This blog used to be a haven for forex traders and online investors. It will now contain my political views and opinions about the current state of affairs in my country the Philippines from here on. Please feel free to comment on my posts.
Investing online is a matter of choice ...and, of course, of convenience too!
The lure of trying one's hands on investing is simply irresistible! This is why we see a lot of first time investors trying it incognito via online brokers. Newbies who had always wanted to test their skills at handling their own investments are often the ones easily attracted
to online investing. Most of whom are individuals who have suddenly acquired some excess capital from a booming start-up business undertaking, or a blooming professional career. These people find online investing to be a "perfect fit" for their "dreamed fantasy". Well, why not? Not only does online investing allow them to manage their own investments in the comforts and confidentiality of their own abodes, it is also quick and easy (so it seems) to learn! With their first click on the mouse, newbies immediately experience an exhilarating transformation into their fancied and fantasized role of becoming a real stock or forex traders in that instant; executing orders at will while experiencing the thrill of pitting their own raw trading skills against seasoned money/stock traders online. With hundreds of sites offering free tutorial services, seminars, and e-books, plus a free live demo account to boot, online forex/stock trading is really catching fire with this lot of trader-wanna-bees! But, alas, these "George Soros Wannabees" should not fool themselves into believing that online investing (especially forex with its sometimes wild and wide price fluctuations) will be like "picking apples" all the time.
“E” is For Ego – The Biggest Stumbling Block of Most Forex Traders
Making money on online Forex Trading is actually easy! It is only the forex traders themselves who makes it rather difficult and complicated to win trades.
Consider this!
To make money trading the foreign exchange market, there are only 5 basic and simple rules to follow! All of which are quite easy to understand.
One needs only to:
1. Buy low, sell high.
2. Let profits run, cut losses quickly.
3. Add to a winning position, never to a losing one.
4. Go with the trend. (Don’t buck it!)
However, simple though, the above rules may seem to many, most forex traders I’ve known still continue to lose money on forex!
Instead of buying low and selling high, many forex traders find themselves buying high and selling low instead! In fact, a lot of them jump into the market for the wrong reasons.
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(OR, WHY THE SOONER ONE TAKES THE MIND SET OF A PRO POKER PLAYER, THE CLOSER HE GETS TO BECOMING A SUCCESS IN FOREX TRADING!)
Ever since I started out as a forex trader in 1985, I have been taught to draw a clear line between forex as a legitimate investment instrument and other forms of gambling like poker games!
When I myself became a trainor and trained neophyte forex traders in the late 90's, I always made it a point to make sure that each one of my trainees understood the reason why forex, in stark contrast to poker, can not and should not be considered as a form of gambling!
Poker and all other forms of gambling are games of chance... devised by man... purposely and solely for players to play the odds (or take the risk) by placing a bet - - - in the hope of landing a winning hand to be able to pocket the pot.
In contrast, forex trading is not a purposely concocted game of chance!
One of the features which attract investors to spot currency trading is the fact that it is done through a margin trading system which allows investors to maximize the returns for their investments. For example, under the margin trading system, a trader with just a $5,000 deposited in his account can buy or sell up to $500,000 worth of currency contracts. Let us examine how this is possible.
According to wikipedia, ' a margin is a collateral that the holder of a position in securities, options, or futures contracts has to deposit to cover the credit risk of his counterparty (most often his broker).
In online spot currency trading, the buying and selling of currencies are done in tranches or by lots of $100,000 each. When a trader opens an account with a broker, his initial margin deposit serves as a collateral to cover future losses which the trader may incur in the course of his trading activities. In exchange for the margin deposit, the broker extends a credit line to the trader equivalent to 100 times his margin deposit (200x for other brokers). The trader can then trade up to 5 lots or $500,000 worth of currencies. Profits and losses are computed based on the number of lots the trader has bought or sold.
9Professional Trading Tips You Need To Know! (From eToro)
To help you get more out of your trades we've put together a few insights to help you avoid the common trading mistakes people make when they start trading Forex. Taking just a few minutes to read through this list could help you learn to sidestep crucial trading errors which can stand in the way of your trading success and cost you money.
1.Accept that a part of successful trading is knowing when to cut your losses.Every trader sees the market go against them sometimes. Successful traders know that profits are achieved by owning up to your mistakes quickly in order to keep your losses in check. Dropping your failed trades will free you to focus your attention on looking for the next successful trade to let run.
2.Focus on money management. Only enter a trade once you know how much of your margin you are willing to risk from the trade and how much you're hoping to profit. Figuring out this calculation will help you develop your very own risk/reward ratio for your trade, the first step in a successful trading plan. Over time, the difference between successful traders and unsuccessful ones is that the former always enter the market with a trading plan and the latter never do.
3. Take personal responsibility for your trades. Great traders accept personal responsibility for everything they do. Remember that you're the one who is pulling the trigger. Great traders know that they are responsible for all the trades they make, either good or bad. Blaming the market or bad luck can cause a trader to lose focus on their ability to learn from their trading errors and apply their lessons to improve their trading in the future.
4. Don't become greedy. When traders have an open trade that is making them profit they often forget their pre-determined target for the trade, as they are sure that the trade will continue to make them profits. Remember that the markets are dynamic and that no trend lasts forever. If the price reaches your target, bank the profits or move your stop-loss forward to prevent a loss.
Most of the really dramatic moves in the Forex market occur around important news events. Trading volume increases in advance of news releases and the resulting moves are normally significant: allowing traders to grab pips from rapid market movements. News-traders will often make only one trade a day due to the large potential profits involved by correctly trading important news releases.
7.Never trade on wishful thinking. If you place a trade and it's not working out for you, get out! Don't compound your mistake by staying in and hoping for a reversal.
8.Psychological Factor. Uncontrolled emotions are the number one cause of trading losses. Don't let your emotions sway you, stick to your trading plan and remember to set (and stick to) your Stop Loss orders
9.The Trend is Your Friend" -When trading in the direction of a trend you're trading with the majority in the Forex market. As a result you're trading results will generally improve.
Follow these guidelines and you should start to see an improvement in your trades immediately. But remember, the key to becoming a successful trader is discipline and the ability to stick to a set of rules.
The dollar has remained well bid against yen with the February candle forming a decisive confirmation of reversal pattern with a close above 97.50. The USDJPY is however showing a possible short term rebuff of the uptrend, as the February 27 candle has formed some sort of a Dark Cloud Cover signifying a market weakness and a possible near term slide.
I have however some misgivings about this since on the daily candlestick chart, the February 27 candle was an end of the month candle and had a long tail downwards which touched support at 96.55. Being an end of the month candle, the February candle tells us that some book squaring may have occurred last Friday which pushed the price to the 96.55 low. The dollar however recovered after that to close at 97.50 although way off the day's high and opening price. What it tells us is that there were traders who took the dollar's dip to 96.55 as an opportunity to buy into the dollar against yen once more.
I see the dollar running sideways in the early part of March, maintaining an effective range of 96.55 on the low end and 98.75 on the high. I still maintain that the bullish outlook for the dollar is intact and it will be targeting the 108.00 level before a major pullback can be expected again.
Next week, we will see the unemployment numbers once more. I doubt though that the market will even pay attention to them or simply shrug them off, and taking the dips caused by unimpressive future data as buying opportunities. At worst, unimpressive employment numbers will only drive the dollar sideways against the yen. Also next week, we will see treasury secretary Geithner testify on the treasury's massive budget. But again, the market will not look at the numbers, but will instead weigh President Obama's financial dream team's resolve to turn around the economy.
The Usd bullish momentum was tempered slightly in the Asian session and we expect this theme to continue thru the day. The EurUsd traded back up to 1.2595, after trading to a 1.2529 session low, while the USDJPY has also come off its 93.96 high to trade around 93.40. Asian indexes are continuing their US lead, with Nikkei currently up 0.33%. The Gold surge carries on, with prices breaking previous resistance levels and holding at $975oz. ETF buying provided strong momentum to the upside, putting the $1000oz closer in sight. Despite the temporary pullback in FX themes today we expect the Usd will continue to appreciate mid term.
In US news, within yesterday’s FOMC minutes was the Fed announcement of new longer-term economic projections, which included a long-term inflation goal of 1.7 - 2.0%.The inflation goal is a clear move towards inflation targeting.
Yesterday’s BoE minutes revealed that the BoE decision to cut rates by 50bp at its February meeting was approved by a vote of 8 - 1. Again, the lone dissenter, Blanchflower, who is expected to retire in May, voted in favor of a 100bp cut.
As expected, the BoJ held rates steady at 0.10%. The Jpy continues to lose ground against the Usd, as political instability threatens market perception of the government’s ability to navigate in this challenging global and domestic economic environment. Ex-Finance Minister Nakagawa's resignation following the G7 debacle, was just another confidence eroding event in Prime Minister Aso troubled tenure. We are cautious in pursuing recent Jpy weakness due to historical safe have status. However we will be watching for any opportunity to build short Jpy positions.
Yes, this is the kind of profit you can gain from trading currencies on line - $3,800 profit on an initial capital of only $5,000 in just 7 days! (And, this is still conservative compared to the trading records of some experienced traders!
In my instructional demo trading using the Japanese Candlestick Charts, I bought 1 lot (worth $100,000) of Japanese Yen at 90.11 last February 11, 2009. (How this is possible will be the topic of my next blog!)
Our objective of 93.55 has been reached and so I will liquidate my position at this level before the U.S. market closes today. I will publish the actual profit I made on my next update tomorrow. (At the price levels of USD-JPY as of this writing (93.60), my profit stands at $3,600!)
This is how effective the Japanese Candlestick charting technique is on spot currency trading. Although, the candlestick chart has not shown me any sign that the dollar may pullback, I will just the same square off my position and actualize profit for now.
The dollar may pull back a little in tomorrow's early Asian trading so, I look forward to re-establishing my buy position then. If you have questions, comments, or suggestions, please feel free to post it below. Just click on the 'comments' text link at the bottom of this post and a comment form will pop up for your use. Or, you may use my yahoo messenger at the side bar if I happen to be available at the time you read this post! Watch out for more of my instructional trading updates.
With the U.S. markets closed for the 'President's Day' yesterday, the currency market was nothing but boring ! Trading was limited to a narrow range of only 50 pips between the high and low.
Early in today's Asian session, traders were already anticipating the re-opening of the U.S. markets and are picking up from where they left off last Friday with a slight bias for the U.S. currency.
USDYEN has already broken our 92.05 reference point in early Asian trading and is now poised to break the 92.30 which is the next resistance point. Although our initial profit objective (set at 92.05) has been reached, we will still hold on to our position for an anticipated assault on 92.30. A clear break above this level will again warrant us to continue to hold on to our current position established at 90.11 on February 11, 2009.
USDYEN needs to close above 93.55 this month to retain it's bullish dollar outlook on the monthly candlestick chart and to confirm the Bullish Bottom Ladder Pattern. If the 92.30 level is breached (which I believe is likely to happen towards the opening European session today), then it is likely to test the 93.55 month end objective.
We currently have a floating profit of $2400 from our open position and we shall adjust our stop higher to 91.11 to protect our profits in case the market retraces below 91 again.
I summarized my near term dollar outlook for the weekend with an update of my demo trading.
I made it into an online presentation made possible through ZOHO SHOW, a beatiful website offering a lot of online website services for free. (Visit the site at http://zoho.com/.)
Click on the enlarge icon at the bottom of the frame above to view the presentation in full screen mode.
Please feel free to send me your comments, questions, or whatever suggestions you may have. Click the comment button below to post your comment or chat with me through my Yahoo
Both the USD JPY Monthly and Daily Charts are now clearly showing key reversal patterns with the daily chart poised to break the initial resistance at 92.08. A break of the 92.08 level looks up to 93.55 as next target.
On the monthly candlestick chart, the U.S. Dollar needs to close above 93.55 by the end of the month to confirm the reversal formed from October, 2008 to January 2009. As the confirmation candle, February needs to close above the 93.55 level which is the midpoint of December, 2008 candle which now serves as our reference point for this month's trading.
Over-all, the candlestick chart is showing market expectations for a dollar surge near term against the majors. With every one at G7 having crafted their respective economic stimulus packages, the market will be watching who can rev up their economy first. This will be a race to get out of recession with cards slightly favoring the U.S.
My demo trading update: I re-established a buy at 90.18 yesterday. Maintaining my stop at 88.50 with an immediate near term target to take profit at the failure of 92.08!
My trading stop was triggered at 90.30 during the early Asian trading!
Our initial over-all outlook however, has remained bullish for the dollar. Yen has remained range bound with the 90.00 level currently holding solid for now. I look to re-establishing a buy position at this level if it holds just before the U.S. Market opens today.
There are peculiar aspects inherent in spot currency trading that a forex trader has to contend with and which were evident in our first trade. One of which is the fact that online currency trading is a 24 hour activity which starts Sunday 22h00CET and ends Friday23h00CET. This means that if you leave positions open overnight (open at the close of U.S. trading), you must be ready to experience the low volume trading during the Australian and Asian trading hours, which is characterized by peculiar market moves and does not necessarily reflect the true sentiment of the market players in general. The true sentiment of the market starts to rear its head when European trading commences and becomes more distinct just before the U.S. market opens.
In short, in a very volatile market such as one which is seeking a bottom as in the case of USDYEN, price may range from a hundred to two hundred points between its highs and lows for the day; while the range between the opening price(Australian open) and closing price (U.S. closing) is narrow forming a short candle body (like a shooting star). If you are doing leveraged trading (margin trading), a movement of such magnitude against your position can force you out of the market unnecessarily before it resumes favorably in your direction. I have seen this happen often in my more than twenty years of trading currencies.
There are three ways by which micro account holders (those with $5,000 or less capital) can avoid this situation. One, he can choose to square all his positions at the close of the U.S. Market. Two, he can deposit additional capital before the U.S. market closes. And third, he can simply avoid a situation like this by opening a bigger account from the onset.
In my case, I left my position open at the close of the U.S. market yesterday (at 91.28 and I was still earning). When I turned on my computer again at about the time the Tokyo market opened, the price was already at 90.28 and my stop was automatically triggered causing me to actualize the loss.
It was both good and bad! Good because the stop limited my loss from further increasing as the price went further down to 89.94 before going up back to its current level of 90.08. Bad, because now I am looking forward to re-establishing my position to buy in again but with an impaired capital and in a very volatile market at that. This is basically where the risk of leveraged trading (margin trading) lies. An impaired capital(due to a prior loss) limits your effective trading range since you will be trading closer to your cut point, your margin call point. In online trading, the broker will automatically liquidate your position at a loss when the margin call point is reached without giving prior notice to you. An impaired capital can turn you to a very emotional trader unless you have a trading system you are following.
This leads me to another point which I want to bring up. One of the many things a forex trader can do when the market moves against his current position is to lock his position. This entails establishing a new trade which is opposite your already established position. For example, as in my case, I bought the dollar against the yen at 91.14 and when the price broke 91.00, I could have sold the equivalent amount of dollar against yen without liquidating my previously established buy position. This will effectively freeze everything and no additional loss will be incurred. From this point on, and where ever the market goes, whatever either one of the position losses the other gains back. This is an effective technique that you can use when you get caught in a sticky situation or when suddenly you find yourself in a totally different playing field.... when economic fundamentals turn out to be not as expected or when unforeseen developments occur. After the dust has cleared and the candlesticks is ready to resume its course, you can liquidate the position used to lock the original position at a profit. And when the market has recovered, you can now liquidate the original position at a profit.
MY OUTLOOK FOR THE DOLLAR AGAINST YEN HAS REMAINED BULLISH!
The monthly USDYEN candlestick chart still shows a bullish reversal pattern which is initially targeted at 92.40. Any dollar bull like me will just have to contend with a possible re-test of the 87.00 level in the near term.
The daily candlestick chart is also showing that players are hesitant to push the prices further down. A breach of 89.42 on the daily chart will warrant a re-test of the 87 lows.
Buying in at the current levels of 90.05 is recommended before the U.S. Market opens. The risk factor remains at 89.42. The worst case scenario for this recomendation is a 63 pip loss!
Forex - U.S drops ‘Bad Bank’ idea, while the Russian debt renegotiation allegation rattles risk sentiment – Euro declines.
Forex News and Events: FEBRUARY 10, 2009
The Euro declines against the dollar and the yen after Russian banks ask its government to mediate talks with foreign creditors on the issue of $400Bn – the market reads this as a tell tale sign the situation in Europe is worsening – meanwhile the U.S is finalizing a financial stimulus plan. Overnight the EURUSD traded from a high of 1.2902 to a low of 1.2810. A plethora of news saw the Euro drop and give away yesterday’s gains.
The USDJPY traded a range from a high of 91.67 to a low of 91.23 – the pair witnessed heightened volatility as risk sentiment drove the dollar lower on the news the “bad bank” idea had been scrapped. Further delays in the financial stimulus plan (which the Senate has managed to cap at $800Bn) don’t seem to be a problem for the Greenback’s continued advance as risk aversion remains central theme to the currency’s price action.
The main focus today is how the markets digest Treasury Secretary Geithner’s remarks and description of the revamped TARP – to be named the “Financial Stability Plan”. The plan, which so far won’t seek additional government money, is designed to support about $1.5 trillion in new lending and handling of distressed assets. The plan will also drop the “bad bank” proposal which consisted of buying all toxic assets from distressed institutions. It has three main components: more capital for banks, financing for as much as $1 trillion of consumer and business loans, and public financing for investors willing to buy the distressed assets. The announcement is due at 11:00 EST (16:00 CET).
The Risk Today:
EurUsdThe Euro continues to feel the considerable pressure as recent decline shows that ephemeral Euro strength is unsustainable. The 1.2953, 50.00% retracement from yesterday’s 1.3095 – 1.2810 decline remains initial resistance, then 1.2973 if Euro holds strong and breaks current dollar domination. Focus on the downside sees initial support at 1.2878 and strong support at 1.2811 in the near term – A break through this level would see doors wide open for 1.2748 then 1.2707 (Feb 2nd low).
UsdJpyNews developments during Early Asian session has seen the pair trade a very volatile 90.90 – 91.80 range, with the Yen extending gains from Sunday’s culmination at 92.39. Initial support sits at 90.74 (Feb 6th low). Further dollar weakness and risk aversion could see the yen fight back and regain 89.56 levels (Start of Feb 5th move) – this would be exacerbated by a dollar bull in the form of a solid economic stimulus plan to be announced could see a retest of 88.83. This decoupling (risk aversion) of the pair with regards to the usual dollar dynamic would see a dollar bear signal push the pair higher – initial resistance at 91.80, small target at 92.43 if impetus and news suffice to sustain overselling of the Yen.
Today's Key Issues (time in GMT): 08:15 CHF Swiss CPI (MoM) -0.8% vs -0.4% 08:15 CHF Swiss CPI (YoY) 0.1% vs 0.6% 09:30 GBP Visible Trade balance -8’100 vs -8’330 09:30 GBP Total Trade balance -4’250 vs -4478 09:30 GBP Trade balance Non-Eu -4’800 vs -5304 15:00 USD Wholesale inventories (DEC) –0.7% vs -0.6% 15:00 USD Treasury Geithner Testifies on TARP at senate panel 18:00 USD Bernanke Testifies on Fed Programs at house panel 22:00 USD ABC Consumer Confidence (FEB8) -52 vs -52 23:30 AUD Westpac Consumer confidence (FEB)
I saw my profit go up to around $754 towards the close of the U.S. market yesterday and saw it shrink to zero in today's early trading in Asia. In fact, USDJPY retested the 91.00 support level. Currently, I am still up $450 at the current levels of 91.32.
A weakness in the daily chart seemed to have formed at the current price levels. A pattern similar to an "Evening Star" has formed on the daily chart (see the figure below).
As I have discussed in my previous post, for the market direction, I always take my cue from the monthly candlestick charts as a general rule. Although the above candlestick pattern formed in the last three trading days shows a possible reversal pattern, I consider this merely as a sign of a market weakness in the current market direction (uptrend), and does not warrant any action to be taken. Besides, the reversal of the USD downtrend in the monthly candlestick chart has remained intact.
Today's trading will be very volatile as the market anticipates important developments on Obama's bailout plan and the U.S. Fed's announcement on it's rescue plan for the banking institution. The jobless claims numbers may also add up to today's volatility.
I shall be holding on to my current position and will maintain my stop as well as my objective.
Please feel free to send your comments or questions regarding any of my posts.
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.
The only online broker with a presence in four continents and the first to be ISO certified, Advanced Currency Markets is by far one of the most reliable online forex broker.
ACM is regulated by the Swiss Federal Department of Finance and has more than $20M capitalization and a $100B monthly volume to boot. It boasts of being the first to have four trading platforms which are all user-friendly and are powered by Flash Technology which allows you to access your sessions from anywhere without having to download anything at all. You are even able to trade online via your mobile phone.
Formed in 2002, ACM is now the second largest online broker in the world. Apart from reliability and integrity, ACM provides the online investors exceptional benefits which is by far unequaled in the industry. For one, their spreads are as low as 1 pip and they charge no commission at all. And when you trade, there are no slippages or re-quotes which are quite annoying and a normal occurrence in other platforms of other online brokers. Their in house analyst is regularly featured by CNBC News for his valuable currency opinions and insights.
I have chosen ACM for my demo trading. I recomend you try it too.
BASIC ASSUMPTIONS ON THE USE OF CANDLESTICKS ON SPOT CURRENCY TRADING
USD AGAINST THE MAJORS
There is no doubt that the currency market still regards the USD as the currency to contend with. The bulk of the volume traded in the spot currency market worldwide is still concentrated in the buying or selling of the majors against the USD. This actually simplifies the task for us since we only need to track the rise or fall of the dollar, resulting from the strengthening or the decline of the U.S. economy relative to the economies of the four majors. More often than not, the strengthening of the U.S. economy is often accompanied by the appreciation of the dollar against the majors in varying degrees and conversely, the decline of the U.S. economy is usually followed by the depreciation of the dollar against the majors.
THE TELLTALE SIGNS WE SHOULD BE LOOKING FOR
Similar to all the other technical analysis tools, we also use the candle sticks to determine strengths and weaknesses in market movements. The candlesticks will be our road signs which will tell us whether a market is trending in a particular direction or not, whether a particular trend is about to end, whether a particular trend has been reversed. In short, Japanese Candlestick charts also have their own reversal patterns, patterns that show a continuance of a trend, patterns that warn us of a weakening market movement.
When I first lectured on the Japanese Candlestick Charts to a group of investors in San Francisco in 1990 the seminar participants never failed to laugh as I mentioned the names of the different candlestick patterns. For example, when I discussed the "Harami" which is basically the "inside day" formation on the Western Charts (where the current price traded in a very narrow range and well inside the range of opening and closing prices of the previous session), my audience had a big laugh when I explained that the Japanese word meant "pregnant woman". You may find the names of the candlestick patterns very amusing and at times very traditional but they vividly express the underlying collective sentiment of the market players at the time the particular pattern was formed. The basic candlestick patterns include such names as "Shooting Star", Evening Star", "Morning Star", "Hammer", "Dark Cloud Cover", Dragon Fly", and many more seemingly simplistic terms.
The success of the Japanese Candlestick charting technique lies in this simplistic pattern recognition. The "Evening star" carries the connotation of a reversal of a bull run, happening as it is after an extended uptrend. The star is basically characterized by a narrow trading range where the opening price is almost the same as the closing price.
I Shall give you a walk through of all these patterns as they appear in the course of my live demo trading starting Monday. In the meantime, let me lay out the rules I follow in the use of the candlesticks.
1. You must give more importance to candlestick patterns which appear and are formed at or near significant highs or lows or at and around recognized support and resistance lines.
2. A confirmation of the pattern after its formation must first occur before you initiate a trade. A confirmation must consist of a candle whose closing at least falls beyond the mid point of the previous sessions candle.
3. When initiating a trade, set a tight auto stop by using the previous candle's close as your stop if you are on a buy, or the previous candle's open if you are on a sell (for USDJPY, USDCHF and vice versa for EURUSD, GBPUSD).
4. Adjust your stops after each session (like a trailing stop) always using the previous session's candle as your reference point.
5. Do not buck the trend. Trade only in the direction the candles are leading you. Consult the monthly candlestick chart for the market trend. Use the daily candle charts to initiate positions. Shorter period charts like the hourly and 5 minute charts are only for day traders. I have found candlestick charts to be more effective for position traders (and not so effective for scalping).
6. Every position taken must not only be based on a candle pattern but should also have an underlying economic fundamental currently existing or as anticipated by major market players.
7. When you are on a buy, use the nearest most significant resistance as your first profit objective and immediately take profits by liquidating positions when the current candle fails to break the resistance towards the close of the session. When you are on a sell, use the nearest most significant support as your first profit objective. (for USDJPY, USDCHFonly, vice versa for EURUSD, GBPUSD).
For now, these are the ground rules we will follow when we begin to trade on Monday. I shall discuss the others as we trade.
THE USDJPY CANDLESTICK CHART AND WHAT IT TELLS US
With the benefit of hindsight, we can easily see the effectiveness of the candlestick patterns in determining market reversals. A classic Reversal Pattern called "The Evening Star" was formed from May, 2007 to July 2007 after USDJPY reached a historical high somewhere around 124. This was when the "bubble started to burst" as predicted by many economists. The reversal brought the rate down to around 96 in March, 2008. The dollar made a laborious run up to around the 111 high in August, 2008. The run up was characterized by narrow trading ranges which tells us that the rally is not attracting dollar buyers at all and that the dismal outlook on the U.S. economy is more pervasive and it is keeping the dollar bulls sidelined. True enough, another classic candlestick reversal pattern was formed. August, 2008 developed what is termed as the "Evening Star" promptly followed by a confirmation candle(September, 2008) which significantly closed below the midpoint of the reference candle (July, 2008). The reversal brought the price down to the January, 2009 low of 87. Significantly, a market weakness (possibly a reversal) in the current downtrend is evident. A "Hammer" was formed last month signalling a possible near term run up for the USD. This must however, be confirmed with close above the 93 level this month.
With an economic stimulus package almost in place, a better than bleak outlook for the U.S. economy may be in the offing and a dollar rally may be had in the near term..
Notes:
EVENING STAR
Recognition: A three candle pattern at the top of an uptrend. The body of the first candle is white, confirming the current uptrend. The second candle is an indecisive formation. The third candle is black and should close at least halfway down the white candle.
Pattern Psychology: After an apparant uptrend the Bears step in and open the price lower than the previous day's open. The price finishes lower for the day and the Bulls are concerned and begin selling to take their profits.
SHOOTING STAR
Recognition: One candle pattern appearing in an uptrend. The shadow (or tail) should be at least two times the length of the body. The color of the body is not important, although a black body has slightly more Bearish indications.
Pattern Psychology: After a strong uptrend the Bulls appear to still be in control with price opening higher, but by the end of the day the Bears step in and take the price back down to the lower end of the trading range. Lower trading the next day reinforces the probability of a pullback.
HAMMERS and HANGING-MAN
Recognition: The lower shadow (or tail) should be at least two times the length of the body. The color of the body is not important although a black body has slightly more Bearish indications and a white body has slightly more Bullish indications.
Pattern Psychology: This pattern at the bottom of a down trend is called a Hammer. This pattern at the top of an uptrend is called a Hanging-Man
The lure of trying one's hands on investing is simply irresistible! This is why we see a lot of first time investors trying it incognito via online brokers. Newbies who had always wanted to test their skills at handling their own investments are often the ones easily attracted 
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