Regional Stock Reports

Based only on the market activity of the previous few days, most candlestick patterns are valid. Using one of these without knowing about the previous trends wouldnt be very useful. For instance, some of the candlestick patterns indicate a change in trend.

When you spot and identify a particular candlestick pattern you should take it as a signal that something is going to happen to the market in the near future. What you should do based on that candlestick pattern depends on the context. Usually the context in which you find the candlestick pattern tells you a great deal about them. Lets consider simple candlestick patterns first.

The Bullish White Marubozu: A long white candle represents the day when bulls control the market. The bulls push prices higher from the opening to the closing. The longest white candle is the most bullish of the candlestick patterns. Chances are with the long white candle closing near the high, the bulls will be back for more buying the following day.

One common feature of the long white candle is an open near the low of the day and a close near the high of the day. This means that buying has been taking place all the day. With the long white candle, the low price on the candlestick is a good support level.

The Bullish Dragonfly Doji: A Doji is formed when the opening and the closing prices are the same. So essentially there is no stick in the candlestick. For a Doji to be created, a day must begin and end with the same price.

Doji patterns are usually associated with a market turn. Doji depicts a day where the battle between the bulls and the bears has been fairly equal. A Doji may not look very exciting to you. But dont be fooled.

For those hoping that prices go higher, the price action depicted by the Dragonfly Doji bodes very well. A Dragonfly Doji is unique in that three of the four candlestick patterns- the open, high and the close are all equal. The low of the Dragonfly Doji day is considered a near term support level. You can make smart trades based on the Dragonfly Dojis.

The Bearish Long Black Candle: A long black candle means that sellers take over at the beginning of the day and push prices lower and lower until the end of the day. The long black candle is the direct counterpart of the long white candle discussed earlier. The long black candle is as bearish as it gets.

Price sensitivity is very low for these sellers. These sellers are selling just to get out of their trades. Seeing this type of enthusiastic selling must give you the confidence after the appearance of the long black candle that the bears will be in control for a few more days. The long black candlestick pattern is a good bearish signal. You can capitalize on this fact.

Suppose you want to detect a trend reversal breakout. You can identify it through the MACD divergence signals. You should look at how the MACD histogram is performing when you spot a potential breakout scenario on a currency pair chart.

Is the MACD histogram also forming higher peaks if the currency pair has been making new highs? If it is so, you can safely assume that the uptrend is likely to continue. Any breakout to the downside will be short lived and probably false.

However, if the MACD histogram shows a bearish divergence, this is a strong signal that a downside breakout is more likely to be sustained than false. The reverse holds true for a bullish MACD divergence.

However, MACD divergence signal seldom occurs. But when it makes an appearance immediately take note. A MACD divergence signal is a strong signal for a trend reversal. Another momentum indicator that can help you anticipate when the prices are at the verge of breaking out is the RSI.

A reading of 70 and above indicates that the currency pair is overbought. A reading of 30 or lower indicates that the currency pair is oversold. RSI stands for the Relative Strength Index (RSI). The RSI measure the relative changes between the higher and lower closing prices over a period of time.

However, an uptrend could register a prolonged period of overbought conditions whereas a downtrend could register a prolonged period of oversold conditions. The most useful way of applying RSI is through its divergence signals.

Like MACD, bullish divergence occurs when a currency pair declines to a new low but the RSI makes a higher low. A bearish divergence appears when the currency pair rallies to a new high but RSI makes a lower high instead.

For the breakout trading strategy, using momentum indicators like MACD and RSI can sometimes provide clues to internal trend weaknesses since momentum proceeds price change. However, remember that it is very difficult to predict with 100% accuracy the success of a breakout.

Trading breakout can be a very profitable strategy if it is applied sensibly after thorough analysis. Detail technical analysis of the current and past price action must be carried out in order to tilt the odds of success in your favor before implementing the breakout trading strategy.

Breakouts frequently occur along trendlines. A trendline breakout could signal a reversal or continuation of trend. Price breakouts may be triggered by sudden forex related news or comments or unexpected geopolitical events. In case of a trend continuation, this break may indicate a temporary interruption in the prevailing trend or signal that the trend will continue but at a slower pace.

Trading channel breakout is a very profitable strategy among the currency traders. A channel basically consists of two parallel trendlines which can be drawn to encapsulate the price action. You can view the price action taking place between the support and the resistance as forming a channel.

When there is a lack of momentum or the breakout is small and weak, a whipsaw breakout usually occurs. When prices move out of a price range, then back into the price range and then breaks out of the level again, stopping both breakout traders and faders at least once, whipsaw takes place.

Reasonably placed stops can help preserve your capital when the price breakout does not go your way. Some times the price action is so choppy that it is better to stay out of the market. Breakouts all carry some risk of failure.

Successful trading of a reversal breakout obviously means massive profits in the shortest possible time. The important thing is to identify a breakout with a false breakout. How do you know if a breakout is going to reverse the current trend?

You should look out for certain reversal chart patterns that tend to serve as harbingers of a trend change. If you spot these chart formations in daily or weekly charts, there is a high chance that a reversal may be in the works. Examples of such patterns include head and shoulder, double top, double bottom, triple top, triple bottom etc.

Momentum indicators also known as oscillators are leading indicators. You can also make use of the momentum indicators to tell you if a trend is nearing its end in addition to looking for these chart patterns. They help in identifying a trend reversal before time.

Moving Average Convergence Divergence (MACD) is one of the simplest, yet most dependable indicators for a trader. MACD consists of three exponential moving averages (EMA). The MACD line is the difference between the 12 period EMA and 26 periods EMA. Usually a signal line consisting of 9 period EMA is plotted together with the MACD line.

A better visualization of the MACD is in the form of a histogram. A bullish signal is given when MACD line crosses above its signal line. A bearish signal occurs when the MACD line crosses below its signal line.

The MACD histogram tracks the speed of the price action. For example, if the price move accelerates with an upside breakout to a higher level as more and more buyers enter the rally, the histogram should become bigger.

Each line becoming longer than the previous line as the speed of the price movement accelerates in a quick rally. On the other hand, when the price movement decelerates, the histogram will contract. Each line will become shorter than the previous line.

You can detect trend reversal breakout with the help of a MACD divergence signals. When the currency pair rallies to a new high but the MACD histogram declines then a bearish divergence is formed. Read the next part of this article for more.