Currency Analysis

[james_gsx 16]

Alright we have a great DJIA candlestick thread and the CL thread is starting to take off and they are both proving to be very good educational tools.

 

Unfortunately there is more to trading than the YM, ES, NQ, etc. During the current economic situation I think it is very important to take a look at the whole picture including the USD, Euro, GDP, AUD, etc.

 

After the latest interest rate drops by the Fed the dollar took a huge hit. We are hitting lows that we haven't tested in over 11 years and things IMO are going to get much worse.

 

Today I am not including a daily or weekly chart of the USD but a monthly chart. Reason being, I think it's more potent right now. From the swing high/low from roughly 1996 to 2001/2002 our next stop would place the $DXY at 62.. quite the drop from where we are now.

 

The Euro on the other hand looks strong on a weekly chart. If you are in a long position I see no reason to exit the trade now. We are hitting psychological resistance but I don't believe that will hold for much longer.

 

P.S - I apologize for the bright Fib colors on the white background, I just did this analysis quickly so I could print it and didn't think about it at the time.

[brownsfan019 17]

James,

Here's my take on the 6E/EC:

 

 

 

 

As you can see, we have a candle cluster at #1, right at a s/r level. There's 3 or so hammers there to take a long. If we go long on #1, we have to be conscious of the overhead resistance, which we then see breaks through.

 

#2 is a more conservative trade where you wait for that level to break and then enter on the hammer. As you see later, the new support (old resistance) level was tested 3 times and then bam - the upmove you want when long.

 

So, in hindsight, should be long at least at #2 and possibly #1 as well. Good trades there and nice $$$$.

[james_gsx 16]

The Euro and USD caught my eye on the weekly chart, this appears to be a hanging man on the Euro and an inverted hammer on the USD. I know you would normally want to go short EUR if you get the right confirmation for your trading plan, but would you also want to go long the USD? And also, could this give any type of guidance to the Feds move this week? I remember reading in Nisons books that dojis don't play as big of an influence in a downtrend compared to an uptrend, but is that the same with inverted hammers?

[TinGull 10]

[brownsfan019 17]

James,

STOP TRYING TO SHORT HAMMERS.

 

Hammers are not reasons to short, at least in the sense you are using them here. That's a topic for discussion WAY down the road.

 

Your candle trading checklist should be:

1) Identify pattern, if any.

2) Is it bullish or bearish?

3) Bullish = possible buy; Bearish = possible short.

4) Run your S/R levels and see if the Risk/Reward works.

 

Let's start there.

 

So in this example, we found a hammer = bullish. We cannot short a bullish pattern, that defeats the purpose of using candlestick analysis. There could be more here, but I have to run, so I'll check in later tonight or tomorrow.

 

Let's just start with identifying whether the candle pattern is BULLISH or BEARISH. And for now, if you say BULLISH you CANNOT short based on that analysis.

 

OK?

 

[james_gsx 16]

How is that a hammer if it's at the top of the trend? I understand that it would need bearish confirmation, and I'm not looking to short anything at all - sorry if I worded that wrong.

 

But I'm still confused how that's a hammer and not a hanging man.

[brownsfan019 17]

How is that a hammer if it's at the top of the trend? I understand that it would need bearish confirmation, and I'm not looking to short anything at all - sorry if I worded that wrong.

 

But I'm still confused how that's a hammer and not a hanging man.

 

I think it's a matter of semantics. Your screenshot says hammer, so I interrupted that as you think there is bullish price action. If that is a hammer, then we cannot short.

 

From stockcharts.com, the hanging man says: The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

 

Here's my interpretation, which is different than your standard candlestick definitions - I see a bullish hammer. Yes, by the book, a hammer at the top of a move is a 'hanging man' and while I 'get it', I don't like it.

 

What I mean is, a hammer is a hammer is a hammer to me. Now there's a big difference between a hammer that you ACT on and a hammer that you IGNORE. You simply cannot play any hammer you see for the sake of playing the hammer.

 

So, in your example here, I would consider a short on this 'hanging man' that resembles a bullish hammer as aggressive. Some sort of bearish confirmation would help any bearish sentiment and I would go so far as to say that I would want to see a bearish candle signal before considering a short here.

 

I apologize for the misunderstanding. I saw hammer and immediately thought there's no way to short a hammer, at least in any way that I've ever traded them.

[brownsfan019 17]

Taking a look back at the EC....

 

(I am really scratching my head here lately on how I don't just trade these daily moves... :doh: )

 

 

 

[james_gsx 16]

So something better would be to wait for confirmation, this would be a better hammer to play on if there was acting resistance around that price level. This could signal a brief consolidation, but nothing to go short on because of the strong rally. Otherwise, don't go short because the chart is overall very bullish.

[brownsfan019 17]

So something better would be to wait for confirmation, this would be a better hammer to play on if there was acting resistance around that price level. This could signal a brief consolidation, but nothing to go short on because of the strong rally. Otherwise, don't go short because the chart is overall very bullish.

 

Yes, I would have trouble shorting a hammer. The formation may be a hanging man, but I have a really hard time seeing that as bearish. To me, it says the bears tried to push it down and the bulls ran it right back up. I suppose you could consider shorting a hammer/hanging man right at a resistance level, but I do not play those so no idea of the reliability. You could be onto something here, but make sure you do plenty of homework.

[mister ed 10]

The formation may be a hanging man, but I have a really hard time seeing that as bearish. To me, it says the bears tried to push it down and the bulls ran it right back up.

 

I'm late to this party sorry, hope the contribution is useful.

 

I looked up the hanging man in Nison's first book and sure enough he says that if the hanging man occurs after a rally the move "may be ending". I must say I much prefer BF's interpretation - the bears trying to pushing it down and it bouncing right back at them.

 

I have attached a diagram.

[brownsfan019 17]

I'm late to this party sorry, hope the contribution is useful.

 

I looked up the hanging man in Nison's first book and sure enough he says that if the hanging man occurs after a rally the move "may be ending". I must say I much prefer BF's interpretation - the bears trying to pushing it down and it bouncing right back at them.

 

I have attached a diagram.

 

That's what I love about candlestick analysis MisterEd - while Nison is credited with bringing it to the west, I think some things are open to interpretation of the end user.