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Thursday, July 30, 2009

FXOpen — one of the most popular MetaTrader Forex brokers with an easy entry limit and a really fast execution (they constantly invest into new trading servers):

* Welcome bonus system
* $1 to start trading
* WebMoney, LibertyReserve, CashU, E-Bullion and other payment options
* Traders’ contests with real bonuses
* 1-2 pips spreads on majors
InstaForex — known for their aggressive bonus and competition promotions, this broker offers extremely flexible leverage and has a very dedicated support:

* MetaTrader trading platform
* Flexible leverage — from 1:1 to 1:500
* WebMoney, Moneybookers, e-Bullion and other payment methods
* Starter’s bonus — from $30
* Open account with only $1

FXcast — Forex broker that is famous for its multi-national and multi-lingual team with a support available in almost any language spoken:

* MT4 trading platform
* Leverage up to 1:400
* No slippage during high volatility periods
* Start trading with $10
* WebMoney, c-gold, LibertyReserve, StrictPay and many other e-currencies

Forex4you — ultimate decision for small-scale traders. With Forex4you you can trade even with cents:

* Deposit with WebMoney, LibertyReserve and other ways
* Ultra-micro lots — 0.0001 of a standard lot
* MetaTrader platform for trading
* Get paid an interest on your account balance

Wednesday, July 29, 2009

LAHORE: NetSol Technologies Ltd and China Minsheng Bank Corp Ltd have signed a contract for NetSol Technologies Financial Suite of leasing and finance products. The implementation will include NetSol Financial Suite s (NFS) Credit Application Processing (CAP) and Contract Management System (CMS) for retail business operations. The NetSol implementation with MSFL incorporates product licenses as well as customization, implementation, and data migration services. According to a statement issued here, Executive Vice President of Minsheng Financial Leasing, Ms Wong said they made the choice after careful evaluation of globally leading IT services vendors providing software in the finance and leasing space. We selected NetSol based on their impressive product strength and presence in the Chinese market. As we embark on this long-term partnership, MSFL is advancing its objective of becoming the largest finance and leasing company in China, she said, adding that NetSol s Financial Suite of products stand as a critical supporting factor in reaching this goal.

KARACHI: United Bank Limited (UBL) has produced an audio CD, comprising songs and narratives, based on selected works of Pakistan s revered national poet-philosopher Dr Mohammad Iqbal, to mark the bank s Golden Jubilee this year, it said in a press release. Incorporated on July 27, 1959, UBL started operations in November the same year. Its operations now extend to 11 countries outside Pakistan, through 17 branches, representative offices, subsidiaries and joint ventures apart from over 1100 domestic branches. Emphasizing the relationship between UBL s vision and Iqbal s ideals, President and CEO of UBL, Atif R Bokhari states: As fa progressive banking organization, UBL is aptly suited to embrace a national icon such as Iqbal, whose ideals embody the spirit of this institution. The CD contains original compositions of songs and narrations by some of the most outstanding composers, singers and artistes in the country. Introduced in UBL s Golden Jubilee year, this audio CD is a humble contribution towards propagating the message of Iqbal, particularly at a time when the nation needs his inspiration the most, and may be seen as a fitting tribute to the spirit of progressiveness, it added.

Japanese yen The yen entered its eleventh day of losses versus most of the 16 main traded currencies as a rally in Asian stocks suggests that evidences indicating the end of the global slump are pushing investors to riskier assets, damping demand regionally for the Japanese currency.

Canadian Dollar The loonie reached the highest level since October as stocks and commodities rose, improving attractiveness for the Canadian currency.

The Brazilian real continued to gain versus the greenback today as renewed demand for Brazilian products helped the national stocks to gain, adding confidence to the real’s outlook.

The Australian dollar reached the highest level versus its U.S. counterpart today after the national central bank Governor affirmed that the current crisis in the country may not be as serious as considered previously.

US Dollar The U.S. dollar entered another day of losses versus most of the 16 main traded currencies as stocks worldwide continued to rally, raising investors’ confidence to purchase assets in emergent-markets and other higher-yielding options.

The Canadian dollar lost today for the first time in more than a week as stocks and the crude oil had their first decline as risk aversion reappeared in financial markets worldwide.

Japanese yen The yen post the first significant gains in more than a week versus currencies like the pound and the euro after risk aversion returned to markets today, pushing investors towards the safety of the Japanese currency.

US Dollar The dollar reverted its trend of already two weeks losing versus several main traded currencies, after speculations that this week’s reports will post rather pessimistic figures, raising attractiveness for the safety of the greenback.

Euro The euro is losing since yesterday versus currencies like the yen and the dollar, as a report yesterday showed a decline in consumer confidence in the United States, spurring demand for refuge currencies like the Swiss franc and the yen.

The truth is Forex is about trading. It is not something that you can sell. Now lots of people claims to have a good Forex system and selling it over the internet. Where is the logic in that.
Imagine you have a Forex system that consistently giving you wining trades. The probability is so high that you are willing to and have succesfully trade up to 50% of your capital. Because of its high winning ratio, your accout grows more than 100% a month. Would you sell that system or would you just keep it to yourself.

Would you go to the trouble of doing marketing, SEO, website, selling pages and payment processor? Is it easier to just trade it by yourself? Is it worth it to sell something that is a winning system?

In my hands I have a winning system. I am not willing to sell it or even to share it. I am however looking for 2 students whom I will teach the system and let them trade it. If the 2 students make profit, I am sure what I have now is a winner Forex system and it will be my best kept secrets. It will not be written anywhere but inside my head.

The next time you meet someone who claims to have a good Forex system and trying to sell it to you, maybe you can ask him the same question. Why sell it for money when the Forex system itself can generate money for you, lots of it forever.

Tuesday, July 28, 2009

In my 1 year of trading forex I have learnt a lot about forex. There are some qualities that is needed in a traders. From my experience these are some of them:
1. No Ego
Ego is when you dont want to admit that you have made a mistake. In forex, mistakes are common. It is very hard to forecast something that has a lot of factors involve. If you have made a mistake, admit it and turn your position if you see fit. If you dont want to admit your mistakes, you will end up broke

2. The Future is unknown
That is the truth the hard truth. Unless you can see the future like the movie next we are all the same. There are some people with skills that can forecast the movement of forex and make money but the truth is, its too high of a risk. Better to trade based on price action

Monday, July 27, 2009

US Dollar The U.S. dollar started another week losing against currencies like the euro, as a report today is expected to show that home sales in the United States rose significantly, suggesting that the global slump is facing its final days, consequently attracting investors toriskier assets in stocks.

The dollar is entering the third week of losses today as multiple factors are pushing the currency down, from optimism in Asian stock markets, to concerns regarding the U.S. dollar as the main world reserve currency. A report to be released today in the United States is likely to indicated a sharp rise in the nation’s monthly home sales, which would prompt investors further to high-yield, since an improved scenario in the real estate market is a solid signal that the recession in ending in America and consequently in a global dimension.

The optimism is high, the questioning regarding the U.S. dollar as the main reserve currency, and speculations that foreign-exchange volatility will fall weighed altogether to create a negative outlook for the greenback in the beginning of this week. According to specialists its hard to say if the dollar will decline versus the euro to last year’s levels, when it hit $1.60, but certainly, with the current scenario we will be likely to see the dollar going further down.

EUR/USD traded at 1.4285 as of 11:53 GMT from 1.4215 in the beginning of the session. USD/CHF declined to 1.0661 from 1.0725.

If you want to comment on the U.S. dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Sunday, July 26, 2009

Its been a while since I posted signal. Anyway here it is. Hope its good.

1. Short Aud/Usd @ 0.7905 or better. Target 0.7850, 0.7780.

2. Long Usd/Jpy @ 114.80 or better. Target 115.60, 116.70.

Happy Trading. Btw I cannot be held responsible for any loss from the signal above.

Saturday, July 25, 2009

In The Land Of Forex, Trend Is King

Those are the words i hold on to in forex. No matter what happen in technical or fundamental study. Always follow the trend.Trend is king. Follow the king and you will be rewarded handsomely.

Friday, July 24, 2009

Eur/Usd
Eur/Usd is currently at 1.2862. From my calculation Eur/Usd has an upper range of 1.2880 - 1.2950. Possible trade is short Eur/Usd @ 1.2880 or better.
Gbp/Usd
Gbp/Usd is currently at 1.9102. As stated in my other blog, possible trade is short Gbp/Usd @ 1.9100 or better wih upper range of 1.9100 -1.9150

Aud/Usd
Possible trade short Aud/Usd @ 0.7710 or better. Already gone down now. Btw i shorted from 0.7751. Its a good trade so far.

Thursday, July 23, 2009

Do you want to get into foreign currency trading, but aren’t sure how it can benefit you? There are many advantages to foreign currency trading. First, in the last few years, the spread rates have tightened a lot. Most of the online FOREX brokers today will offer you a five pips spread on EUR/USD. This is the most widely traded currency pair.

Wednesday, July 22, 2009

In the currency trading market you can buy or sell currencies. The whole point of it is to make a profit from your position. It is very simple to place a trade in the currency trading market. The mechanics of it are pretty much the same as those in other markets, thus making the transition for traders to go from one market to this one easy.

Tuesday, July 21, 2009

If you want to get into currency trading, but are afraid of losing money, then you can open a Virtual Trading Account. You can find this option online. This will give you a no commitment and a no-cost option. A Virtual Trading Account has the same capabilities of a real account, but it gives you the option of learning about currency trading markets and allows you to test your skills without the risk of losing money.

Monday, July 20, 2009

Do you want to get into currency trading? Are you wondering if it is even possible that you can trade currency online? The answer is yes. It is entirely possible to conduct all of your currency trading business online. How can you get into online currency trading?

Sunday, July 19, 2009

In the currency trading market, currency trading is always done in pairs. Also, all trades are the result of the simultaneous buying of one currency and the selling of another currency. The “basis” for the buy or the sell is called the base currency. If it helps, you can think of the currency pair as an instrument that can be bought or sold.

Saturday, July 18, 2009

Have you ever heard of currency trading? If not, would you like to know what it is? Currency trading is commonly called foreign exchange, Forex, or FX, for short. All the currency in the world has a value that is relative to the other currencies in the world. By currency trading, you are purchasing and selling large amounts of currency to leverage the shifts in relative value in order to make a profit.

Friday, July 17, 2009

You’ve probably been learning a lot about the currency trading market. You may even have begun to invest in it, but what is rollover? How can knowing what a rollover is benefit you?

Thursday, July 16, 2009

Unlike in stock markets, the margin deposit isn’t a down payment on the purchase of equity. Instead, it is a good faith deposit. This margin allows the traders to hold a position much larger than their account value. If the funds in the account happen to fall below the margin requirements, then your broker may close some or all of your open positions. This will prevent your account from falling into a negative balance, even in a fast moving market.

Wednesday, July 15, 2009

You trade currencies for hedging and speculative purposes. During the regular course of a business day, corporate treasurers, private individuals, and investors have currency exposure. If you have bought Euros and you expect the exchange rate to go down, then you can sidestep your currency exposure by selling your Euros for the U.S. dollar.

Tuesday, July 14, 2009

Do you invest in currency trading? Would you like to take the currency trading market with you wherever you go? Then wireless currency trading may be the perfect solution for you.

Monday, July 13, 2009

The three largest stock exchanges by market capitalization are the New York Stock Exchange, Tokyo Stock Exchange, and NASDAQ. Through these stock exchanges, well over trillions of dollars worth of stock are traded on a daily basis. For stock and forex brokerages, the approach to investing is quite different than the stock investing practices that are accomplished by an amateur investor with a small nest egg.

Sunday, July 12, 2009

Many of the common charts encountered in the toolkit of Forex traders are composed of a graphed series of technical indicators. So, in order to understand those charts, the student of Forex investing will do well to study those indicators.

Saturday, July 11, 2009

Novices considering currency trading will read that Forex brokers charge no commissions and cheer. But don't be fooled. Whether anything in life is truly free may be up for debate, but one thing is certain: nothing in investing is.

Friday, July 10, 2009

Stock options investing is targeted toward the cautious people, who take each and every decision through a secure approach. The stock option investing is a way to make them come out from their dilemma about stock market beliefs and make them invest in the stock market in a fearless manner and can sustain through any market conditions by making an investment with the help stock options when investing in the stock market.

Thursday, July 9, 2009

Forex trading – or FX for short – refers to stock trading on the foreign exchange market. This means trading in the different forms of currency that are in circulation around the world. As exotic and exciting as it sounds, it's important to understand the basics before you jump in. There are a great many risks involved, but there are advantages as well.

Wednesday, July 8, 2009

For those interested in trading on the currency: trading on the Forex, or Foreign Exchange, but are unsure of exactly where to begin, Forex trading help is available in a multitude of areas. There is a wealth of information available both online and through local bookstores. Additionally, many financial networks provide documentaries by experts on the world’s largest trading market.

Tuesday, July 7, 2009

One of the beauties of Forex trading lies in the ability to trade using leverage, which is often as high as 1,000 times your capital. In other words, you can effectively borrow up to 1,000 times your capital in order to trade. But borrowing money to trade is no different to borrowing money for any other purpose and you will be charged interest.

The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis and they are often regarded as one of the most important concepts in Forex trading. These terms are used by traders to refer to price levels on charts that tend to act as barriers from preventing the price of an asset from getting pushed in a certain direction. At first the explanation and idea behind identifying these levels seems easy, but as you'll find out, support and resistance can come in various forms and it is much more difficult to master than it first appears.

What is Support?
A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level. Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.

What is Resistance?

A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level. Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.

Testing the Levels

One thing you should remember is that levels of support and resistance are not always accurate figures. You will often see a support or resistance level that seems to be broken, but soon you will realize that the market was only testing it. On candlestick charts those tests are marked with shadows as you can see on the picture below. It seemed as if the market will pass the resistance level, but later it was obvious that it was just a test. There is no easy way of knowing if the resistance or support will be broken through.

Support Equals Resistance

Another principle of technical analysis stipulates that support can turn into resistance and vice versa. Once the price breaks below a support level, the broken support level can turn into resistance. The break of support signals that the forces of supply have overcome the forces of demand. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance.

The other turn of the coin is resistance turning into support. As the price advances above resistance, it signals changes in supply and demand. The breakout above resistance proves that the forces of demand have overwhelmed the forces of supply. If the price returns to this level, there is likely to be an increase in demand and support will be found.

Trading Range

Trading ranges can play an important role in determining support and resistance as turning points or as continuation patterns. A trading range is a period of time when prices move within a relatively tight range. This signals that the forces of supply and demand are evenly balanced. When the price breaks out of the trading range, above or below, it signals that a winner has emerged. A break above is a victory for the bulls (demand) and a break below is a victory for the bears (supply).

Support and Resistance Zones

Because technical analysis is not an exact science, it is useful to create support and resistance zones. Each security has its own characteristics, and analysis should reflect the intricacies of the security. Sometimes, exact support and resistance levels are best, and, sometimes, zones work better. Generally, the tighter the range, the more exact the level. If the trading range spans less than 2 months and the price range is relatively tight, then more exact support and resistance levels are best suited. If a trading range spans many months and the price range is relatively large, then it is best to use support and resistance zones. These are only meant as general guidelines, and each trading range should be judged on its own merits.

Trend Lines

Trend lines are probably the most common form of technical analysis that is used today, but they are also one of the least-used. A trend line is formed when you can draw a diagonal line between two or more price pivot points. They are commonly used to judge entry and exit investment timing when trading securities.

A trend line is a bounding line for the price movement of a security. A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points.

If they are drawn accurately, trend lines can be a very useful and precise technical analysis method. Unfortunately, most of the Forex traders don’t draw them correctly or try to draw a line in a way that the lines correspond to the market, instead of making it the other way around.

The support or resistance of an identified level, whether discovered with a trend line or through any other method, is deemed to be stronger the more times that the price has historically been unable to move beyond it. Many technical traders will use their identified support and resistance levels to choose strategic entry or exit prices because these areas often represent the prices that are the most influential to an asset's direction. Most traders are confident at these levels in the underlying value of the asset so the volume generally increases more than usual, making it much more difficult for traders to continue driving the price higher or lower.

Round Numbers

Another common characteristic of support or resistance is that an asset's price may have a difficult time moving beyond a round price level. Most inexperienced traders tend to buy or sell assets when the price is at a whole number because they are more likely to feel that a stock is fairly valued at such levels. Most target prices or stop orders set by either retail investors or large investment banks are placed at round price levels. Because so many orders are placed at the same level, these round numbers tend to act as strong price barriers. If all the clients of an investment bank put in sell orders at a suggested target of , it would take an extreme number of purchases to absorb these sales and, therefore, a level of resistance would be created.

Conclusion

Determining future levels of support can drastically improve the returns of a short-term investing strategy because it gives traders an accurate picture of what price levels should prop up the price of a given security in the event of a correction. Conversely, foreseeing a level of resistance can be advantageous because this is a price level that could potentially harm a long position because it signifies an area where investors have a high willingness to sell the security. As mentioned above, there are several different methods to choose when looking to identify support or resistance, but regardless of the method, the interpretation remains the same - it prevents the price of an underlying from moving in a certain direction.

Monday, July 6, 2009

The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an "interbank" market. However, with the plethora of real-time financial data and forex option trading software available to most investors through the internet, today's forex option market now includes an increasingly large number of individuals and corporations who are speculating and/or hedging foreign currency exposure via telephone or online forex trading platforms.

Analysis is very important in every human trade, although it is almost never easy to do and usually takes a lot of time. Analysis makes decision making a lot easier and the outcome is usually satisfactory. When trading on Forex, analysis is very important because you can’t rely only on the money management strategy to succeed. You can forecast the direction of the market basing on your technical and fundamental strategies to see their effectiveness.
You'll be able to make forecasts of price movements by applying the past data of the prices and graphs to the technical analysis methods. You can predict future prices with the level of accuracy dependent on your technical analysis skills using the graphs of the rates you observe. Trading with some brokers you can see technical indicators along with the graphs. You can apply it to your demo account and estimate your prediction skills necessary for planning trading decisions.

It is impossible to choose the most effective indicator among lots of various ones. Each trader has to decide for himself which indicator is best for him. You can't find any magic formula; you just see the graphs, make your forecasts and find out whether they come true seeing the values in the news later. There are a lot of technical analysis indicators available but here are the ones which are the most wide-spread: the Moving Average Convergence Divergence (MACD), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, Elliot Waves.

Fundamental analysis is another tool that maximizes your profit and minimizes your losses on the trades. There are some traders who prefer only one kind but the majority prefers both. Fundamental analysis means trading following the news, e.g. telling about the economies or unemployment rate in the countries of the currencies you trade. They can also tell about the events that can have a strong influence on the currencies' exchange rate.

Fundamental Analysis

Fundamental analysis studies the core underlying elements that influence the economy of a particular entity, like a stock or currency. It attempts to predict price action and trends by analyzing economic indicators, government policy, societal and other factors within a business cycle framework.
In other words, if a particular country has a successful economy, its currency value will grow, if the economy is going through a rough time the currency value will fall.

Things that affect economy are called economic indicators. They are snippets of financial and economic data published regularly by governmental agencies and the private sector. These statistics help market observers monitor the economy's pulse - so it's no surprise that they're religiously followed by almost everyone in the financial markets. With so many people poised to react to the same information, economic indicators have tremendous potential to generate volume and to move prices. It might seem like you need an advanced economics degree to parse all this data accurately - but in fact traders need only keep a few simple guidelines in mind to making trading decisions based on this data.

Most important economic indicators are:

1. Gross Domestic Product (GDP)
2. Industrial Production
3. Purchasing Managers Index (PMI)
4. Producer Price Index (PPI)
5. Consumer Price Index (CPI)
6. Durable Goods
7. Employment Cost Index (ECI)
8. Retail Sales
9. Housing Starts

All of these things affect economy in some way and should be taken into consideration when making fundamental analysis if you want to maximize your profit and minimize your losses on trades.

Technical Analysis

Technical analysis attempts to forecast future price movements by examining past market data. Most traders use technical analysis to get a "big picture" on an investment's price history. Even fundamental traders will glance at a chart to see if they're buying at a fair price, selling at a cyclical top or entering a choppy, sideways market. History repeats itself. The techniques which were effective in the past can be still effective to forecast future price movements.

Technical analysis predominantly uses charts to forecast future price movements. Nowadays it is not necessary to draw charts on paper as the process is automated by specially designed computer programs.

There are three sources for the technical analysis: price, volume and open interest . Price discounts everything. Price is affected by economic, political and other factors, and all information is already reflected in it. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future. Price movements are not totally random, or prices trend. The main purpose of the charts is to define a trend at an early stage and to trade in accordance with its direction.

Technical indicator types:

1. Trend
2. Strength
3. Volatility
4. Cycle
5. Support
6. Resistance
7. Momentum

Using Technical Indicators

Price charts help traders identify trade-able market trends - while technical indicators help them judge a trend's strength and sustainability.
If an indicator suggests a reversal, confirm the shift before you act. That might mean waiting for another period to confirm the same indicator's signal, or checking out another indicator. Patience will help you read the signals accurately and respond accordingly.

Charts

There are a lot of different types of charts that you can use in Forex trading. The most popular ones are line chart, bar chart and candlestick chart, so I’ll try to explain to you what these are, how they are made and what they look like.

1. Line chart

Line chart or line graph is a type of graph created by connecting a series of data points together with a line. In Forex bar charts are plotted with time on the x-axis and the currency pair on the y-axis. Each time period on our real time charts can range from a tick by tick to a weekly interval (the tick refers to each individual pip movement). This gives traders the flexibility to view currencies with closer examination while also allowing them to spot the trends most suitable for their time-sensitive trading strategy. A line chart's strength comes from its simple design; it provides an uncluttered, easy to understand view of a currency's price. Line charts display the currency's closing price. A line chart is simply a graph of the value of a currency taken at regular time intervals based on current prices.

2. Bar chart

A bar chart or bar graph is a chart with rectangular bars with lengths proportional to the values that they represent. Bar charts are used for comparing two or more values. The bars can be horizontally or vertically oriented. Sometimes a stretched graphic is used instead of a solid bar. It is a visual display used to compare the amount or frequency of occurrence of different characteristics of data and it is used to compare groups of data. Standard bar charts are commonly used to convey price activity into an easily readable chart. Usually four elements make up a bar chart, the Open, High, Low, and Close for the trading session / time period. A price bar can represent any time frame the user wishes, from 1 minute to 1 month. The total vertical length / height of the bar represents the entire trading range for the period. The top of the bar represents the highest price of the period, and the bottom of the bar represents the lowest price of the period. The Open is represented by a small dash to the left of the bar, and the Close for the session is a small dash to the right of the bar.

3. Candlestick chart

A candlestick chart is a style of bar-chart used primarily to describe price movements of equity over time. It is a combination of a line chart and a bar chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns. They appear superficially similar to error bars, but are unrelated. Candlestick Charts identical to a bar chart in the information conveyed, but presented in an entirely different visual context. The candlestick encapsulates the open, high, low and close of the trading period in a single candle. Candlestick charts are on record as being the oldest type of charts used for price prediction. They date back to the 1700's, when they were used for predicting rice prices. In fact, during this era in Japan, Munehisa Homma become a legendary rice trader and gained a huge fortune using candlestick analysis. He is said to have executed over 100 consecutive winning trades. Candlestick charts are much more visually appealing than a standard two-dimensional bar chart. As in a standard bar chart, there are four elements necessary to construct a candlestick chart, the Open, High, Low and Closing price for a given time period. A candlestick can either be solid or transparent. Its appearance depends on the relationship between the opening and the closing price. If the close is higher than the open, the candlestick is transparent or empty. Candlestick charts are much more "visually immediate" than bar charts. Once you get accustomed to the candle chart, it is much easier to see what has happened for a specific period - be it a day, a week an hour or one minute.

Which Analysis should I use?

This is a question that many people have asked themselves. There are people that think that only the fundaments move the market and that everything you find on a chart is just a mere coincidence. On the other hand there are people who think that only the technical part is important and that you can find all you need to trade and foresee future prices by looking at the charts. The truth is that this two fulfill each other and make a perfect couple. If you master both of this analysis success will come in its time.

The concept of Fibonacci Forex trading is being used by millions of Forex traders all around the world. These numbers forecast the coming oscillation in the Forex charts. Though, at the same time, the prediction made cannot be proclaimed as flawless and straight hitting to the mark, the closeness it gets to is quite amazing. The Fibonacci levels are very elementary and fundamental concepts which need to be grasped before delving into the risky environment of Forex trading.

Who was Fibonacci?

Leonardo was born in Pisa, Italy in about 1170. His father Guglielmo was nicknamed Bonaccio ("good natured" or "simple"). Leonardo's mother, Alessandra, died when he was nine years old. Leonardo was posthumously given the nickname Fibonacci (derived from filius Bonacci, meaning son of Bonaccio).

Guglielmo directed a trading post (by some accounts he was the consultant for Pisa) in Bugia, a port east of Algiers in the Almohad dynasty's sultanate in North Africa. As a young boy, Leonardo traveled there to help him. This is where he learned about the Hindu-Arabic numeral system.

Recognizing that arithmetic with Hindu-Arabic numerals is simpler and more efficient than with Roman numerals, Fibonacci traveled throughout the Mediterranean world to study under the leading Arab mathematicians of the time. Leonardo returned from his travels around 1200. In 1202, at age 32, he published what he had learned in Liber Abaci (Book of Abacus or Book of Calculation), and thereby introduced Hindu-Arabic numerals to Europe.

In the Liber Abaci, Fibonacci introduces the so-called modus Indorum (method of the Indians), today known as Arabic numerals. The book advocated numeration with the digits 0–9 and place value. The book showed the practical importance of the new numeral system, using lattice multiplication and Egyptian fractions, by applying it to commercial bookkeeping, conversion of weights and measures, the calculation of interest, money-changing, and other applications. The book was well received throughout educated Europe and had a profound impact on European thought.

Liber Abaci also posed, and solved, a problem involving the growth of a hypothetical population of rabbits based on idealized assumptions. The solution, generation by generation, was a sequence of numbers later known as Fibonacci numbers. The number sequence was known to Indian mathematicians as early as the 6th century, but it was Fibonacci's Liber Abaci that introduced it to the West.

Contribution of Fibonacci in the number theory is one of the most important incorporations in the domain of arithmetic and calculations. He conferred the following benefits:
- Implementation of square root notation.
- Introduction of bars in the fractions. Earlier, the numerator used to have quotations around it.

Later it was discovered that the Fibonacci numbers and the respective series were not only limited to the arithmetic but it also played a pivotal role in economics, commerce and trading sectors too.

Fibonacci Sequence

In the Fibonacci sequence of numbers, each number is the sum of the previous two numbers, starting with 0 and 1. Thus the sequence begins 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 etc. The higher up in the sequence, the closer two consecutive "Fibonacci numbers" of the sequence divided by each other will approach the golden ratio (approximately 1 : 1.618 or 0.618 : 1). In mathematical terms, the sequence Fn of Fibonacci numbers is defined by the recurrence relation Fn=Fn-1 + Fn-2 with seed values F0=0 and F1=1.

The Golden ratio

Later, more calculations were made and it became evident that the sequence also follows a certain fixed ration. For example, when the particular number was in ratio with its just next higher number in the sequence, the value came out to be 0.618 while on the other hand, if the number was in ratio with the previous lower number, the ratio came out to be 1.618. Eventually, these two ratio values were known as the Golden mean or the Golden ratio. It was also later realized that the application of the Golden ratio and the Fibonacci numbers in the technical analysis was very beneficial as it also reflected the human behavior and human nature. This is because the Fibonacci numbers and the golden ratio are applicable to everything from architecture to human body, music, biology and art. Most of the Forex traders who have been adopting this technique feel that the entire concept is applicable because trading is related to both science and art. They believe that after a lot of meticulous and close scrutiny of the Forex market, it becomes clear that both the price movements and patterns of human behavior are interlinked and the Fibonacci technique have relations to both the patterns.

Risk and greed tolerance are applicable to the Forex trade and guide the outputs of the trade. Most of the traders, whether long term or short term undergo the risking and greed tolerance levels. In this case, if an average it calculated, it becomes evident that what the current perspectives of the traders are. In the same manner, the Fibonacci sequence reveals through the cost of the pricing instruments that how many traders have reached or are reaching the tolerance levels.
With the application of the Fibonacci techniques, it also becomes easier to predict the various turning points which would crop up in the Forex trading.

How can we use the Fibonacci numbers in Forex trading?

Technical analysis is one of the most pivotal tools for forecasting the different twists and turns of the Forex market. Resistance and support levels in the bar charts of the Forex trading are the most important components which have to be scrutinized through the technical analysis. These levels are very important to know regarding the entry and exit spots of the Forex market. For this respective utility, the Forex traders are also using the "retracement" levels involving the Fibonacci percentages. 38.2% and 62.8% are the two most important retracement levels in the Fibonacci percentages.

By using the Fibonacci numbers in the charts, you can find more supports and resistances. It will be a big help to choose the right direction and avoid entering to a wrong trade. To use the Fibonacci numbers in the charts, you have to find the top and the bottom of the previous trend. When the previous trend has been a downtrend, you draw the Fibonacci levels from top to the bottom and extend the lines in the way that they cover the next completing trend and when the previous trend has been an uptrend, you draw the Fibonacci levels from the bottom to the top and extend the lines in the way that they cover the next completing trend.

You have to wait for the trend to become completed: You cannot draw the Fibonacci levels while the trend is not completed. When you cannot find a completed trend in a time frame, you have to look for one in the smaller or bigger time frames in the same currency pair or stock.

The Fibonacci Method is one of the most essential aspects of Forex trading. It basically includes indicators, charting and instrumental spotting patterns. The main strategies which are employed under the utility for the funds traded through exchanges, stock indices and different stocks indicated in the returns.
Furthermore, the Elliot Wave concept is used, which includes the classic applications and principles. The main idea behind using the Fibonacci numbers is to predict as a potential tool in the trading system is to predict and calculate the important and pivotal points in the Forex markets which might be indispensable in causing sudden twists and turns, analyze the business growths and other economical recycles which might occur. At the same time, these Fibonacci methods are also pivotal in predicting the profitable and benefiting aspects of the interest rate and their movements.

Fibonacci Retracement - Zero percent is the considered as the peak of the crest of the move while hundred percent is considered as the bottom most point of the trough of the move. The trading signals are revealed by the Fibonacci retracement zones or levels which are calculated at 23.6%, 38.2% and 50%. Since it's mostly seen that history is continuously repeated when it comes to the Forex market, the Fibonacci methods prove be to be very applicable over here. Thus, with these shapes, the Forex traders are not only able to predict the entire course of the market, they also end up preventing worthless investments.

Fibonacci Equations - Fibonacci equations, by definition, are mathematical applications wherein every term of the equation is the sum of its preceding two numbers. The execution of this process, also a property of recursion, is accomplished by initiating the values of the first and second terms as 0 and 1 respectively. The remaining values can be 'recursively' quantified henceforth. Therefore, the calculated sequence processes as 0, 1, 1, 2, 3, 5, 8, 13, 21, 34 and so on.

Fibonacci Extensions - Fibonacci extensions are furthered developments in Fibonacci fundamentals. These have been extensively tapped by traders and investors in deducing out future support and resistance levels of a particular trend. These levels are plied beyond the standardized 100% level, offering traders to seek areas that yield optimum profits and benefits. 161.8%, 261.8% and 423.6% are perhaps the most well known extension levels in this context.

Conclusion

The only thing we know is that Fibonacci numbers work in everything from the microscopic materials like DNA molecule to the distance between our eyes, ears, hands, even the distance of the planets in the solar system and the way they move in the space, even the distance and pathway of the stars in the universe and finally in the currencies’ prices and the way they move up and down. Fibonacci numbers can be found anywhere in the world.

As you see the effect that they have on the market is not negligible and in fact is highly considerable. I know this question is formed in your mind that why they have such a big effect on the market. Why the prices become stopped sometimes for several days below or above the Fibonacci levels? (Of course if you use the Fibonacci levels in the bigger time frames like weekly and monthly charts, you will see that sometimes the price becomes stopped by one of the Fibonacci levels for several weeks.) The answer of this question has no effect on our trading. Whether you know the reason or not, you can use the Fibonacci levels in your trades.

What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.

The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

read more "Starting To Trade On Forex"

You may be asking yourself, "If I can already use bar charts to view prices, then why do I need another type of chart?"

The answer to this question may not seem obvious, but after going through the following candlestick chart explanations and examples, you will surely see value in the different perspective candlesticks bring to the table. In my opinion, they are much more visually appealing, and convey the price information in a quicker, easier manner. Candlestick chart is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns.The History of Japanese Candlesticks

Candlestick charts are on record as being the oldest type of charts used for price prediction. They are said to have been developed in the 18th century by legendary Japanese rice trader Homma Munehisa. In fact, during this era in Japan, Munehisa Homma become a legendary rice trader and gained a huge fortune using candlestick analysis. The charts gave Homma and others an overview of open, high, low, and close market prices over a certain period. This style of charting is very popular due to the level of ease in reading and understanding the graphs. The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future demand.

The candlesticks themselves and the formations they shape were give colorful names by the Japanese traders. Due in part to the military environment of the Japanese feudal system during this era, candlestick formations developed names such as "counter attack lines" and the "advancing three soldiers". Just as skill, strategy, and psychology are important in battle, so too are they important elements when in the midst of trading battle.

The method was picked up by Charles Dow around 1900 and remains in common use by today's traders of financial instruments.

What do Candlesticks Look Like?

Candlesticks are usually composed of the body (black or white), and an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a security during the time interval represented. The body illustrates the opening and closing trades. If the security closed higher than it opened, the body is white or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

To better highlight price movements, modern candlestick charts (especially those displayed digitally) often replace the black or white of the candlestick body with colors such as red (for a lower closing) and blue or green (for a higher closing).

Candlestick Patterns

White and Black Bodies

White candlestick shows strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.

Black candlestick shows strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.

Upper and Lower Shadows

The upper and lower shadows on candlesticks can provide valuable information about the trading session. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlestick with long shadows show that traded extended well past the open and close.

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, and bid prices higher. However, sellers later forced prices down from their highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.

Marubozu

Even more potent long candlesticks are the Marubozu, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

Spinning Tops

Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.

Doji

Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. Alone, Doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and future confirmation. The word "Doji" refers to both the singular and plural form.

Ideally, but not necessarily, the open and close should be equal. While a Doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.

Different securities have different criteria for determining the robustness of a Doji. Determining the robustness of the Doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the Doji should have a very small body that appears as a thin line. Steven Nison notes that a Doji that forms among other candlesticks with small real bodies would not be considered important. However, a Doji that forms among candlesticks with long real bodies would be deemed significant.

The relevance of a Doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a Doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a Doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.

After an advance or long white candlestick, a Doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a Doji may be more significant after an uptrend or long white candlestick. Even after the Doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick's open. After a long white candlestick and Doji, traders should be on the alert for a potential evening Doji star.

After a decline or long black candlestick, a Doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick's open. After a long black candlestick and Doji, traders should be on the alert for a potential morning Doji star.

Long-legged Doji have long upper and lower shadows that are almost equal in length. These Doji reflect a great amount of indecision in the market. Long-legged Doji indicate that prices traded well above and below the session's opening level, but closed virtually even with the open. After a whole lot of yelling and screaming, the end result showed little change from the initial open.

Dragon fly Doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly Doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragon fly Doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragon fly Doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

Gravestone Doji form when the open, low and close are equal and the high creates a long upper shadow. The resulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow. Gravestone Doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low.

As with the dragon fly Doji and other candlesticks, the reversal implications of gravestone Doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal. After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations.

Bulls versus Bears

A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time.

1. Long white candlesticks indicate that the Bulls controlled the market (trading) for most of the time.
2. Long black candlesticks indicate that the Bears controlled the market (trading) for most of the time.
3. Small candlesticks indicate that neither Bulls nor Bears could move the market and prices finished about where they started.
4. A long lower shadow indicates that the Bears controlled the market for part of the time, but lost control by the end and the Bulls took over the control.
5. A long upper shadow indicates that the Bulls controlled the market for part of the time, but lost control by the end and the Bears took over the control.
6. A long upper and lower shadow indicates that the both the Bears and the Bulls had their moments of control, but neither could gain advantage over the other and steady the market.

What Candlesticks Don't Tell You

Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.

With a long white candlestick, the assumption is that prices advanced most of the session. However, based on the high/low sequence, the session could have been more volatile. The example above depicts two possible high/low sequences that would form the same candlestick. The first sequence shows two small moves and one large move: a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close. The second sequence shows three rather sharp moves: a sharp advance off the open to form the high, a sharp decline to form the low, and a sharp advance to form the close. The first sequence portrays strong, sustained buying pressure, and would be considered more bullish. The second sequence reflects more volatility and some selling pressure. These are just two examples, and there are hundreds of potential combinations that could result in the same candlestick. Candlesticks still offer valuable information on the relative positions of the open, high, low and close. However, the trading activity that forms a particular candlestick can vary.

Candlestick Positioning

Star Position

A candlestick that gaps away from the previous candlestick is said to be in star position. The first candlestick usually has a large real body, but not always, and the second candlestick in star position has a small real body. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action. The two candlesticks can be any combination of white and black. Doji, hammers, shooting stars and spinning tops have small real bodies, and can form in the star position.

Harami Position

A candlestick that forms within the real body of the previous candlestick is in Harami position. Harami means pregnant in Japanese and the second candlestick is nestled inside the first. The first candlestick usually has a large real body and the second a smaller real body than the first. The shadows (high/low) of the second candlestick do not have to be contained within the first, though it's preferable if they are. Doji and spinning tops have small real bodies, and can form in the harami position as well.

Shadow Reversals

There are two pairs of single candlestick reversal patterns made up of a small real body, one long shadow and one short or non-existent shadow. Generally, the long shadow should be at least twice the length of the real body, which can be either black or white. The location of the long shadow and preceding price action determine the classification.

The first pair, Hammer and Hanging Man, consists of identical candlesticks with small bodies and long lower shadows. The second pair, Shooting Star and Inverted Hammer, also contains identical candlesticks, except, in this case, they have small bodies and long upper shadows. Only preceding price action and further confirmation determine the bullish or bearish nature of these candlesticks. The Hammer and Inverted Hammer form after a decline and are bullish reversal patterns, while the Shooting Star and Hanging Man form after an advance and are bearish reversal patterns.

Hammer and Hanging Man

The Hammer and Hanging Man look exactly alike, but have different implications based on the preceding price action. Both have small real bodies (black or white), long lower shadows and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.

The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding volume, is needed before acting. Such confirmation could come from a gap up or long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal.

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.

Inverted Hammer and Shooting Star

The Inverted Hammer and Shooting Star look exactly alike, but have different implications based on previous price action. Both candlesticks have small real bodies (black or white), long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals, but require confirmation before action.

The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A Shooting Star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively long and at least 2 times the length of the body. Bearish confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume.

The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

Conclusion

It is important to realize that this introduction is just that, an introduction to candlestick analysis. After having read this, you will have merely scratched the surface of the many patterns and variables that can go into candlestick analysis. No attempt was made to provide a thorough analysis of each and every pattern. In fact, many formations were left out as they cross the border into more complicated analysis.
As traders, we need as many trading tools in our arsenal, and a basic knowledge of candlesticks provides a trader much needed ammunition. Also remember that no matter what the trading tool, no matter how advanced or ancient, it is only effective when put into practice properly.