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How To Use Heikin Ashi Charts to Improve Your Trading

7 Jul

Heikin Ashi charts are similar to candlestick charts except the color coding of the bars changes in relation to the prior bar. This makes it much easier to identify the trend changes and pick out technical patterns in the market.

A Big Move is Coming in the Euro

24 Jun

The euro is forming a large wedge, or triangle pattern on the daily charts.  As price gets closer and closer to the apex more pressure will build and an explosion of price action will result. Position yourself accordingly. Click the link for more info on price patterns.

Day Trading with Pivot Points

5 May

The pivot point for the day is calculated by taking the prior day’s (High + Low + Close) / 3. These are commonly used by floor traders in the trading pits to identify key support and resistance levels.

If the market opens above the daily pivot, look for short entries for a move down to test the pivot and vice versa. If the pivot isn’t tested in the morning session, then look for it to test in the afternoon.

  • Daily pivot levels R3/S3 will contain the market 90 percent of the time.
  • Take note of Weekly and Monthly pivots

Identifying The Types of Market Conditions

Trending Day – Market moves to pivot, consolidates and continues

  • Wait for move thru pivot level, buy first pullback to pivot level (for longs)

Choppy Day – Also known as a range bound day. Market moves to pivot, consolidates and reverses

What is Technical Analysis?

18 Apr

Have you ever wondered why technical analysis works?

Technical analysis is the study of chart patterns and technical indicators used to develop entry and exit points for placing trades. Here is a great online free resource, a course in technical analysis.

The basis for most technical analysis is candlestick charting 101, and Steve Nison’s book Japanese Candlestick Charting Techniques, is the go to book for learning these methods.

Aside from the self fulfilling prophecy, often times price moves in the stock market result from groups of people anticipating the same result, only the resulting move it turns out, is in the opposite direction as the masses first thought.

Think about it…

If a stock moves from $50 to $100 and begins to pullback, the traders who missed the first move will be interested in getting in. Some will feel they must chase the move and will end up buying at highs instead of patiently waiting for the next pullbacks. There will however, be a group of traders, who patiently wait for the stock to pullback to say, $75. They have their entry pin pointed and as soon as they get filled place their stop on the trade, in this case the trades placed their stops between $70 and $72.

As luck would have it the market continues to slide through the $75 level and upon dipping into the $60’s is met by a flurry of stop orders which sends the stock back down to the $50 range

The Doji Candlestick

28 Mar

The doji is a candlestick formation that can be seen on any time frame, but the larger the time frame which forms the doji, the greater the significance. This candlestick pattern represents an even balance between buyers and sellers at the close of the doji candle.

The Doji Itself

There are really two important factors to look at with the doji candlestick formation, the first being the doji itself. Whether or not the candle closes just slightly positive, slightly negative, or exactly where it opened doesn’t really matter, what matters is where it closes in relation to the “stick” or the tail of the candlestick.

doji japanese candlestick

If we have a doji that looks like a + sign then we have a market that is perfectly balanced during that time frame. If however we have a doji that forms at the top the candlestick with a long tail below, this is telling us that we had a significant amount of sellers, but the buyers were able to overtake the sellers and bring price back up to where it opened. This process would be reversed for a candlestick with a doji at the bottom with a long tail above.

The Doji in Context

The second important factor to look at is where the doji candlestick forms in relation to the surrounding candlesticks. In Steve Nison’s book, Japanese Candlestick Charting Techniques, he goes over all the different candlestick chart patterns in context and what they mean, but the main takeaway is think about it from the angle of human emotion. If we are trending up and we form a doji with a long tail above, this is signalling that buyers pushed the security higher early on, but sellers managed to push the security back to the opening price at the close of the time frame.

doji candlestick

The most significant thing to realize when you see a doji candle is that it is a consolidation of prices that could lead to a reversal. I stay clear of  trading when I see multiple doji candles in a row and if a doji forms at the top or bottom of a trend, I look for a break of the candlesticks high or low as a possible reversal in the trend.

Candlestick 101

7 Mar

One of the most important parts of technical analysis is candlestick 101. The candlestick charting method was brought to the United States by a man names Steve Nison.

Nison is known as the founding father to candlestick 101 in the western part of the world. His book, Japanese Candlestick Charting Techniques includes everything from the basics, such as constructing the candlesticks and learning the patterns, to advanced topics, such as the rules of multiple technical techniques. These candlestick charting methods form the basis of many trading systems and profitable trading strategies.

Candlestick 101

Whether you are new to candlestick charts or a seasoned pro-the reward from reading Japanese Candlestick Charting Techniques will be immediate and long lasting in your trading. This book teaches how make decisions based on price, not indicators, candlestick 101 is where it all begins.

More posts on technical analysis can be viewed here.