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kenny1703 (< 20)

August 2011

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Trading Tip #21 : Understanding Candlestick Patterns - Kicking

August 29, 2011 – Comments (0)

I think it's time for another look at Japanese candlestick analysis. Let's take a closer look at kicking, widely considered a high reliability pattern in candlestick charts.

Kicking patterns are another reversal signal.

Kicking patterns on a candlestick chart are formed when there are two marubozu - one white and one black - with a gap between them. Bullish kicking patterns would present as a black or filled candlestick without any wicks (shadows) followed by a white or hollow candlestick that is also without wicks. These are marubozu. They are formed when the market has a particularly one-sided trading session that closes at the high or low leaving just that real body of the candlestick.

In candlestick charts, kicking patterns are very rare.

The two marubozu back to back but at polar opposites in terms of market direction are obviously going to be uncommon. They reflect strong trading sentiment and to see that in two consecutive sessions would likely point to some kind of strong fundamental shift. Like most candlestick patterns, you would want to investigate what is going on behind the scenes before completing any analysis. Historically, there are no restrictions on where the kicking pattern would show up in relation to the beginning, middle or end of a trend.

See image at : http://tradingadvantage.com/lp/tradingtips/TATradingTip21/Images/TATip21Image1.png

This two-bar pattern is "kicking" away the previous price trend.

This signal is not necessarily a place to enter or exit - it is merely a sign that there is a pending reversal possible. The higher probability that candlestick analysts place on this one suggests that there is a strong chance of that reversal, but as always, you will want to wait for confirmation. Alternately, you could use this candlestick pattern with complementary analysis to plan a trade, relying on a signal like this as confirmation of your other fundamental and technical observations. Trading volume is among those complementary items to keep in your toolbox for this one. An increase in volume on the second candle would be a good thing for a kicking pattern.

Best Trades to you,

Larry Levin
Founder & President- Trading Advantage  [more]

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Trading Tip #17 : Good News and Bad News

August 08, 2011 – Comments (0)

One of the biggest moments for the markets can come when there is a key news release or fresh fundamental data. Buyers and sellers seem to wrestle with the potential outcome, and in the case of larger announcements, volatility goes through the roof. The problem that I see some traders struggle with is knowing what news to look for, and how to trade it.

Finding news that you can actually use.


The thing that often comes up when you talk about announcements is that a lot of traders don’t understand the market reactions. A report will come out and it will appear as though it is good news, but the market will go down. The thing is that some people still try to trade on the news itself, when in reality they should be looking at what the market thinks the news will be. More than likely, those days when there was a “good” piece of data but the market went down, forecasts were calling for a better number.

The other explanation is that the report just might not have been as important to the market as it was to the observer trying to trade it. Reports and news events are lobbed into a general basket of analysis called fundamentals. Fundamental analysis focuses on the things that have the potential to impact the supply or the demand in a particular market, thus affecting the prices.

Reports that come out with some regularity, like initial unemployment claims, are unlikely to rock the S&P unless they are really, really shocking. Federal Reserve meetings, which are a rarer occurrence, tend to hold a bit more zest for traders. Monthly employment readings are also big. Producer Price Index (PPI) and Consumer Price Index (CPI) readings are key figures for inflation, which in times of economic troubles might get more attention than a decade or so ago.

Perhaps one of the best ways to weigh what kind of news is valuable to traders is to keep your eye on the stories daily.

Traders shouldn’t keep their head in the sand.

If you know what is happening in the market that week, that day, and that hour, it is better all around. You can line up the market’s movements with fundamental events. Of course, there will be big news that comes out of nowhere that can still catch you and the market off guard. However, there are plenty of economic report calendars, Federal Reserve meeting notices, and other lists that show you key data points. Most news outlets will also report results of a general survey of economists showing what the basic expectations might be. Knowing what the expectations are ahead of the report is just as important as the report itself. Good news can quickly become bad news if it falls short of what people were looking for.

A great example of this in recent news is the build-up ahead of the debt ceiling deal. In any other situation, finding a compromise or agreement would be considered a good thing and good news. The opposite was true in this case as investors and traders weighed the potential impact of continuing debt and a tarnish on the credit rating for the US. The highlighted area in the following chart shows the reaction leading up to and following the news:

Focus on the bigger picture, not just the headlines.

One of the best favors a trader can do for themselves is stay appraised of the bigger picture. There are plenty of places where you can get calendars online, and check for the stories that might impact the market. The longer you watch these fundamentals, the more likely you are to be able to distinguish which ones might bring higher volatility and potential trading opportunities. Avoid developing tunnel vision and focusing only on the things you think could be important. Watch for forecasts and estimates on reports – these are just as important as the actual news release and can be key in trying to gauge possible market direction. Good news and bad news are relative to expectations.

Best Trades to you,

Larry Levin
Founder & President- Trading Advantage   [more]

Recs

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Picking a Forex Broker

August 03, 2011 – Comments (0)

A broker is a company or individual who buys or sells based on the decisions of traders and charges a commission for their services. For Forex trading, you need a trading account with a broker and have funds in that account. The number of Forex brokers is huge and you may have trouble choosing one. Let's take some basic steps to choose the broker, the time spent here will be rewarded.   [more]

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