Forex Beginner Guide

USDCAD Short Position @ 1.0825-1.0845

The USDCAD has rallied as visible in this 4-hour chart (H4). This currency pair has formed a bump-and-run formation which is a bearish chart pattern as marked by the light red triangle in the above chart.

Click to enlarge picture.

We expect the USDCAD to correct back down to its support zone which is marked in light blue in the above chart.

MACD confirmed the rally as momentum increased, but a gap has formed between the histogram and its moving average which is a bearish sign. RSI is trading in extreme overbought territory and a breakdown should further fuel the correction.

We recommend a short position at 1.0825-1.0845 with a potential second entry level at 1.1000. Take Profit Zone: 1.0650 – 1.0700

We also recommend a stop buy order at 1.0875 with a take profit target of 1.1000 in order to hedge our short position and before adding new short positions to this forex trade.

Traders who wish to exit this currency trade at a loss are advised to place their stop loss order at 1.0875.

Bearish Falling Three Methods Candlestick Pattern

The Falling Three Methods pattern occurs in a bear market, where during a downtrend the market rests before resuming the trend. The bearish trends break is reflected by small candles that all stick to a strict market range formed by the aggressive move on day one.

• Direction: Bearish
• Type: Continuation
• Reliability: Strong
• In a downtrend, a long red day occurs
• The second, third and fourth days are short blue days that fall within the range of the first day
• The fifth day continues the downtrend with a long red candle that creates new lows

A typical explanation for this type of formation might that the market is slowly digesting the relatively larger move in day-one. These small daily ranges often precede significant economic reports. Such periods of relative inactivity and tight trading are common in markets. Falling Three Methods is confirmed where a red candle dives down to new lows reinstituting the bearish trend.

Number of Middle Candles – In a picture perfect formation the middle candles number three. But realistically the pattern may have two, four or even five candles. Individually each middle candle may be a star or doji, red or blue.

Middle Candle Wicks – Important to note is that each middle candle wick needs to stay within the first candles high/low range to signal a strong continuation signal. With the bearish Falling Three Methods this is especially important for the highs. Should a wick trade to a high above the first large red candles high, it casts doubt over the strength of the established down trend.

Bearish Downside Tasuki Gap Candlestick Pattern

Like so many moderate strength formations, candlestick analysts like to see additional confirmation. This confirmation of continued bearish trend could come in the form of another red candle upon day four.

Direction: Bearish
Type: Continuation
Reliability: Moderate

• First day is a red day
• Second day is a red day that gaps downward
• Third day is a blue day that closes within the gap of the first two days

The first two candles of this formation continue a downtrend with the second red candle gapping, suggesting strong bearish sentiment.

A blue candle on day three indicates investors taking advantage of low prices to buying.

But when the third days price action does not fill the gap created between the first and second days candles, traders take this formation as a sign that the downward trend may likely still continue.

Bearish Three Line Strike Candlestick Pattern

So long as the previous downtrend is an established one, candlestick analysts view this formation as a sign that the downtrend may still continue.

Direction: Bearish
Type: Continuation
Reliability: Weak

After an established downtrend three long red days in a row continue this move, each closing lower than the previous day
Day-four is blue candle that closes near the open of the first day

The first three days serve as a fairly clear bearish move. Up to day-three in fact we have a Three Black Crows formation which is a strong bearish signal.

One day of rally that only goes up to the open price of the patterns start is considered to be more sellers covering their positions than any true sign of a reversal. Thus traders will watch for short entry opportunities to come.

Since the overall signal is fairly weak, most will want confirmation in the form of bearish price action the next day.

Japanese Candlestick Side By Side White Lines

The bearish side by side white lines (narabi aka) candlestick pattern is one of the triple candlestick patterns (i.e. it consists of three individual candlesticks), and it is a bearish pattern.

The bearish side by side white lines candlestick consists of a downward candlestick (i.e. a red candlestick), followed by an upward candlestick (i.e. a green candlestick) that opens below the close of the first candlestick (i.e. a gap down), followed by another upward candlestick (i.e. another green candlestick) that opens below the close of the second candlestick (i.e. a gap down).

Note that the gap down between the first and second candlesticks is not closed by either the second or third candlesticks.

Use In Trading

The bearish side by side white lines pattern can occur in a number of different contexts (e.g. at the beginning of a trend, during a trend, at the end of a trend, etc.), but it is most relevant when it occurs during a significant downward trend.

The bearish side by side white lines pattern is a bearish pattern, and can be used as an indication of the continuation of a downward trend.

The bearish side by side white lines pattern is relatively easy to identify on a price chart, and as long as the important elements of the pattern are provided (e.g. the gap down that is not closed), the pattern can provide a useful indication of upcoming price movement.

Japanese Candlestick Bearish In-Neck On-Neck Patterns

First day we’d see a long red candle. The second day is blue day, opening below the low of the first day and closing barely into the body of the first day.

Direction : Bearish
Type : Continuation
Reliability : Moderate

In Neck

On Neck

In non-FX markets the In Neck starts with the red continuation candle, day two gaps down to open well below the close of day one – then rallies back up to day-one’s close.

In Neck suggests that the despite the large bullish move by the blue star on day-two – when the market moves deeply down, only to rally back it, the market is still continuing the downtrend and capable of additional bear moves in days to come.

The On Neck suggests very similar analysis of market sentiment. But because the On Neck does not trade up to the previous day’s close or into day-one’s candle, it serves as a strong bearish continuation signal.

Bearish Thrusting Japanese Candlestick

The Thrusting pattern starts by a continuation of the established move. Day two reflects a bullish rally that closes into the body of the previous day, but is not able to trade above the midpoint.

Direction: Bearish
Type: Continuation
Reliability: Weak

In an established downtrend, day-one of the pattern is a long red candle continuing the trend
Day-two is a blue day that closes into the body (below midpoint) of the previous day

The pattern suggests that sellers have not been weakened by the bull rally and if anything, shorts have simply covered their positions allowing price to rise slightly. Going forward the lack of strength exhibited by buyers would discourage longs to enter the market, and allow the continuation of the downtrend.

Because this patterns signal is so weak, analysts will look for confirmation from bearish moves the following day.

The Bearish Thrusting Pattern is very similar, but weaker than the Bullish Harami and Bullish Engulfing reversal patterns. Where the day-two close on the Thrusting pattern closes below the midpoint, Haramis close hits at or above the midpoint, the Engulfing patterns’ day-two close reach above day-ones open.

Bearish Thrustin vs In Neck and On Neck Continuation Patterns Visually, the bearish Thrusting looks similar to the On Neck and In Neck Patterns as well.

Strong continuation On-Neck

Medium Continuation In-Neck

Weak Continuation Thrusting

Japanese Candlestick Rising Three Methods

Rising Three Methods is a five candlestick bullish continuation pattern.

The pattern occurs in an uptrend where the first day is a long bodied white candle.

This is followed by three small bodied candlesticks where each trends lower and closes inside the body of the first candlestick.

The pattern is completed by a long bodied white candle that closes above the close of the first candle in the series.

Japanese Candlestick Bullish Three Line Strike

Continuation patterns suggest the market will maintain an established trend. The formation of continuation candlestick patterns imply consolidation, a time to rest and watch.

Direction: Bullish
Type: Continuation
Reliability: Weak

Three blue days occur in a row continuing an established bull trend.
Each day should close higher than the previous day.
Day-four is red candle that closes near the open of the first day

So long as the previous uptrend is an established one, candlestick analysts view the Three Line Strike formation as a sign that the downtrend may still continue.

The first three days serve as a fairly clear bullish move. Up to day-three in fact we have a Three White Shoulders formation and a strong bullish signal. One day of sell-offs that only goes down to the open price of the patterns start is considered to be more a sign that longs are covering their positions than any true sign of a reversal. Thus traders will watch for long entry opportunities to come.

Since the overall signal is fairly weak, most will want confirmation in the form of bullish price action the next day.

Hi! I’m a bad forex trader!

Let me tell you guys... This is a painful thread to start. But considering my trading biography I think I am morally obligated to propose this little round table. It might be provocative for some, for me (and I hope for other rookies too), it’s somehow cathartic. So, bear with me fellow traders!

These last few days, using Tim Wilcox’s “trading plan template”, I objectively came across with some personal difficulties that might be permanently impeditive to the possibility of success. Also considering that (they say) 90 to 95% of traders fail to be consistent, I might deduce that these impediments are scaringly frequent and transversal to those who start their turtle walk through the business of trading.

This thread is an impudic description of my failure to understand this business. Through the expression of my frailties I hope that others can join me and start a dynamic group of mutual support that might help us cope with our limitations. If this is not your thing, no worries, use this thread the way you want. There are no limitations and no rules for the expression of our frustrations here… as long as you keep within minimal ethical standards, fire away!

First and obvious considerations:

Trading the forex market for a profit is hard! As hard as it gets! Fewer intellectual challenges are as hard as this. But so managing a restaurant in New York! I keep believing it is possible to be profitable… just don’t know why!
There is no holy-grail. This is obviously not debatable.
I never met a successful forex trader in person. That’s as hard as finding a gnome! But they say they exist…

Click to enlarge image.

My frailties:
I will share my frailties point by point in the hopes you can identify with it (or not). So let’s start this psychological stripping:

I’m arrogant: I always believed I’m intellectually superior. I always believed there is no problem I couldn’t solve. I’m an intellectual dictator. If I think it, it must be right!
I’m skeptic: I have a very hard time believing other fellows systems and strategies. At the first sign of trouble I have a tendency to disbelieve the system. At that moment I lose control.
I’m obsessive: If I fail I tend to keep at it until it hurts. And I like to have the feeling I can control all the variables. Considering the randomness of this business you might imagine what being a control freak means… total psychological disruption! In the end I just lose my confidence real easy!
I’m ambitious: I hate to lose. I want to win for the sake of winning. I must be the best at all times. I want to chase the markets to recover losses. In the trading business that’s a very good way to ruin your account.
I’m emotionally labile: all the characteristics above produce a very unstable mental situation. When winning I become an arrogant jackass, when losing I become clinically depressed. What a fruit cake!

My vicious circle of failure:
Let’s combine these characteristics and see what we get.

First I look at a chart, I examine it and I act according to my strategy. All good. Usually I get it right the first time. I become intellectually arrogant. I think I know what’s happening and I act in a relaxed more instinctive manner. The impulsiveness get me a little off track. I start to get scared with the possibility of losing. I tweak the system to protect myself. Then all hell breaks loose. I get into my position with an ambivalent felling to it. On one side there is my belief of the market development, on the other side there is the fact that I didn’t follow the system and I know that that might change the results. I start to get all doubtful and at the first sign of loss I panic. I retweak the system to protect myself even more. Even get trading frozen. I start to have serious doubts and all that system changes get me to lose more and more frequently. I start disbelieve my strategy. I start considering all strategies to be “snake oil”. I eventually give up. I stop believing that it might be possible to be successful at the trading business.

These cycles last for, normally, 3 to 6 months. Then I take a vacation of 3 to 4 months: I cannot look at the charts. I feel traumatized and cannot get into it again. After that time out, one day I look at a chart again and then an amazing thing happens. The trading bug bites me again and I jump into it even stronger than before.

This story, my friends, have been lasting for 4 years now.

The only thing I am proud of is that in all this deleterious vicious circle I haven’t spent a dime of real money… at least I’m that wise!

I designed this system of variables in a schema that you can see in anex. This way, the interactions are more clear (I hope). See how the green circle (circle of profit) feeds the red one (circle of loss) and not the way around. See how my skepticism is the factor of desistance. See how my tweaking is the central deleterious reaction. I think that this is nothing new for you guys but at least I got it on paper, for everybody to see, and for me to look at. This way I cannot escape.

I leave you for now saying… Hi, I’m a bad forex trader!

USDJPY Buy Zone

The USDJPY has corrected from its horizontal resistance as visible in this D1 chart.

This currency pair is now approaching its horizontal support level from where we expect to see another reversal as the USDJPY has been confined to a tight trading range and there are currently no pressures to breakout or breakdown from its current chart pattern.

MACD has shown improvement and points to an absence of extreme bearish pressures to drive this currency pair lower. The histogram has gaped away from its moving average which remains in bullish territory and we expect this gap to be closed during the next move higher. RSI is trading in oversold territory and a breakout should initiate the minor rally.

We recommend a long position at 97.00 with a potential second entry level at 95.75. We also recommend a stop sell order at 96.25 with a take profit target of 95.75 in order to hedge our initial long position and before adding new long positions.

Traders who wish to exit this trade at a loss are advised to place their stop loss order at 95.75. We will not use a stop loss order and execute this trade as recommended. Place your take profit target at 99.00.

Here are the reasons why we call the USDJPY currency pair higher

The USDJPY currency pair has corrected from its horizontal resistance level and is now approaching its horizontal support zone
MACD indicates the absence of bearish pressures and the histogram has gaped away from its moving average which expect to reverse
RSI is trading in oversold territory and a breakout should initiate the move higher
Profit taking after a decent move lower in order to realize trading profits
New long positions by institutional swing traders

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