Daily Analysis - 21-12-2010

While I was doing my daily analysis, I noticed a good spinning top example I thought to share with you. I missed the trade unfortunately.

In the above picture, you can see EUR/NZD on daily time frame. If you noticed, there are two coloured lines on the chart. One is green the other is brown. I use theses different coloured lines to identify the support / resistance on different time frames. I use Green colour line to draw support / resistance on daily, blue on weekly and brown on monthly time frames. You can use your own choice but remember which colour you use for particular time frame. Now in the above example you can see a green coloured resistance line on daily time frame and there you see a beautiful spinning top giving us a reversal signal. You can see the very next momentum candle and you are sure it was a winning trade.

Today's Analysis:

CAD-CHF Daily & Weekly Charts:

In the above to pictures, you can see CAD/CHF on weekly & daily charts respectively. It is very clear it is trying to break the support line. We are going to watch the charts. As on today we don't have any trade on this pair.

GBP/JPY Monthly Chart:

If you look at the above picture GBP/JPY on monthly time frame, you can see that the price has found good support at this level. Watch this pair for a good reversal.

USD/CHF Daily chart:

In the above picture USD/CHF on daily time frame . You can see that the price is trying to test the support line. Please watch this pair for a reversal on both daily & weekly charts.

NZD/CHF Weekly chart:

In the above chart NZD/CHF on weekly time frame. This pair trying the test the support on weekly chart.


Update on Yesterday's Analysis:
AUD/USD trade didn't trigger yet. USD/CAD trade is in positive side. I am not going to close it as this trade I placed based on weekly chart. So to close 50% trade I must wait for the weekly candle to close.

Good luck.
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Daily Analysis - 20-12-2010

Even though I didn't finish my analysis completely, I though to share with you part of my analysis for today.

In the above picture GBP/USD on monthly time frame, please note that I am not talking about any trade set-up. But I saw a beautiful Fibonacci Retracement I thought you may not want to miss. You can see that the price tested twice there for a good reversal. The second time when it tested it formed a pin bar indicating the trading opportunity.

AUD/USD Sell entry:

In the above picture, AUD/USD on weekly time frame we have a good trading opportunity. The price tested the resistance level forming an inverted hammer.
I have placed an conservative entry trade, Sell at 0.9824 with stop loss at 0.9933 (Aggressive stop loss).
An Aggressive trade set-up would be sell at 0.9881 with stop loss at 1.0032 (Conservative stop loss).


USD/CAD Buy entry:

In the above picture, you can see USD/CAD on weekly time frame with a not so good hammer formation. This is not a very good trade set-up. Still for aggressive traders there is still an opportunity because the support level what you see there is marked on both monthly (reddish / brown line) and weekly (blue line) time frames. So if you want to buy, buy @ 2.025 with stop loss at 1.0074.

If I get time, I will update the analysis again.

Good luck.

Part-time Trading - Part 4.6

Continuation Formations:
First of all we must know that any type of continuation begins with a breakout. We learnt about Fake breakouts and reversal. If the price moves towards the support / resistance and breaks about or below the S/R without any hesitation then it is Continuation Formation. As I said before, the price MUST breakout for Continuation. There are lot of types of candlestick patters which indicates Continuation Formations. Let us learn on few types which give us good win / loss ration. Please mind these continuations can happen on Horizontal level of S/R or Diagonal Line of S/R or Range Boundaries or Fibonacci Lines.

Breakout Congestion Continuation:

In the above picture assuming the blue line as Resistance Line, you can see a Green momentum candle break beautifully and then there is a hesitation candle or sandwich candle after that a solid green candle which shows the price moving upwards. This patters may happen at all support / resistance but this specially happens on RANGE BOUNDARIES. These are best suited at flat top or flat bottom triangles for best win/loss ratios.

Breakout Congestion Continuation patters is usually made up of 3 candlesticks just like it's name, 1 breakout, 1 congestion and 1 continuation candle stick. Very important thing we must see a full length breakout candle (small wicks and very long body) on the S/R line on diagonal or horizontal line. The Congestion Candle must be a small one preferably either doji or spinning top. Please keep in mind that this congestion candle must close above the resistance line or below the support line. It must never get below the resistance line or above the support line ever. It must show you that the market is remaining above the resistance level or below the support line. The continuation candle will be our trigger candle. We will trade on this candle.

We trade here exactly like we traded our reversal formations. We wait for the congestion bar to close. We place an entry order (2 lots) 5 pips above the congestion candle and stop loss will be at  5 pips below the congestion candle. Please don't try to trade aggressive way as the congestion candle will be very small in size that's the reason why we give stop loss little higher that the usual conservative way. We are going to close 50% of the trade at the closing of the first candle and the remaining after the second candle. Off-course we are going to adjust our stop loss after closing our first 50% to break even.


Breakout Pull-back Bounce:

In Breakout Pull-Back and Bounce Formation, it is almost similar to the Breakout Congestion Continuation Formation but the Breakout candle takes the price little more higher from the breakout point so that it takes little more candles to form for the price to pull back towards the resistance level (or support level) to base our entry.It may take two candles or 3 sometimes for us to take an entry. In the above picture we see two candles are not enough to retest the breakout point. Here you can find a spinning top / doji or a hammer to confirm a trade. Hammer some time is like a fake breakout. Here please keep in mind you are not going to see doji/ spinning top and hammer together. If we see a spinning top or a hammer we trade like above, 2 lots 5 pips above the high, stop loss (5 pips below for spinning top or doji / 50% candle length of candle if it is hammer). we close 50% trade on the first candle and 50% after the closing of the second candle.

Full Swing Reversal:

This is same like the reversal formation with one key difference. In the reversal formation we use it as COUNTER TREND entry signals. But here it is a reversal to follow the trend. Again we are going to trade IN THE DIRECTION of trend in a reversal fashion. We trade in the same way like we trade the reversal formations with hammers, railway tracks, doji, spinning tops, outside bars & inside bars.

Now we learnt different types of Candlestick Patters, Different types of trading Se-ups. From the next week onwards we will start to trade on real charts.

I will post my part-time trades here. In the future we will learn about Intra-day Trading and News Trading too. For all the posts related to Part Time Trading please click here.


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Part-time Trading - Part 4.5

Fake Breakouts:
When the price tests a support / resistance three possibilities can happen. 1. Continuation 2. Reversal & 3. Fake Breakout. We learnt about reversal in the previous post. Now let us learn about Fake breakouts. If a price moves towards the support / resistance and tries to break above if it is resistance and below if it is support but cannot hold longer and forms reversal then it is fake breakout.

If you see in the previous post (examples for reversal patterns) the first example itself is a good fake breakout. Where you can see the price tries to move up wards but cannot hold longer and forms a hammer which indicates for a good short (sell) entry.

Good Luck.

Part-time Trading - Part 4.4

How to place the Trade?


Let me explain it with an example.

In the above picture, you can see AUD/USD on daily time frame. you can see that I have drawn a resistance line and the price touched there forming an inverted hammer.
Here as soon as the candle closed,what I do is I will place an entry trade for say 2 lots. I place the entry trade to sell AUD/USD 5 pips below the low of the previous candle (Inverted Hammer) and the stop loss will be 5 pips above the 50% of that candle. That is a conservative trade set up.
An aggressive trade up will be I will take trade immediately after the closing of the candle a sell trade and the stop loss will be 5 pips above the high of the candle.
To close the trade, we wait for the new candle to close (that is next day) and close 1 lot out of 2 lots (50% trade) and the rest 50% trade we will close on the end of  next candle AND here we are going to make a small change in the stop loss, i.e, we will change the stop loss to break even.

Let's take another example.

In the above picture, we see EUR/CAD on daily time frame. You can see a nice red inverted hammer on the resistance line. We do the same thing. If we want to trade conservative set up, then we place a sell order on EUR/CAD 5 pips below the low of the inverted hammer and stop loss will be at 50% length of the candle. If we want an aggressive trade then we place a sell trade immediately after the end of the inverted hammer and our stop loss will be 5 pips above the high of the candle. we close our 50% trade at the end of the present candle and remaining 50% at the end of the second candle.

Please note that the trading set up will be same on any time frame on any currency pair. But it is up to you whether to take conservative trade or an aggressive trade.

Let us see an example of outside bar candlestick pattern:

In the above picture you can see CAD/JPY on daily time frame. You can see that outside bars forming at the support line. If we took a long trade, it was very good winning trade. You can see two consecutive green long candles.

Let me just show you how railway tracks look on a real chart:

In the above chart I have marked two circles in Gray where you can see nice railway tracks. Eventhough there were no trade set ups, I thought it was good for the future reference

That's all for now, Have a great day.

Part-time Trading - Part 4.3

Continuation to Candlestick Formation:
As I told you before we are only interested in the candlestick formation that happen in the support or resistance line. So it is very important to draw the support / resistance line in correct place. Please click here to read again about Support / Resistance and here to know how to draw them. Please remember these support and resistance lines are decision taking levels are very import. As traders we just cannot ignore them at all. Traders around the world are looking at these support / resistance and accept the price to re-test the level for continuation or breakout. So any signal we get around that support / resistance is very significant. The direction of the trade is also important here. Remember the direction of trade doesn't depend on us. We must wait for the market reaction to trade and we are going to trade only on the direction of the market.

I again repeat, we are going to trade in the directing of market, depending on the price patterns around the support / resistance either to continuation or reversal .


Reversal Candlestick Formation:

As discussed before we are going to look for reversal opportunities only around Support / Resistance. Now look at the above picture carefully and these are the candlestick patters we are going to look before we place our trades. For the learning purpose we consider the line I have drawn as the resistance line drawn in monthly time frame (Please remember that this line can be a horizontal line/ diagonal line (trend line)/ Fibonacci lines / support or resistance line and we can use daily or weekly time frame also). So here if the price moves around the S/R levels and if we see any (not all) of the above candle stick formations (railway tracks / hammer / doji / outside bar / inside bar) then we are going to look for a bounce (reversal).


Here we are going to wait the candle to close before we place our trades. By taking the above trading example, if we get one of the formations, we are going to place a sell order. Here we took the example of monthly chart, so we are going to wait for the monthly candle to close at the end of the month and then we place entry order. Say for example we get a hammer on our S/R level, then when the candle closes, we take a sell order at 5 pips below the low of the hammer and the stop loss will be at the 5 pips above the highest point of the candle (hammer). The profit taking will depend on the upcoming bar (we are going to close our trade at the end of the next candle stick). We are going to see this with example in the coming post (I know it is a bit confusing).


Railway Tracks:
Railway tracks which are also called as tweezers consisting of two candlesticks of almost same length but different colours. Sometimes they may even break the line move little upwards / downwards (also called fake breakouts). Some times they may not touch the line but come as near as possible to the line. 


Hammer/ pin bar:
Hammer is a candlestick pattern made up of single candle with long wick and short body. We must remember that these hammers or pin bars or inverted hammers doesn't always touch the S/R line. Sometimes they may even break the line move little upwards / downwards (also called fake breakouts). Some times they may not touch the line but come as near as possible to the line. Also note that the longer the wick the better and the colour of the hammer doesn't matter. It may be green or red.)


Outside Bar / Inside bar:
This is the candlestick formation consisting of two (rarely 3) candlesticks where one candlestick will be smaller than the other and the hight of the candlestick will be inside or outside the other candle (look at the picture). In the outside bar, the second candlestick will be close higher (total length will be bigger) than the previous candle and in inside bar, the second candle will be smaller than the previous candle.


Doji Spinning top:
Spinning top is a candlestick formation where the body and the wicks are very small in size and Doji just looks like a plus sign.


In the future post we are going to see some examples of these reversal formations. For the older posts if you have missed any please click here or go to PipBase
Good luck.

Part-time Trading - Part 4.2

We are learning about Price Patters. Yesterday we learnt about Candlesticks. Now let us go through about Candlestick Formations.

What are Candlestick Formations:
By definition, Candlestick formation is a formation of different consecutive candlesticks that shape up in one particular way. This formation (as a whole) is called Candlestick Formation. These combination of Candlesticks or Candlestick formation gives us the PRICE PATTERS to trade. Some of these patters give us continuation or reversal patters. Here you must note one thing. This patters are formed by one to three Candlesticks. Most important thing is we are going to look only for the candlestick formations around the support/resistance levels (ONLY AROUND THE SUPPORT / RESISTANCE LEVELS).
Market is not about PREDICTION it's about REACTION. As Forex trades,r our job is not to foresee the next market moves but to react as soon as possible to the market swings / move that's is happening on our charts. It's just not possible to see the next market moves. So our job is to wait for the market moves to react (trade).

The Conclusion is, we are going to trade in the directing of market, depending on the price patterns around the support / resistance either to continuation or reversal .

In the next post I am going to write about the different types of Candlestick formations that we are going to consider for our trading.