Tuesday, April 1, 2008

Candlestick is a method of reading the market based on pattern. If you search the net which I suggest you do, you will find a lot article on candlestick pattern. Do your reading to understand it and what happen to the price that forces a certain pattern to the candlestick. What type of pattern you need to remember and how to use it. I personally only remember 3 types of pattern. They are doji, hammer and engulfing pattern.

What I am going to tell you today is a different story about candlestick. A different way how to view them and how to use them. It may not be 100% accurate but it is enough to make profit and stay profitable in the long run.

Apart from 3 candlestick pattern which I remember, I see candlestick as a momentum indicator. Would it be nice if you can have 2 strategy from a single indicator? Like me I use 4 indicator and when they combine I have 8 strategy combined into 1. Candlestick, Moving Average, RSI and Stochastic all put on top of gridlines.


Imagine that the price is an invisible, self propelling arrow. You cannot see it and surely you dont know where its going but when it moves, it leaves trails in the form of candlestick. If the arrow is moving too fast, we will see long candlestick. The arrow itself has momentum once it moved, so it will take time to slow down and turn. In short, a long CS indicates the arrow is moving very fast and will not turn soon but because forex is influences by many things we see the arrow just turn at certain point leaving CS pointing up or down here and there. Those CS that points up or down is a clue to where the arrow is going.


Now lets see some example, refer the last NzdUsd Hourly charts that I posted on Trade of The Day. Look at the drop when NU breaks the red line. Long candlestick pointing down. Meaning it is at full speed and will not stop. At the 1st correction, we can see that the lowest CS is a bull CS but because the bull CS is shorter than the previous CS, it dont have enough force to stop the arrow instead it only slowed it down. Then we can see all the next correction has bear CS pointing down including the last low CS is a bear meaning price will break the last low but it is slowing down. At this point, it is a very good idea to exit for us technical small fish else we may get fried during price swing.

According to NU charts, I forecast that NU will break the last low of 0.7834 and will make it way to 0.7800. This is because turing point usually happens at big numbers as the last turning point happens at 0.8100. My theory on this behaviour is that master traders that have lots of money are so busy counting money, they dont bother looking at price with small number at the back. So they focus on big numbers such as 0.8100, 0.7800 or the least 0.7850. Those 2 digit at the back is what we small fish are eating but they take the 1st 3 digit. How small and insignificant are we??

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