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Today, I started my demo-candlestick tutorial in real time as promised. I bought 1 lot (100,000) USD against Yen at 91.04 at Advanced Currency Markets.
As I have discussed in my previous post, I took my general direction from the monthly Japanese Candle Stick Chart which showed a reversal pattern after a failed second test to break the historical low around 87.00 last month. What the monthly JPY chart showed me was a Bullish Ladder Bottom Formation happening after a failed breach of the 87 low - a very, very significant reversal signal!
In the above candlestick formation we see the dollar bears having a grand time buying the Yen against the dollar from September last year pushing the dollar down until December, 2008. This was the period when the financial crisis In the U.S. was at its height, mortgage defaults were widespread and more troubled banking institutions were closing or about to close, and recession finally took hold of the U.S. economy. As the recession spread and became global, the economies of the other major countries also faltered and their currencies weakened. This has sort of stopped the dollar from making a continuing free fall since everyone else found themselves in the same predicament as the U.S. dollar.
As each government scrambled to implement their economic stimulus package to get out of recession at the start of 2009, dollar bears became wary and hesitated at the approach of the historical low of 87.00. The candlestick shows them taking profits at that level as can be gleaned from the "Shooting Star" candle formed for January, 2009. The small body of the January candle signifies some hesitation among the market players, specially the dollar bears to push the dollar further down. The long tail of this particular candle which reached the 87 level further confirmed the dollar bears' hesitation as the tail shows that the bears themselves started taking profits at that level and pushed the price back up and closed at almost the same price as the opening resulting in a short candle body and the star formation.
This month's candle body is turning out to be the confirmation of the reversal pattern (The Bullish Bottom Ladder) which we can see in the above illustration. It will be wishful thinking to expect that this month's candle will really confirm this without any basis. However, everyone else is expecting President Obama's revised economic stimulus to be finally passed by the Senate. We also expect the Fed to finally implement its aggressive plan to rehabilitate and prop up the banking institutions. Every dollar bull is now looking forward to seeing "the light at the end of the tunnel" and the candlestick tells us it might just as well happen. Expect the week to be volatile with jobless claims for Europe and the U.S. to be released. The Fed chairman is also slated to meet with the Senate this week.
My Trading Plan- Buy the dollar against the Yen at around 91.00 or lower.
91.00 is the immediate line of support on the daily chart and it is likely to be tested during the Asian session. ( It did and I bought the dollar at 91.04!)
My near term objective is to take profits at the nearest resistance which is at 92.25. I have set my stop at 90.38 which is the mid-point of last Thursday's candle body which is also the nearest most significant candle body that must be used as reference.
For a longer term scenario, a test of the 93.00 is likely to happen and a breach of which will warrant a climb to the 110 level.
Notes: The Bullish Bottom Ladder Pattern
The shorts may have a chance to close their positions and realize their profits by the fourth day of a considerable downtrend. Then we see an upward gap on the fifth day as a result of this. If the body of the fifth day is long, or the volume of trading is high, this may also imply a bullish reversal.
There is a considerable downtrend for some time and the bears are happy. Then we see a good move downward. Prices start trading above the opening price and almost reaching to the new high of the previous day, but then they close at another new low. This action is a warning for shorts telling them that the market will not go down forever. The shorts may then be forced to reevaluate their positions and they may start closing their positions on the next day if profits are good. This act is the reason behind the upward gap we see on the last day of the pattern and also the close is considerably higher. If volume is high on the last day, a trend reversal has probably occurred.