Candlesticks, butdon’t stick to candlesANOTHER REAL LIFE EXAMPLE ON HOW THESE SIMPLE PATTERNS WARN FOR REVERSALS, BUT REQUIRE OTHER TOOLS TO BE TRADED
Oct4th, 05:12 AM UTC, Spot NZD/JPY 74.50 AUD/JPY 78.40A mention on my daily comment that the Yen rally is about to reverse, why:
NZD/JPY 4Oct16, 74.50The last quarterly candlestick is a doji, and the last pair of candles complete a harami too, both bullish reversal patterns in a down trend
Look what followed the next 2 monthsFrom 74.50 Oct4th, + 9.4 % onto 81.51 Dec5th. Before doing so however it lost 2.4 % to 72.74 Oct11th. This is why we also need different techniques on different time horizons.
After Oct4th, the 1st drop to take place a week laterallowed drawing the 3rd point to confirm the up trend line. Although it went slightly below the trend line (72.74 vs 72.83 = 0.12 %), it left the previous low (72.65) and hence the up trend itself intact. The next drop on Nov9th (US election volatility) did not even threaten the up trend line.
NZD/JPY Daily chart
AUD/JPY 4Oct16, 78.40The last quarterly candlestick is a doji, bullish reversal pattern in a down trend
Look what followed the next 2 monthsFrom 78.40 Oct4th, + 9.1 % onto 85.54 Dec5th. Before doing so however it lost 2 % to 76.80 Nov9th. This is why we also need different techniques on different time horizons.
After Oct4th, the 1st drop took place on Nov9thHere the up trend line had already been confirmed with a 3rd low when it was challenged with the volatility the day following US presidential election. Even if the low took place below the trend line (76.80 vs 77.05 = 0.32 % away) the previous low (76.19) was not broken, and consequently neither the up trend.
AUD/JPY Daily chart
What we learn from this :To profit from such moves:1) Take the global picture, then zoom in (quarterly to daily here)2) Combine different techniques (candles and basics here)3) The basic tenets are always valid (definition of an up trend here: higher highs + higher lows)
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