In this video we are going to focus on the candlesticks,
so I'm not opening any trade.
You will have the section with the live trades later on in this course.
For now I want you to understand how to analyze the market with the tools that you have studied so far.
Now that you know all the candlestick patterns,
it may be easy for you to recognize them if I show you a picture of a pattern but maybe it is not so
easy when you have an entire chart in front of you.
Hopefully, after practicing with this chart you will feel more confident.
So let's analyze the chart together.
Here we have pound dollar on a daily chart and the first thing you need to do is to identify the trend
because we have seen that all the patterns or almost all the patterns need a direction to be identified.
For example you can't find any bullish engulfing pattern if the price is already moving up or you
will not find any shooting star if the price is already going down.
So before analyzing the single candlesticks, it is important to understand if the currency pair is in
an uptrend, a downtrend or a sideways trend.
We can zoom in to have a better view of the candlesticks and we can start to analyze the currency pair
from the very beginning of the up-channel.
So in the first phase, the price is going up.
It is quite obvious because we have many long green candles on the market.
There's a tweezers top here,
but in any case I'm not going to open any short position with the pair that is in an uptrend.
The first important red candle is here,
but in any case the green candle that precedes the red candle is bigger,
so we don't have a significant clue to say that sellers are stronger than buyers at this point but at
least with this red candle we can start to think that sellers may find convenient that price.
After that, we have some small candles and another red candle here but then the price starts to go up
again.
When the price reaches the top of the channel, we have a bearish engulfing pattern, that is this one, with
the second candle that pushes the price down. Here I would probably start to think that this might be the beginning
of a retracement of the price.
So the price is going a bit down after a long rally.
It's like that buyers made their move and now they're taking a breath.
Another thing that is very interesting to analyze is that this bearish engulfing pattern appears at
the same price of that long red candle that I have analyzed before. I said that it was the first significant
candle and probably it was a sign that sellers find convenient to sell at that price.
And here we are again with sellers that take the chance to sell the couple at this price again.
Actually we can see that the price goes down and here we find a doji on the market.
What does this doji say? The same thing that any doji says: there's indecision on the market.
You can see that after the doji, there's a lateral phase on the market, with the price that is not going
up,
it's not going down,
it is just following a minor sideways trend. After this doji,
you can see that in this session
sellers try to push the price down but buyers reacted. And the opposite happened in this candle with
buyers that made their move but sellers managed to close near the opening.
So it is a lateral phase in which buyers and sellers are trying to take control of the market,
but no one is prevailing for now.
Then we have the price going down again.
It is quite easy to recognize the down movement because of all these red candles here. At the end
of this down movement,
we have a hammer, that is also near the bottom of the channel.
So this is a pattern that I want to consider to open a long position on the market.
I don't particularly like that the real body is that big,
even if it is easy to see that the lower shadow is at least the double of the length of the real body.
So at this point, I start to think that buyers are stepping into the market and they may have the power
to push the price up, following the uptrend. At least for the first following sessions,
I was not right, because the price continues to go down a bit more. At this point we have 2 dojis
that may indicate that the retracement is coming to an end because a doji expresses indecision
and here we have two dojis that are also near the bottom of the up-channel.
So this is a very positive signal.
The price starts to go up again, then there's a red candle and this gives me another clue that buyers
are strong.
You can see that this red candle has a long lower shadow, so it means that sellers were pushing the
price down but buyers reacted.
This means that for sellers is hard to go below this price because they find the resistance of
the buyers. After that candle, there's a very strong green candle that also forms a bullish engulfing
pattern.
The price goes up without any huge problem
and the first pattern that we face, that shows a trace of sellers on the markets, is here with the two candles
that can be confused with a bearish engulfing pattern.
Honestly, I wouldn't consider this one as a bearish engulfing pattern because you can see that at this
point there's a very low volatility and the candles are very small if you compare them with the previous
ones.
So this pattern is not so significant because the shadows and the real body are very small and this
means that the market was just quiet at that moment.
I'm glad that we have studied the pattern in a very logic way,
so you are able to understand the market without just saying: "oh there's a bearish engulfing pattern, I need
to sell the currency pair". Then going on we have other two green candles that confirm the uptrend,
but then we have a strong red candle that also forms a bearish engulfing pattern.
So at this point, I would be a bit worried for my long position and I would monitor carefully next sessions.
Buyers immediately react in the next sessions,
you can see three green candles that almost recovered the loss caused by the long red candle.
Then we have a doji almost at the same price of the bearish engulfing pattern
and this is not good for my long position because it confirms that at that level sellers may find convenient
to place they short positions.
I want to draw a line to check this price because I also think that it has been an important level in
the past.
Actually there's a doji at this price, then a bearish engulfing pattern and then the lateral area that
we have identified before, and this price matches with the resistance of the minor sideways trend.
So my suspicions proved to be well founded. At this price level sellers seem to find convenient selling
the couple and actually the price starts to go down again.
Ok, so I can cancel this line now and analyze what we have at the end of this down move.
We have another doji, again near the uptrend line that defines the bottom of the up-channel and you can
see that the price starts to go up again.
So it is a very interesting battle between buyers and sellers.
It looks that buyers are in control and, in general, the price is following this up-channel.
We have already identified three price levels where buyers push the price higher.
The first one is at the beginning, where the price goes up forming very strong
green candles.
Then again buyers find convenient opening their long positions on the uptrend line here and now, after the
doji, the price is going up again.
There are also levels where sellers find convenient to place their short positions and they manage
to push the price down.
But I would say that buyers are stronger, especially because the price is forming higher lows,
that is typical of an uptrend.