Friday, February 6, 2009


TOKYO - MARCH 17:  Traders monitor stocks at G...Image by Getty Images via Daylife

At last, after almost two months on hiatus, I am back to my writing and trading days. From my post election trauma to the expected election aftermath, I found it best to shy away from all the hullabaloo going on around me and find a quiet place to spend the holidays all by myself!

And now that I am back, I decided to go on and write about the Japanese Candle Stick charting technique as promised. Much more than that, I decided to do a demo spot currency trading as I blog about the Japanese Candlestick charting technique. In short, I will not only be writing about candlesticks in theory (as a lecturer would to his students or a book author to his readers), but rather, I will be progressively writing about the Japanese candlesticks as I use them in actual, real time trading.

This blog will be the first in a series of daily trading updates using the candlesticks. I shall be documenting every market move I will make using the simple rules I adopted through the past years as a candlestick trader. I shall explain every step of the way what move I will be making at different price levels, why I will be making such moves, what fallback positions I shall be laying out, what objectives I shall be aiming at, and how I shall set my trading directions.
For those who really want to find out if the technique works, I suggest you do the same and open up a demo account with any online broker. I am sure you will end up a better trader after our hands-on trading/training experience together. The best thing about it is that it will cost you nothing. We will not always be able to call the correct trades since the market has always been unpredictable even to the most experienced trader. However, we will learn how to wiggle out of tight situations and learn how we can still end up on the profit side.

It is fortunate that I am starting this candlestick blog series on a Friday since I normally won't initiate trading positions going into the weekend, for several good reasons. First, Fridays are often shrouded with unpredictable price swings. [People normally square off positions on Fridays since leaving open positions on this day would cost you money on roll-over interests for two non-trading days while holding on to your currency contracts over the weekend. This in turn often translate into more volatility in the market.] Second, there are 'position traders' (usually big market players) who may want to preempt next week's market moves and may take advantage of establishing positions towards Friday's market closing, not minding the rollover interest concerns just so they can establish a vantage trading position. [It will be to our advantage if they make this move first and we act after a confirmation of the same.] Third, I can take the time to discuss with you the basics of trading the different candlestick patterns in the next three days and prepare us for the actual trading on Monday.

To start off, let me point out that Japanese Candlestick Charts are mere trading tools, and they
Candlestick chart of EURUSDImage via Wikipedia
DO NOT MOVE MARKETS. Like a compass to an explorer, candlestick charts merely gives us the general direction the market is headed. It may be grouped with other technical analysis tools commonly used by Western-educated traders, but with a big twist.

While technical analysis tools and mathematical models were developed in the West (wishfully) to strike out the influence of personal emotions and retain objectivity while making those buy or sell trading decisions, the Japanese Candle Charts were developed to capture these very same emotions and vividly present them in a manner that one can easily discern the underlying collective emotional factor behind each market movement.

It is quite ironic to note that even up to this day, traders using technical analysis tools developed in the West still make themselves believe that they will be more objective in reaching trading decisions using these tools, when in truth and in fact, after all the analysis is done, after all the fundamentals have been digested, traders still rely on their own instincts when they finally push that button, or make that call to buy or sell a contract! - I have always argued that no trader can escape the influence of his own emotions come decision making time. - I have always pointed out that for every market move, major or minor, it is driven by the greed, or fear, or nervousness, or eager anticipation of the market players. There is no escaping that!

This is exactly what is captured and conveyed to us vividly by the candlestick charts...the indecisiveness or sometimes nervousness of the market players during troubled times; their confidence, sometimes bordering on greed in a bull run; their fears and apprehensions during bear market crashes!

And this is what makes the candlesticks an effective tool for me in making my own trading decisions.

When demand  D 1   is in effect, the price wil...Image via Wikipedia
As a trader, never pretend to be an expert in economics and project future price movements according to how you view existing fundamentals will tilt the balance between supply and demand. Leave the the economic analysis to the economic experts and let the big market players preempt future trends. It is enough that you understand how fundamentals influence the supply and demand equation. It is enough that you take a free ride in a trend set by the major market players. You may not maximize earnings in any of the market trends, but you will minimize your risk and gain consistent profits. Candlesticks will help you achieve this as they will tell you exactly what the market wants to do or wants not to do!

My next blog will be a discussion on what the candlesticks are telling me about the currency markets!

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