The Unpredictable Condition of the Market

A market is often termed where transactions of buying and selling are conducted. In your place, you might have the actual market place where sellers are selling their products to any interested buyers that are in need of the product. The same goes to the forex market but the only difference is that there are no sales-talks that are involve where everything is setup automatically.

Traders are the participants of the forex market. They are the once responsible in buying and selling different types of currencies. It sounds like an easy job but the truth is, it's highly complicated that you might end up with your own conclusion that profit can only be gained by luck.

A lot of individuals had tried to predict the unpredictable behavior of the market but failed. After losing a large amount of money, they often claim that forex trading is a scam and swears never to come back into this type of business again. It only proves that the survey conducted regarding about the number of successful traders from the unsuccessful once is true. The result of the survey makes a total of 99 percent individuals who are failures on this business while the remaining 1 percent are the only profitable traders.

What makes the market unpredictable?

It is natural that you cannot foresee its future direction unless that you have the psychic ability to see through time. There are actually a lot of things that are unpredictable in nature such as when are you going to the toilet, when are you going to cut your hair and etc... A trader who claims that he or she can predict the market's direction is an over-statement.

The market only moves in two different directions which is either up or down. Through these movements, trends are formed which are commonly used by traders for their analysis. It is by human nature that we tend to follow what the others are doing. Thus, when a lot of people are making buys then you should also buy and the same goes to selling.

Moreover, the most important part to remember is "Don't be Greedy". Always put a range between your Target Profit and Stop Loss to minimize the number of your trades since there will always be another day.

Trading the Forex Market is Very Hard

Who says that trading the forex market is easy?

If you are going to browse around the internet and check those ads around any forex related website then you will encounter some of them stating that trading is easy. Some even claim to be very easy but provided that you are going to buy their secret products. Such products could cost an expensive amount since it brings promising results.

Before deciding on buying any of these enticing products, it is highly advised that you need to conduct your own investigation about them whether they are one-hundred percent working or not. The best source to conduct your researches is browse them on forums. If there are a lot of members who claims that it is profitable and it's really working for them then read through the whole thread. Perhaps you may even participate by asking your own questions that are not yet answered.

Most products come in the form of a Strategy or Automated Trading Robots. If you are purchasing a manually strategy-based product then you must have at least some knowledge about how to trade. You know how to manipulate those tools from your broker's trading platform and make adjustments on their settings. In short, its not recommended for the newbies. Anyway, noobs or beginners can purchase Automated Trading Robots which will do the trick to gain profit automatically without exerting any effort of analyzing the condition of the market. However, there are rumors that such automated programs doesn't work in the long run where it will lead to failure at some certain point which might even cause depletion of your account balance.

Therefore, trading the forex market is not easy where it requires a lot of dedication and work. You need to invest a lot of your time educating yourself and gaining experience until you have your own clearly defined strategy to be profitable.

Hammer - Reversal Signal for Downtrend Condition

Have you ever handled a hammer?

If not then this is a simple tool used by the carpenters to put nails into the wooden surface. Anyway, the relationship with the Candlestick Pattern which is also known as "Hammer" is their appearance. As for those who are completely clueless of how does a hammer looks like then I suggest searching for its images on Google Search Engine.

This type of Candlestick Pattern can only be found on a downtrend condition of the market. Hammer can be easily identified by it's small sized body with a long wick or shadow which is twice or longer than its real body. As for the color, it can either be bullish or bearish.

Take note that when you are able to encounter this type of candlestick especially on a downtrend situation, it is advisable not to make any rush decision since it requires more additional candles for confirmation. What we need is a "Close above the Close". This means that we need an additional two succeeding candles and they must close above each other closing prices.

You might experience in some certain situation that the trend reverses at an early stage without patiently waiting for the two confirmation candles. There is an explanation about such occurrences where you need to zoom at a closer time-frame. If you have already acquired some knowledge and experience then you will most likely be able to determine the exact period to setup your orders.

Trading alone simply with the use of a candlestick can be very plain and simple but it's too complicated especially for the beginners. To provide more probability on guiding your decisions, it is suggested that you make use of other tools as your secondary method for confirmation.

Different Types of Spinning Tops

Spinning Tops is a type of candlestick indicating a positive reversal signal. This means that the market will have a sudden movement that will change in direction. Most likely, Spinning Tops consists of a small body and a long upper and lower shadows. Take note that the upper and lower shadows should always be longer than the body. Additional discussion about this type of candle stick is posted on this article entitled Spinning Top Reversal.

So what are the different types of the Spinning Tops?

Doji Candlesticks

This form of candlestick consist of a body with almost the same opening and closing price. They are commonly encountered consisting of long-legged shadows and a small body at the middle part. Traders can make use of them before making any necessary actions on their trades.

Cross Doji

This type of candlestick forms an exact image of the holy cross. It consists of a body with equal opening and closing prices. It has a long lower shadow than the upper shadow. Traders often interpret them as a positive bullish reversal.

Inverted Cross Doji

It is the complete opposite of the candlestick mentioned above. It consists of an equal opening and closing prices making its body completely just a form of horizontal line. The upper shadow is longer than the lower shadow and they often indicate bearish market reversal.

As of now, these are the most common types of Spinning Tops that you will most likely encounter on your trading activity. However, there are more different types of them but not really necessary since they all indicate the same principle of telling you about high probability of reversal trend that might occur.

Morning Star - Bullish Reversal Signal

The life of being a Forex Trader can be very boring and the worst part is it's very exhausting or stressful. If you intend to become a Trader, you must have the determination to succeed or you will simply end-up losing a lot of money. Read through various Books and participate of Forum Communities. I'm sure that you will have a good start and minimize the risk of losing huge amount of your capital.

I have been previously discussing about Candlestick Patterns which is one of the basic and important aspect that every Trader should try to learn and fully understand. On this post, we are going to deal with the Morning Star. This is a type of Candlestick Pattern that provides you an early signal for the Bullish Reversal.

The Morning Star Candlestick Pattern composes of three candles. The first candle should be tall composing of a bearish Real Body. The second one can either have a Bearish or Bullish body that gaps below the first candle. The third candle must have a Bullish body that closes at least 50 percent from the body of the first previous candle.

On some information that you may come across, they may say that there must be a gap between the candles. However, it is still considered as valid even there is no gap because intraday Forex candles doesn't always make a gap. You may still count them as a Morning Star.

The Tweezer Top and Bottom

This type of Candlestick Pattern may come in various different ways and it is very important that you need to know about them. Let's start with the Tweezer Bottom. This type of Candle Pattern composes of two or more candlesticks that exactly have the same matching bottoms. The bottom levels can be composed of Real Bodies, Wicks/Shadows, and a Dojis.

Tweezer Bottom can be encountered on a Downtrend which provides a high possibility of reversal signal.

The Tweezer Top is the exact opposite of the above case. When the current trend of the market is up then it is most likely that you will encounter this type of Candlestick pattern especially on the near end of the move.

Being able to identify either a Tweezer Top or Bottom can be helpful on your part as a technical trader where it can provide you an early signal allowing you to perform the necessary actions. Below are some images that illustrates the various forms of Candlestick Patterns for both the Tweezer Top and Bottom;

First Case

Second Case

The Bullish and Bearish Engulfing Pattern

The Bullish and the Bearish Engulfing Patterns are the most popular type of candlestick signal because it can be easily identified from your chart. However, errors or mistakes often occurs if it has been interpreted in the wrong way. To make it clear especially for the newbies, please refer on the image sample below.

In the case of the Bullish Engulfing Pattern, you have to make sure that the market is on a downtrend situation. If you do not know how to define the current market trend then you need to learn "Line Plotting" which I will be discussing on some of my other post. The first signal that you need to look is a short term candle which indicates a downtrend. If it's a Doji then the higher would be the chances of reversal. The second candle must have a completed body denoting an uptrend and it must engulf the first previous candle. As for the wicks or shadows, simply disregard them.

For the Bearish Engulfing Pattern, it is the opposite of the above case. The trend must be on a clearly definable up trend and look for a short term candle or Doji. The second succeeding candle must engulf the first but the a stronger signal can be achieved when the second candle engulfs two or more of the previous candle's bodies.

The Spinning Top Reversal Signal

Have you ever played a spinning top during your childhood days? If you are then it only tells that you are already an old person. Anyway, this is a classic type of toy where you can spin it by pulling the string that has been winded around the top. It's really an interesting toy but I'm sure that most of the younger generations these days doesn't know how to play it.

With regards about Forex, the Spinning top is a positive indicator for trend reversal. It has been named after the toy since they do have some similarity in appearance. Just make use of your imagination and you will be able to form the image within your own mind.

The body of this type of Candlestick is small which means that the open and the close price are almost near at the same level. It can be encountered with any type of body color. Finally, you have to take note that seeing this type of candlestick on your chart means that the market has less direction to move.

The Spinning Top

The Gravestone Doji - Bearish

It sounds creepy since the term is related about death. Well you shouldn't because every body dies and someday you will soon have your own gravestone. Anyway, when we are talking about Forex, Gravestones refers to the type of Candlestick Doji that provides indications of possible reversal.

The previous post discussed which is all about the Dragonfly Doji is the complete opposite of this type of candlestick. Although, they do have the same type of body where the open and close are on exactly the same price. The tall wick shadow indicates a high possibility of bearish reversal.

This type of Candlestick is most commonly found on the top of an up-trend. Open-up your trading terminal and try to identify as many Gravestones Doji as you can. Treat it as your exercise for today and keep on practicing until you will be able to get a hung on it.

We have another type of Candlestick having the same purpose and it is the "Shooting Star". If it happens that you have encountered a Gravestones Doji and followed by a series of Shooting Stars then there's a very high possibility of bearish trend reversal.

Dragonfly Doji - Bullish

Have you ever seen a Dragonfly?

If not then they are some kind of insect that only comes out during the rainy season. They often fly around and it's quite hard to catch one of them. Catching them requires some great skill but anyway, just leave them free out-there since our primary focus is the type of Candlestick which is also referred as a "Dragonfly Doji".

If you have read the previous post which is all about Doji then this Dragonfly type of Candlestick has a close similarity. They don't have any Real Bodies but the level of the closing and opening price is near the top level.

In most cases, you will notice this type of Doji Candle at the bottom part of the trend. The long wick or shadow simply indicates that that a bullish reversal could occur at any given period of time. A similar issue goes with the "Hammer" but comparing the two, the Dragonfly Doji is more bullish than a Hammer.

Doji acting as Reversal Signal

I don't know where the name of this type of Candlestick came from but anyway the most important part is that we get to know how to make use of it. As the title states, it acts as a Reversal Signal which provides you the early warning of getting out of the trade.

Most strategies out there are composed of various sets of indicator tools where some can accurately predict the entry points. However, the problem comes on the part of determining the exit point. This is the reason why you need to learn how to read Candlestick patterns which will lead you into success.

To describe a Doji, it is a Candlestick that doesn't have any Real Body. The body is simply composed of short horizontal line. This means that the opening and closing price are almost exactly near at the same price. As for the body, the Bulls and Bears are on the balance of trying to overcome one another.

If you happen to see a Doji on your chart, this could be a Pending Reversal but you need to take caution since it could just be a false alarm. Thus, you need another set of confirmation candle before you make your final decision. A good example is when the current market trend is up, you need to wait for the next succeeding candle if it will end-up with a close just below the close of the Doji. If this happens to be the case then it means that the trend has changed.

The best tool for providing Entry and Exit points

Since I started trading the Forex market, I disregarded the use of Candlestick Patterns where I simply relied on those complicated moving average tools. I have been spending most of my available time reading and participating on various forum discussion asking for some tweaks and the best settings for my tool.

And the result of more than a year relying on such indicators is more on the negative side of failures.

I came to realize that the market behaves in such different ways which makes the tool fail in the long-run. It still works but provided that you need to make some modifications all over again which can be very complicated for the newbies to learn and understand.

However, I came across one interesting thread on Babypips where the author of the strategy simply uses Candlesticks patterns as his only tool in trying to trade Forex. He has even provided a solid proof of his own success by demonstrating on a live-trade. His thread already composed of hundreds and nearly thousand of pages for the interested newbies to read. It's a tough challenge to read them all but the benefit would be great.

Again, there are several tools out there that can predict future price movements with some good accuracy but the problem lies on the part of trying to determine the Entry and Exit points. Take note that if you happen to enter your order late, there are chances that you will earn nothing and the worse case is that you will be paying for the spreads. The same goes with the Exit points where you do not have the exact level of taking your profits. There are chances that if you wait long enough, the price could suddenly fall-back where you end-up earning less. Or the opposite will happen where after you have decided to take your profit, the market trends more further as you have never expected.

The answer to all of this situation is the use of the Candlestick Pattern since it allows you to determine the exact Entry and Exit Points. It will become even more powerful if you are to combined it with your other set of indicator tools.

The Power of the Candlestick Pattern

The Reason why Candlesticks are Reliable on all Time Frames

If you are already familiar about some of the Candlestick patterns then you might have already noticed that there are some of them that are rarely seen especially on the intraday trading period. The reason is that they require a gap between the close and the opening price.

You can check such instances by referring into your trading platform and checking the exact intraday period of the day. You will most likely notice that the Open price does not equal the closing price of the next succeeding candle. Anyway, this can be resolved by using the so called "Poetic License" which will be discussed on another topic.

Moreover, there are hundreds of Candlestick patterns out there that you can use as reference to guide you on the future direction of the market. Some of the most commonly used candle stick patterns are the Morning Stars, Evening Stars, Haramis, Shooting Star, Spinning Top and so on...

The good part about making use of a Candlestick Pattern is that it can be used on all Time Frames. You do not need to make any adjustments as compared with the other tools such as the Moving Averages, MACD or any other tools that requires modifications on its settings.

Moving Average and MACD

More about the Bar Charts

I have just previously discussed about the Japanese Candlesticks and on this post, we are going to deal with the Bar charts. 

Open-up your trading platform and select the Bar Chart which are most commonly found on the top navigation. 

I'm currently using the Meta Trader Platform since it's still the best trading terminal that you can easily gain access for free and it has hundreds and thousands of available tools. 

If you are having some trouble looking for the right tool then I suggest asking them on any Forex Community forums.

The same as the Japanese CandleStick, the Bar Chart is another form of graphical representation of the market prices. You will notice that it composes of a vertical bar as the body. 

The opening price of the market is indicated by the horizontal line which is on the left side while the closing price is on the opposite. 

I find it a little bit confusing where you need to take a closer look by using the "Zoom" function.

Depending on the type of strategy that you use, you have the capability to apply Bar chart on any Time Frame that you choose. 

The most commonly used time interval is the 1 hour period for the Scalpers while Daily or higher for the Day Traders. 

The most important part is that you are able to obtain the real time prices of the market.

Below is an image of how a Bar Chart looks like. I've taken it from my Meta Trader terminal with a black background. You can customize the colors of your chart which is another good part of using the MT4 terminal.

Bar Chart on Meta Trader 4

This next image is a closer view of a single Bar with identified parts.

The top and bottom edge of the vertical bar indicates the Highest and Lowest price attained by the market. Those two short Horizontal lines determines the Open and Close price.

The use of this type of chart depends on the trader. If you find Bar Charts a lot more simpler and easier for you to understand and identify the trends then you should keep on using it. 

Although, the majority of traders these days now prefer the use of the Candlesticks.

The Basic Explanation about Japanese Candlesticks

Before you proceed on trying to read this post, it is fully expected that you are already familiar about your trading platform and you played with the three different types of charts which are the Line, Bar and Candlesticks. 

Anyway, the main focus of this post is all about the Japanese Candlesticks. The other two types of charts are also useful but don’t provide much data as compared to our main subject.

Let’s have a brief explanation about the difference of these three types of charts. The Line Chart is the simplest among them where it simply plots the highest and lowest prices in the form of a line. 

The Bar Chart provides exactly almost the same type of data as compared to the Japanese Candlesticks but its appearance makes it hard enough to read and can be very confusing. 

Finally, the Japanese Candlestick is the best type of reference which is what we are about to discuss why?

Moreover, let’s give some credit to the creator of this genuine technical analysis tool. Candlesticks won’t exist without him. 

He is Steve Nison who was able to discover this reliable forex trading tool but with the help of his fellow Japanese broker. 

The popularity of the Candlesticks began around the 90s and has become the primary charting tool of every trader around the world.

How does a Candlestick look like?

If you are not sure among the three different types of charts on your trading platform on which is the Candlestick then below is an example.

Now, that you are sure about how does it look like then I suggest that you open your trading terminal to check it out. However, you might also notice the “Time Frame”. So what is it?

Time Frames are the division of time period which can be in minutes, hour, day, weeks, months and year. The uses of the Candlestick on these time frames have no limitations.

Going back to the image posted above, let me explain to you the parts of a Japanese Candlesticks:

The default or most commonly used customized color for reading Candlesticks is “White and Black”. A white type will only be formed when the closing price is above the open. 

When the opposite occurs where the close price is below the open, a black type of candle will be formed.

You must take note of the parts since I will be referring to them on my future tutorial and you don’t want to keep on trying to read this post again for a re-cap.

The rectangular shaped section is what they referred as the “Real Body” of simply body. On the ends are some thin lines poking above and below. 

These are called “Shadows” which indicates the High and Low prices.