FREE 90 Day Forex Training!
Learn to trade FOREX in 75 minutes
PLUS Receive 90 days of follow up lessons!
Posted on March 2nd, 2010
by Rapid Forex
The last 4 blog posts have taught some of the major candle patterns worth knowing as a forex trader. And with 8 posts in the past week about candlesticks, we’re almost ready to move on to support and resistance.
As a wrap up for now (there’s more to learn about japanese candlesticks later), I want to give you some rules for trading candlestick formations.
No matter what forex candlestick formation or other indicator you are basing your trade on, you should follow several rules to ensure that you are making sound judgments when you are trading, that you are trading based on educated reasons and always while practicing sound equity management.
These rules apply specifically if you are trading a morning star , evening star , tweezer top , or tweezer bottom candlestick pattern:
- Find all of your support and resistance lines.
- Find and draw all of your trendlines.
- Find a convergence (a location where there is more than one reason for the market to bounce, such as a trendline or a Fibonacci sequence).
- Trade in the direction of the trend (“the trend is your friend”).
- Wait to trade until the market bounces at the convergence to make your trade.
- Buy at the opening of the next candle after the morning star or tweezer bottom has fully formed. Sell at the opening of the next candle after the evening star or tweezer top has fully formed.
- Set your protective stop loss order at the last level or resistance (if you are trading an evening star or a tweezer top) or at the last level of support (if you are trading a morning star or tweezer bottom).
- Do not trade morning stars (evening stars) or tweezer tops (tweezer bottoms) if prices are in consolidation (the rapid forex blog will discuss this in more detail in future blog posts).
In my next blog post, I’m going to start explaining support and resistance (this is the real meat-and-potatoes of forex trading).
Posted in
Japanese Candlesticks, Technical Analysis
Posted on March 1st, 2010
by Rapid Forex
Now that you know the morning star candlestick pattern, it’s time to learn the evening star. The evening star is simply an “upside-down morning star.” If you can reverse the logic, you’ll immediately understand how an evening star works.
The partner of the morning star is the evening star, which forms at the end of an uptrend (it’s the top), potentially signaling a reversal into a downtrend.
An evening star formation, which includes three or more candles, is characterized by a larger bullish candle, followed by a small-bodied bullish or bearish candle (a spinning top or a doji), followed by a larger bearish candle.
In order to qualify as an evening star formation, the third bearish candle must close at 60% or more of the original bullish candle’s opening (counting the top of the middle candle as 0 and the opening price of the original bullish candle as 1).
The basic evening star consists of three candles and signals a reversal from an uptrend into a downtrend
As you can see in the image below, an evening star formation can consist of more than three candles.
A morning star may also form in more than three candles to signal the reversal o an uptrend
The defining characteristics are the initial larger bullish candle and a final larger bearish candle that closes at 60% or more of the initial bullish candle’s opening. In between those two candles can be a single doji or spinning top, or several.
Tip: You can confirm the evening star once the final bearish candle has formed.
If you identify an evening star and decide to trade it, sell at the opening of the candle that follows the evening star’s final bearish candle. Set your protective stop loss order at the last level of resistance (which will be the high of the evening star’s middle candle).
Trading evening stars can be particularly lucrative if you have a convergence (that is, the reversal implied by the evening star is further implied by a trendline or some other indicator).
Another cool candlestick pattern is the tweezer top candlestick pattern, which I’ll explain more about in the next rapid forex blog post by Brian Campbell.
Posted in
Japanese Candlesticks, Technical Analysis
Posted on February 28th, 2010
by Rapid Forex
Once you understand the anatomy of a Japanese candlestick, it’s time to start learning some candle signals. Certain candlesticks have names. By learning certain types of candlesticks, you can start to see patterns when the candlesticks appear in formations. By getting good at spotting these patterns, you’ll become a much more powerful trader!
A candlestick, when viewed alone, will tell you whether the bulls or the bears won that trading period. Each candlestick measures price fluctuations within a certain time frame.
Viewed together, candlesticks can alert you to potential trend reversals. There are two candlestick formations in particular that can be very useful tools for spotting coming reversals: the morning star (evening star) and the tweezer top (tweezer bottom).
Doji Candles
The Doji - Japanese Candlestick Signal
While the morning star (evening star) and tweezer top (tweezer bottom) formations indicate a trend reversal, individual candlesticks can also reveal important information about traders’ sentiment.
For example, a doji candle is a candle that has a very small body (or no body at all). This candle reveals that prices during the trading session vacillated between distinct highs and lows but closed at or very near the opening price.
The fact that the session closed at or near the opening price makes the doji candle’s body either extremely thin or nonexistent (in the case that the doji’s body is nonexistent you will see a horizontal line, reflecting the fact that the session opened and closed at the same price).
It makes sense that this candle reveals indecision on the part of traders: the bulls brought prices up during the session, and the bears brought them down, but neither team could really decide what it wanted to do, so in the end, prices closed near the open.
The Spinning Top - Japanese Candlestick Signal
Spinning Top Candles
A candle known as a spinning top also reveals indecision. A spinning top is very similar to a doji except that the spinning top candle’s body is somewhat larger than that of a doji (where there is perhaps no body at all).
Still, a spinning top’s body is small compared to its wicks (the length of the wicks make up 60% or more of the total candle’s length). The candle’s name is appropriate: with a small body and long upper and lower wicks, it looks like the spinning toys children play with.
A spinning top represents a near tie in the session’s tug-of-war between the bears and the bulls: each team managed to drag the market to high and low prices, but neither team could keep the market at the high or the low until close.
There are other patterns of Japanese candlesticks in forex price charts that you also need to be aware of. I’ll be discussing the most important ones in the next few blog posts!
Posted in
Japanese Candlesticks, Technical Analysis
Rapid Forex on 
Kulvadee on 
dan on 
Chris E on 
mario on