the dealing rate moves from 104.00 closer to parity with the USD (102 JPY/1USD), a movement in the opposite direction would necessitate a stop order. For instance, you could set a stop order rate to sell JPY at 103.50, thus closing your position at a 50-pip loss.

 Limit Order - An order that becomes a market order when a particular price level is reached. A limit order is placed above the current market value of that currency.

Example: If you have an open buy JPY position, which you bought at 104.00, and you want to set a limit order to protect your profit, you would set a limit order at a number, which indicates that JPY has appreciated, such as 104.5. When the market reaches 104.5, your position will automatically be closed, resulting in a 50-pip gain.

OCO Order - One Cancels Other. An order placed so as to take advantage of price movement, which consists of both a Stop and a Limit price. Once one level is reached, one half of the order will be executed (either Stop or Limit) and the remaining order canceled (either Stop or Limit). This type of order would close your position if the market moved to either the stop rate or the limit rate, thereby closing your trade, and, at the same time, canceling the other entry order.

Example: If you have an open buy JPY position, which you bought at 104.00, and you want to set a limit and a stop order, you could place an OCO order. If your OCO limit rate was 103.5 and OCO stop rate was 104.50, once the market rate reaches 103.5, the original JPY position would be closed and the stop rate would be canceled.

If Done Order – If Done Orders are supplementary orders whose placement in the market is contingent upon the execution of the order to which it is associated.

Trade Intervals

The chart software will list, for each interval, an open price, a low price, a high price and a close price. The open price is the price at the beginning of the period. The low price is the lowest price achieved during the period while the high price is the highest price achieved during the period. The close price is simply the last price achieved during the period.

You can choose the time interval that you would like to trade under. Possibilities are: 1 minute, 5 minutes, 15 minutes, 30 minutes, 60 minutes, 4 hours, daily and week.

The larger the time interval is, the wider the price movement will be. For example, you should expect to see a higher price gain from a trade entered using daily charts than you would normally see when using 15 minutes charts. The daily chart based trade may take weeks or even months to run its course On the other hand, the 30 minutes charts will have higher profits then the 15 minutes charts. However, you can get more profits in trading more trades using the 15 minutes charts.

One Month Trading Result