Candlestick Trading
How to use Japanese candlestick patterns and candlestick trading techniques to maximise profits
Weekly trading review
May 24th
Last week was a particularly good week for trading, with lots of profits out there. The markets have been a bit hectic recently, and patience has been required; definitely not the roght time to go looking for trades. With that in mind, I didn’t place a single trade on Monday, and had to wait until the afternoon on Tuesday before I took some positions. I took two trades at the same time; one was USDJPY and the other was EURUSD. Both trades were short.
I’ll start with the USDJPY trade. The Yen has been all over the place in recent weeks, and a lot of people have stayed away from trading it. However, I saw a pretty good set up and entered the trade on the spike high doji candle. There had been quite a few spike highs in the preceding hours and so that combined with an overbought stochastic and touches on the Bollinger bands was good enough for me. The trade went along nicely, and there were two potential exit points. The first occurred after a few hours (trade was 50 pips up at this point). There was a bullish candle, and whilst it was not a reversal candle, the stochastic was oversold at this stage, and with the Yen behaving as it had been, there was no shame in taking profit here. However, if you had held the position, you would have bagged another 50 pips, with the exit point being the bullish candle which retraced more than half of the body of the preceding candle. I however, closed at the first candle, mainly motivated by the profits I had going on the EURUSD trade which was running at the same time.
I got into this trade after the appearance of the dark cloud cover candle circled above. The Euro has been on a one-way ticket down in recent weeks so although there hadn’t quite been a touch on the Bollinger Bands, the price action was at a resistance level and the stochastics were over bought. With the Euro in such a downtrend, patience is really required when trading it as you need to wait for a reversal and pull back to a resistance level so that you can get back in short at a good price. I In the next few hours the trade went beautifully, with the price dropping rapidly. I set my targets on the previous low at 1.2231 (entry at 1.2408) for a profit of 177 pips. My overall profit for the day was therefore 227 pips. I stopped trading for the week at that point; I see no reason to give back my profits once I’ve made them.
Trader Outlook
May 12th
Sorry for the long period of inactivity; things have been really hectic here, I’m working towards an MBA and had a bunch of assignments due.
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The whipsaw song
Apr 8th
This song contains some great trading advise. Let it be your trading mantra!
Back after Easter!
Apr 7th
Well, I hope everyone had a good Easter break!
After a few days off from trading over the holidays, I’m back at the trading desk and ready to review more trades. Here is a trade I took yesterday, based on all these candlestick trading principles this blog is based on.
The trade was on the GBPUSD and was long. The entry signal was the large bullish candle that I’ve circled on the chart below. This candle came off the 38.2% Fibonacci. The candle was however quite large and luckily for me happened whilst I was away having lunch. I say lucky as it allowed me to get in at a better price on the retracement. Normally this wouldn’t have been the case, I would have gotten in with a half sized position due to the large stop required, but I guess sometimes you just get lucky! I entered the trade on the close of the second bearish candle in the chart after it failed to make it passed the resistance/support level of the 38.2% Fibonacci(1.5156). I’ve circled and marked this region on the trade as retracement. Because I got into the trade at a much better price than if I had gotten in on the first trade signal, I was able to take a full size position and keep a small stop loss. I set my original target profit to the 78.6% Fibonacci and let it run. Unfortunately, I had to go out and wasn’t able to stick around to watch the trade, and so I modified my take profit to the potential resistance point 12 pips below the Fibonacci 1.5240). The trade ended for me at this point with a profit of 84 pips. All in all, a nice welcome back from the holiday!
Results from yesterday’s trade
Mar 24th
Well, yesterday’s trade didn’t go exactly according to plan. As I mentioned I was aiming to get to the 38.2% Fibonacci, which would have been worth about 110 pips. Things were going really well, and I think I got as close as 6 pips away from my target and then the market changed. Luckily, once I was about 50 pips up I put a trailing stop-loss in place in case things didn’t go my way, and I was stopped out for a profit of 61 pips. A good result, but it would have been better if I had bagged all the pips on offer.
This just goes to show that sometimes, everything is looking good but the market can change on you. Reviewing the trade today, I think I would have done the exact same thing. At the time the market changed, the stochastic wasn’t indicating that the market was overbought, and so I feel that I played the trade correctly; but I am glad that I put that trailing stop loss in!
Candlestick trading in action
Mar 23rd
Just took a trade (well, entered it a couple hours ago) and thought I’d post my reasons for getting into it and what I hope to get out of it.
Yesterday I entered a long position on the GBPUSD after the candlestick trading entry signal of the bullish engulfing candle. I set my stop loss to 10 pips below the opening price of the bullish engulfing candle. As I was going to be at my desk, I let the trade run rather than set an automatic take profit. As the trade got up to the 38.2% Fibonacci level I started to meet some resistance and after a couple hours it hadn’t managed to break through that resistance level so I took my profit (just over 130 pips). A few hours later, the price retraced quite a bit.
A couple of hours ago, there was another candlestick trading entry signal. This is the trade I am currently in. The trade has been running for two hours now and I’m up about 40 pips. I’ve set a take profit level on the 38.2% fibonacci level, and that’s about 70 pips away from my current position. So far things are looking good; I’ll post again tomorrow to let you know how it worked out!
JPYUSD Candlestick Trade Review
Mar 17th
I know its a bit late for anyone to act on, but I thought I’d go over a classic candlestick trading setup that occurred yesterday on the JPYUSD. As I said, too late for you to capitalise on, but it helps to become familiar with what a good trade looks like, and what to look out for when deciding when to exit the trade.
Whenever you are using candlestick trading techniques, you want to be trading in the direction of the longer term trend; in this case, we are looking to buy. The next thing we need is to identify a good entry point. We use a variety of indicators to help us, but once we get into the high probability areas (high probability of the market direction changing) we need a signal to tells us to enter the trade. I look for candlestick patterns to give me that signal. In this example, the candlestick pattern that signalled the entry point was the hammer candle that I’ve highlighted on the chart below. So now that we’re in the trade; we need to try figure out when to take our money. Using various resistance points we can identify potential places where the trade may turn against us. In this chart, the first potential place was the 50% fibonacci. This line coincided with a previous resistance point, so we could suspect that it may happen again. Again, we look to the candlestick patterns for help. In this trade, the candlestick smashed through the resistance point and closed above it. As it was still climbing strongly, we would shift our attention to the next potential resistance point, on this chart the 61.8% fibonacci line. As the candle approached this line, the price action retraced forming a bit of a spike high. However, we should never really act solely on one candlestick pattern, we should usually wait for a confirmation. The next candle again formed a spike high, so that was the signal that there was a high probability that the trade was about to turn. These candlestick patterns coincided with overbought stochastic so all the signs were there to close the trade. If you exited at the point, you would have made a healthy profit of around 60 pips. If however you ignored the signals and remained in the trade you would have given a whole lot back to the market.
Back to buying GBPUSD
Mar 11th
The trendline that had formed in the first half of the week has been broken so we’re looking to buy GBPUSD again.
Results of GBPUSD trade
Mar 10th
Yesterday I posted about a potential GBPUSD trade on the 1 hour charts; lets have a look how that trade worked out. The trade warning came with a few classic candlestick trading indicators, with the inverted hammer and there was a potential spike low candlestick forming. That candle never quite materialised so I decided to hold off entry and potentially get in the trade with a bounce off the 38% Fibonnaci. This turned out to be a good call and the ideal entry point. My initial target was the 61.8% Fibonacci, but after a run of reversal candlestick patterns, I decided to take my profits early with a reward of just under 60 pips. This trade shows how you really need to keep an eye on what the candlestick patterns are showing, and use that information as part of the big picture.
It seems now that the bullish nature of last week in the GBPUSD has ended and that we’ve entered a bit of a down trend. My strategy has therefore now switched to selling the Pound. I would look for candlestick trading signals, hopefully bouncing off the trend line, with a target of 1.4779, the zero Fibonacci. Around that level we can expect some resistance. If the price action breaks back through the trendline, it could become a new support (rather than the resistance level it currently is) so we’d then look to start buying again.
Potential GBPUSD trade
Mar 9th
Hey everyone, there’s potentially a trade setting up on the GBPUSD 1 hour chart. If you look at the chart below, there have been a couple of candlestick trading signals that are coinciding with an oversold stochastic and touches on the lower Bollinger band. The first candlestick trading signal was the inverted hammer candlestick pattern that followed a small bullish candlestick pattern. I usually like to wait for a confirmatory candle before entering a trade, and as I write this, a spike low is forming. If the hours closes with the spike low I would look to buy, however the spike low could mean that you have to have quite a large stop so a half-sized position may be needed to reduce your risk.
