Posted on March 2nd, 2010
by Rapid Forex
By now you should start to be understanding a lot about japanese candlesticks and how to use them in patterns to trade. I’m continuing to explain these patterns to you so you become a proficient forex trader. Soon, I’ll be showing you how these patterns are used in actual trading, but you need the theory first.
The second candlestick pattern that can be a very useful tool in spotting potential trend reversals is the tweezer top (and it’s partner, the tweezer bottom).
The tweezer top formation, as its name suggests, reveals the end of an uptrend and the beginning of a downtrend (a top).
A tweezer top formation has the following characteristics: two or more candles (dojis or spinning tops) of roughly equal height with long upper wicks (the wicks must make up at least 60% of the entire candle). The two (or more) candles can be bullish, bearish, or a combination of both.
Notice how the top of the wicks align to form a tweezer top uptrend reversal signal
If you identify a tweezer top and decide to trade it, sell at the opening of the candle that follows the second high candle in the tweezer top formation.
Forex Tip: Set your protective stop loss order at the last level of resistance (which will be the tweezer top’s high).
As with any indicator, trading on a convergence increases the probability that you will profit from your trade. If you spot a tweezer top, look for the trendline break or another indicator to provide more reason to believe that the market is reversing.
Can you guess what’s coming next? The tweezer bottom is the upside-down version of the tweezer top. The more examples you see of these candlestick patterns, the more useful they will be to you.
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
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