Part 13 Technical Analysis – Sitting candles

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Education.
    Free Demo Account.
    Get Your Sign-Up Bonus Now!

  • BINOMO
    BINOMO

    Recommended Only For Experienced Traders!

Advanced Technical Analysis

Course Overview

eduCBA brings you this Awesome course on Advanced Technical Analysis Training. This detailed course will help you understand all the important concepts and topics of Advanced Technical Analysis.

Advanced Technical Analysis Training Courses

Study the past to learn the future. That’s the basic idea behind the seemingly complex subject of technical analysis. Those in the profession are often called “chartists”, besides being more popularly known as technical analysts. They use mathematical and statistical formulas and data visualizations on the price movement for studying the performance of an asset class over time. They then advice on buy, sell, or hold recommendations, depending on history repeating itself. There are several technical analysis tools that can be used automatically, or in combination, to arrive at a supply-demand trading strategy.

The advanced technical analysis training course is designed for individual stocks, exchange traded funds, index futures, and similar other instruments for analyzing the market trends and behaviors so as to distinguish, classify, and properly time the trades. In this course you’ll learn how to determine a market’s overall direction and then take a call which is congruous to the market. Curriculum of the advanced technical analysis training course is focused on price-based technical analysis using major indices as forecasting instruments.

Valuation, Hadoop, Excel, Mobile Apps, Web Development & many more

There are a number of approaches to technical analyses. These include the Elliot wave theory, Dow Theory, cyclical analysis, Fibonacci analysis, and many others. The most popular methods are divided into two key branches, known as the statistical approach and chart analysis (commonly known as charting). With the chart analysis, the technical analyst tries to hunt for patterns forged by price movements of a particular stock and one that occurs repeatedly. Patterns like double bottoms or head and shoulders, for instance, are taken as typical chart patterns. When the technical analyst detects such a pattern, he/she executes a trade depending on the price direction expected to be followed, depending on the pattern.

The other branch, statistical analysis, is comprised mostly of research and use of many technical indicators. These are derived from the historical market data of the stock and are largely used to forecast changes or reversals regarding the strength of trend. Several of these statistical indicators project buy and sell points. There are various types of indicators, from simple ones like moving averages, to a more complicated one like the swing index, for which complex mathematical formula of several lines is used. Technical analysis monitors the price movement of the stock and may not recommend a buy or sell call. It’s the analyst who has to read into the analysis and decide.

What you’ll learn

Here are some of the key concepts you’ll learn in the advanced technical analysis training course.

  • In-depth introduction to advanced technical analysis along with its merits. Also, understanding trader psychology and how to trade successfully by forging the perfect blend.
  • The key traits required to become a seasoned technical trader along with the disciplines you have to adhere.
  • Understanding how to come up with a healthy trading psychology that has to be different from the crowd.
  • Principles of Dow Theory i.e. interpreting trends and then combining them with all support and resistance levels to sharpen the entry and exit signals for both positional and day trading.
  • Understanding chart patterns, the psychology that works behind a chart pattern and its formation, interpreting the patterns, the importance of volumes while using the patters, and finally, evolving a trading strategy that’s based on the patterns.
  • In-depth study of the moving average concept and the role it plays to determine the trade. Learning the multiple uses of moving averages at different time horizons for the trades.
  • Setting unconventional as well as classical indicators and their application towards positions, investments, and day trading.
  • Using Fibonacci to set price targets.
  • Trading in Futures and Options with a fundamental study of risk, reward, and timing related to the derivative-based trading approach.
  • Exposure to real life circumstances using mechanical systems along with technical analysis. You learn about running scans and stock picking on a real-time basis.
  • Money management and coming up with a mechanical trading system.

What is advanced technical analysis?

Simply put, advanced technical analysis is the study of investment behavior and the effect it has on price action of financial instruments. The key data we need to carry out our study include the price history of the stock or the particular financial instrument, along with the volume and time information. It helps us to form our views, depending on certain facts.

Technical analysis versus fundamental analysis

Fundamental analysis is concerned with determining the value of stocks and similar other trading and investment instruments. Fundamental analysts bother themselves with the complex relationships between demand forecast, financial statements, the quality of the management, growth and earnings, and similar factors. They would then apply their judgment on the stock or commodity, or the financial instrument, which is often relative to the sector or market peers to form a judgment whether it’s over or undervalued.

Most of the stock research carried out by investment banks or brokers are based or company fundamentals. At EduCba, we admire much of this work and take a more practical approach to investing and trading. We analyze the ways by which investors interpret fundamental data and how they behave. This behavior, collectively, is called investor sentiment. It’s often the key factor to determine the fair price of an instrument.

Technical analysis, on the other hand, holds the key to monitor investor sentiment. Many experts and investors believe that technical and fundamental analysis is exclusive of each other. But the fact is that both of them are actually complementary and works together and informs you what and when to sell or buy. Most successful traders use a combination of fundamental stock selection and technical analysis timing filters with profitable results.

It should be remembered that technical analysis, particularly chart reading, is highly subjective. The success is hugely dependent on the experience of the advisor or user. A more experienced analyst will be better equipped to determine the pattern of the price movement or a probable trend reversal. That’s one of the major reasons why most stock traders combine fundamental analysis with the technical part. In such cases, technical analysis is the most suitable to plan the buy and sell points for the positions. It makes the difference between the profit or loss derived from a stock, especially in Futures and Options trading.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Education.
    Free Demo Account.
    Get Your Sign-Up Bonus Now!

  • BINOMO
    BINOMO

    Recommended Only For Experienced Traders!

Important points of technical analysis

Here are some of the main things we get from technical analysis.

  • Study of the price charts i.e. historical prices of a stock in conjunction with the present
  • Works best for stock that are traded in huge volumes.
  • Largely based on the law of demand and supply
  • Projects the mindset of a greater number of people

Course description

The advanced technical analysis course description is as follows.

  • Introduction: You are introduced to technical analysis concepts in this section.
  • Moving averages: This section is divided into six parts. You get to learn about the types of moving averages, time span, exponential moving average, the 100 day EMA chart, simple versus exponential moving average, and moving average settings.
  • Understanding momentum: Topics covered in this section include introduction to momentum principles, rate of change indicator, selection of the time span, interpretation of momentum characteristics, and oscillatory characteristics in the bull and bear markets.
  • Overbought and oversold: This section is divided into six parts. It includes understanding of the overbought and undersold region, overbought and oversold crossovers, mega overbought, oversold and extreme swings, simple and complex divergence, and smoothed momentum indicator.
  • Float and float turnover: This section is divided into 15 parts. Topics covered include introduction to float analysis, the float and float turnover, smart money and losing money scenario, importance of float analysis at the top and bottom, the principle of float analysis, 10 discoveries to understand float formation, inverted flag formation, understanding and profiting from the float turnover, redefining support and resistance, valid breakouts, successful strategies, playing the upside and downside, and float analysis formation.
  • The art of asset allocation: This is the last part of the curse. You’re introduced to the art of asset allocation, followed by the process, personal investment strategy, suggested allocation, and seven steps to plan your financial life.

Requirements

This is an expert level course and a bachelor’s or a master’s degree in a business major, like finance or economics is required to pursue it. Mathematics or statistics graduates are also eligible. Some firms require their technical analysts to be MBAs. Though it’s an expert-level course, it begins with the fundamentals of technical analysis, following which you’ll learn about the various advanced strategies. Every individual who wants to make a career out of the stock market can join this course. It’s open to working professionals, students, retired officers, housewives, novice traders, business personnel and any other interested person.

Technical analysts must have both analytical and critical thinking skills. They have to deal with the public in general and present strategies and financial data. They should have good communication skills. Those wanting to join the advanced technical analysis training course must have experience in working with electronic spreadsheets and analysis software. We recommend participants to take the technical analysis with iCharts training before joining this advanced course.

Target audience

The advanced technical analysis training course is targeted at the following.

  • Undergraduates who want to make a career in technical analysis.
  • Students wanting to seriously pursue technical analysis as a career.
  • Investors and traders who want to make money in the capital markets using advanced technical analysis.
  • Non-finance professionals and career changers who want to cultivate an extra area of proficiency or people seeking to change their career into stock trading.
  • Investment and treasury professionals working with banks or nonbanking financial institutions.

FAQs: Some general questions

  1. How can I take the course?

The entire course will be conducted online with video tutorials. There are more than seven hours of HD videos with over 38 lectures by expert faculty.

  1. Do you provide any placement services?

No. EduCba trains professionals to become leaders of the market. They emerge as experts in their own fields. Our trainees have reportedly got better job offers than others.

  1. Can I take a break from the course?

All our courses are self-study and you can take them at your convenience. But a long gap between two sections is not advisable because that disturbs the flow of learning.

  1. From where can I access the tutorials?

Since all our courses are conducted online, you can access them from all over the world. A computer and a broadband connection are all that you need.

Testimonials

Sudhindra Khaitan

“The advanced technical analysis course by EduCba really helped me to make a mark in by stock broking career. I can now advice my clients better on trading strategy.”

Pushpa Kedia

“I am a chartered accountant by profession. I would like to thank EduCba for all the quality technical analysis training they gave us. I got to know many important concepts that I couldn’t understand before.”

Sushil Ayyar

“EduCba doesn’t support the mugging up concept. You have to understand all the concepts and only then you can make a mark as a technical analyst. The course was very enjoyable.”

Pratik Poddar

“Thanks to EduCba, I am working as a technical analyst in a top broking firm. I got several job offers after I took the course. I joined it after completing the technical analysis with iCharts training course from EduCba.”

Career benefits

Some of the major career of the course is given below.

  • Know how to prepare for the trading day and according to market conditions
  • Identify the market moves before they take place
  • Pocket large one-three daily gains using the swing trading technique
  • Have control on your order flow and act like a market maker
  • Identify the correct trading style, develop it, and know how to adapt to the changing market conditions.
  • Master and operate a good and sophisticated trading platform with a technical analysis software which is used by professional traders.
View Offline

View Offline – Internet-free viewing with your iOS or Android App

Watch offline with your iOS/Android app.

Start Your Free Trial Now

You can download courses from your iOS/Android App.

Technical Analysis: How to use advanced triple candlestick chart patterns for trading

The Three White Soldiers pattern can appear after an extended downtrend or a period of consolidation.

Narnolia Financial Advisors

There are more useful and regular patterns of three candlesticks which have been identified as a very important for price action trading and trend reversals namely Three White Soldiers Pattern, Morning Star Pattern, Three Black Crows Pattern and Abandoned Baby Pattern. Here, the trading signal is generated based on three day’s trading action.

Three White Soldiers Pattern

Definition

Technical View: Nifty forms Shooting Star pattern, experts say hold fresh buying for a close above 9,000

Technical View: Nifty jumps 9% to form Long White Day candle, 9,000 crucial resistance

‘Nifty can fall towards crucial support of 7,800-7,700’

A three white soldiers pattern occurs in the candlestick chart of a financial instrument when a strong green candle manages to closes above high of the prior candle, consecutively for two candles, forming strong three white candles. This pattern usually occurs during a down trend and is thought to signal the beginning of a bullish trend in the stock, commodity or currency.

Identification Criteria

• The market is in an existing downtrend.
• Three consecutive long white body candlesticks are observed.
• Each white candlestick opens within the body of the previous day

• The green body is formed on the second & third day has managed to close above high of the body of the prior day.

Validation

The Three White Soldiers pattern can appear after an extended downtrend or a period of consolidation. On the first day, the market opens lower in the direction of the existing downtrend. The next or second candlestick in the pattern is another bullish or long white candlestick, having a body slightly larger than the first candlestick. This second candlestick also needs to have little to no shadow and closing should be above high of prior candle. The last or third candlestick is another bullish candlestick that needs to be equal or greater length of a body than the second candlestick and closing should be above second body’s high.

When all three candlesticks appear as per validation, this chart pattern can be used to confirm the end of down trend and start of a new uptrend.

Morning Star Pattern

Definition

This is a triple candlestick pattern indicating a bottom out and trend reversal to uptrend. It is composed of a dark candlestick followed by a short candlestick, which opens lower to form a star.

Identification Criteria

• The market is in an existing down trend.
• A black body candlestick is observed on the first day.
• A short candlestick on the second day opens with gap down.

• The white body is formed on the third day, and it has managed to close inside or above first day’s black candle.

Validation

A downtrend is in progress and the formation of a black candlestick on the first day confirms the ongoing of the downward trend. The appearance of the short candlestick with a bearish gap on the following day indicates that bears are still active and prices are getting pushed downside. However, the narrow price movement on the second day indicates indecision and creates a doubt in bear’s mind about existing down trend and its strength. The third day is a white body candlestick where price closes well into the first day’s black body.

This pattern indicates reversal in trend, however strong move comes once price closes above first day’s black body’s high. Similar to Morning Star Pattern is Evening Star Pattern that indicates change in market from bullish to bearish.

Three Black Crows Pattern

Definition

Three black crows indicate a topping out pattern in the financial market. It is characterized by three red candlesticks moving downwards; however the opening of each day is slightly higher than previous close and prices progressively close at lower levels. This pattern usually occurs during an uptrend and is thought to signal the beginning of a bearish trend in the stock, commodity or currency.

Identification Criteria

• The market is in an existing uptrend.
• Three consecutive long black body candlesticks are observed.
• Each black candlestick opens within the body of the previous day

• The black body is formed on the second & third day has managed to close below low of the prior day.

Validation

Each of the three candlesticks in the Three Black Crows pattern should be relatively long bearish candlesticks with each candlestick closing at or near the low price for the day. This brings a sense of fear among the bulls who now consider closing their long positions causing prices to head lower. The confirmation level is defined as the third candles close. Prices should cross below this level for a sell signal to be generated.

Abandoned Baby Pattern

Definition

The abandoned baby is a rare, but reliable, candlestick pattern that is useful in alerting traders to a possible trend change to the upside. The abandoned baby candlestick formation is a three bar reversal pattern that is similar to the morning and evening star formations and is a very reliable reversal signal when it occurs after a sharp drop; it is also called as “Sute Go” in Japanese.

Identification Criteria

• The market is in an existing down trend.
• A black body candlestick is observed on the first day.
• A doji candlestick on the second day opens with gap down
• Bearish gap occurrence between first candle’s lower shadow and second candle’s upper shadow and this gap is not filled.
• The white body is formed on the third day, and it has managed to close inside or above first day’s black candle.

• However bullish gap is formed in 2nd candle’s upper shadow and third body’s lower shadow.

Validation

The third day’s closing must reach the midpoint between the first day’s opening and the second day’s lowest body level. Two gaps, bearish and bullish on either side of doji signify sudden change in trading psychology and indicate trend reversal to uptrend.

Vertical volume analysis. Wyckoff methods and VSA

“All trades leave indelible tracks on price and volume charts” Alexander Elder

Understanding of the market and search for profitable trades is the goal of any trader. Analysis of interconnections of movement of the price and vertical volumes increases chances of its achievement.

In this article:

  • what the vertical volume is;
  • rules of volume and price analysis;
  • what Richard Wyckoff is famous for;
  • what Wyckoff method and VSA method are;
  • where the best places for search for profitable trades are;
  • what spring and upthrust are;
  • advantages and disadvantages of trading methods based on the vertical volume analysis.

Start to use ATAS absolutely free of charge! The first two weeks of use of the platform give access to its full functionality with 7-day history limit.

What the vertical volume is

Vertical volume is a general number of shares or contracts, which were traded during a certain period of time in volume or monetary terms. The vertical volume is usually reflected in the form of a column bar chart under the price chart.

Volume is activity. A trader builds his expectations for further development of events through analyzing activity of traders at different price changes.

Vertical volume is a basic indicator. Picture 6 is a screenshot from the standard Quick terminal, which shows a MICEX index futures (MXZ8) with the volume indicator.

The volume element consists of actions of two persons – a seller and buyer. Only one half of the participants wins when the price moves. The other half makes losses, feels fear and dissatisfaction with themselves.

Rules of the price and volume interaction

How to analyze the vertical volume? The vertical volume does not carry information, sufficient for making trading decisions, by itself. The vertical volume is analyzed only in interaction with the price behavior.

Rule 1. Growth of volume, when the price grows, forecasts even higher prices. Consequently, the volume growth during price reduction forecasts even lower prices.

Example. Have a look at the 30-minute WTI oil futures (CLF9) chart.

The price falls from 13:30 until 15:30 on October 31. This causes psychological pain to the buyers. They start to get rid of longs swiftly, increasing the volume and pushing the price even more down.

Rule 2. A huge volume, which is more than two times bigger than the usual one, warns about a possible trend change.

Example. Picture 8 shows a chart from the oil market. The volume of traded contracts was 75,002 at 16:00 on November 14, which is 2.5 times more than during the previous periods. Namely this candle formed the day’s peak.

Rule 3. The growing price, when the volume is lower than on the previous peak, forecasts completion of the current growth. Consequently, the falling price, when the volume is lower than on the previous valley, forecasts completion of the current fall.

The price falls from May 21 until May 24 and volume increases in the day WTI oil futures (CLF9) chart. The low of 65.80 on May 27 was accompanied with the volume of 307,619 contracts, which is 2 times less than the average daily volume. This was the cause of a short-term upward bounce. The price renewed the downward trend from May 30 until June 14, but the trading volumes reduced. That price and volume behavior was an early forerunner of growth at the end of June.

What Richard Wyckoff is famous for

Richard Wyckoff is is a pioneer of volume and price analysis. He started his distinguished career as early as in 1888. He started his career as an office boy and made a fortune during 40 years, bought 9.5 acres of land in the Long Island and built a mansion there. That way he became a neighbour of the President of General Motors.

Wyckoff published a weekly bulletin with trading recommendations. The number of his subscribers was the biggest one among private persons in the Wall Street.

Wyckoff also founded the Magazine of Wall Street and the Stock Market Institute where he teached his trading method, known as the Wyckoff method.

Wyckoff was interested in price movement and major players’ influence. Traders still study his books, published at the beginning of the 20th century, as trading textbooks:

  • The Day Trader’s Bible;
  • The Richard D. Wyckoff Method of Trading and Investing in Stocks.

What the Wyckoff method is

Analysis of the trading price and volume on the tape is the basis of the Wyckoff method. Richard Wyckoff didn’t apply clear rules and technical indicators. He analyzed charts, reading their demand and supply dynamics.

The Richard Wyckoff method uncovers intentions of major players on the exchange. Wyckoff called them the Composite Operator. Traders, who apply the Wyckoff method, monitor how the Composite Operator accumulates a big position at the bottom of the market and sells it out at the top.

The market cycle by the method of Wyckoff is shown in Picture.

The Wyckoff method is still taught in the Stock Market Institute in Phoenix, Arizona. The Wyckoff followers expanded and elaborated his method and introduced new concepts.

One of the Wyckoff method experts is David Weis. He wrote the Trades About to Happen: A Modern Adaptation of the Wyckoff Method book.

Let us consider a picture where Weis analyzes various combinations of two day bars even without the use of vertical volumes.

Can you foresee development on the third day by the bar width and price closing position? We do not have additional indicators here. Use logical thinking as Richard Wyckoff did.

  1. The first bar is wide and the price moves easy. Closing in the middle of the bar tells us that buyers appeared. The range of the second bar is narrower and the price down movement is difficult. Closing of the second bar is a bit lower than of the first one, but higher than the low and again is about in the middle of the bar, which means that the buyers are present here too. The strength of sellers reduces.
  2. The wide first bar and closing at the very low warns traders about dominance of sellers. A narrow range of the second day causes doubts in further price reduction. But closing below the low and below the first day closing confirms control of sellers.
  3. The first day shows the market weakness and predominance of sellers – a wide range and closing at the low. Closing of the second day is lower than the closing and low of the first day. Despite a small range, sellers control the price and further reduction could be expected. This variant is more bearish than the first and second ones.
  4. Spread of the first day is narrow and closing is at the low – sellers control the situation. The price, first, goes below the low of the first day but then closes above the high. We have a classical key reversal day here. Sellers stopped pressing the price and buyers took advantage of the situation. Expect the price growth the next day.

The bar reading logic works on any timeframe. Here’s an example of bars Nos. 3 and 4 in the 5-minute Brent oil futures (BRZ8) chart.

  1. The first day shows the market weakness. The next day the price makes an effort to move above the high of the first day, but fails to hold and is closed at the level of the low. You might thinks that practically the same closing of these two days creates a support area. But it is not so. Inability of the price to go higher and closing at the low warns about further weakness and price reduction.
  2. Closing of a wide range of the first day is above the middle, which tells us about availability of buyers. A small range of the second day tells us about absence of movement. Wyckoff calls such days a hinge. Note the next day, during which a movement could take place.
  3. As well as it was in the previous case, closing of a wide range of the first day is above the middle, which tells us about presence of buyers. The second day opens with a big gap from the closing of the previous day and is closed at the low. Despite a narrow bar range, the true movement range from the closing of the previous day to the closing of the current day is very wide. We can see that the buyers’ advantage, which they gained during the first day, was “eaten” by movement of the second day. Buyers are not able to push the price upward. That is why, most probably, there would be further price reduction on the third day.
  4. Here we have an opposite situation. On the second day, the price was opened much higher than the closing of the previous day and moved higher. The true range is very wide. Despite the closing of the second day at the low, the situation developed in favor of sellers. Taking into account the true range of the second day, the closing ceases to seem weak.
  5. Both days are with narrow ranges and closings at the low. We do not see a wide range and sharp price jumps. We observe a consistent, steady and quiet reduction, which, perhaps, would continue further on.
  6. The average range and closing in the middle of the first day tells us about presence of buyers. The price goes up on the second day, but then goes down again and closes in the middle, which is a bit above the closing of the previous day. Buyers did not take the situation under control, but the further pressure of sellers is also questionable. This one is the most ambiguous of all the situations considered.

Examples of bars Nos. 2, 3, 4, 6 and 10 in 5-minute MICEX index futures (MXZ8) chart.

Where to find trades

David Weis called this picture “where I find trading opportunities”. See Picture 10.

He wrote: “You can make a living trading springs and upthrusts”.

What spring and upthrust are

  • Spring is an unsuccessful effort of breaking the support level, which is followed by the upward price reversal. Spring is a false breakdown. Spring could be confirmed by a big volume but not necessarily. Springs appear at any time periods.
  • Upthrust is an unsuccessful effort of breaking the resistance level, which is followed by the downward price reversal. Upthrust is called a false breakout.

Spring and upthrust were not used in the original Wyckoff works as specific terms. They were formulated and introduced into active usage by his followers later.

Watch this video on our channel: “how the upthrust pattern looks like in reality” .

The main idea of springs and upthrusts:

  • involvement of traders, who trade breakouts, into loss-making positions;
  • activation of too close stop losses.

There is no real pressure of sellers/buyers in the market at attempt of breaking the support/resistance level due to a cunning nature of springs/upthrusts. That is why the price moves back.

It is necessary to build support and resistance levels in order to identify springs and upthrusts. This process is a bit creative, since the levels are built in different ways – by candle bodies or by candle shadows, from 3 touches or from 5 touches. Each trader develops his own vision of the levels.

Example. Here we have a day E-mini EUR/USD futures (E7Z8) chart.

In order to avoid subjectiveness and make level building easier, we would use the Maximum Levels Indicator. It clearly shows:

  • On November 11-12: spring or false breakdown of the support level;
  • On November 6: upthrust, which is confirmed by the candle’s long shadow.

What VSA method is

A young man named Tom Williams moved to Beverly Hills from England in the middle of the 20th century to try his luck. He found his luck. He had a medical certificate and found a job where he looked after an unhealthy millionaire who made a fortune trading stock in a big syndicate.

Tom asked the millionaire to teach him how to trade stock and he was employed by the syndicate. They gave him a one meter ruler and showed how to draw price and vertical volume charts. That was his first duty.

Nowadays, such software complexes as ATAS build various types of charts in several seconds, while earlier traders drew their charts by hand.

Tom showed good progress and he was sent to the Stock Market Institute to study the Wyckoff method. Namely there, day-by-day, Tom studied the real mechanics of the stock market operation.

Having comprehended the intricacies of the price and volume analysis, Tom started to trade for his personal account and returned back to England a rich man. We was a little more than 40 years old.

Tom continued to trade but also started educational activity. He developed the VSA method.

Volume Spread Analysis (VSA) is a simplified version of the Wyckoff method. VSA is based on:

  • bar volume;
  • spread – a difference between the bar high and low;
  • bar closing price.

Gavin Holmes – Tom Williams’ student, follower and author of the Trading In the Shadow of the Smart Money book – continues his legacy.

What absorption is

One of the concepts in Wyckoff and VSA methods is absorption. If we analyze this process with the help of the ATAS platform, the market becomes clearer. Let us do it.

So, absorption of buyers is a process of overcoming closing long positions and opening new short positions. It is a complex definition, the main word in which is overcoming. Buyers successfully “sit out” while some traders register profit on old long positions and others open new short positions at price peaks.

Features:

  • Increase of the support line;
  • Increase of the volume on top of the absorption area;
  • Absence of the downward movement;
  • Prices consistently apply pressure on the resistance line to the right from the absorption area without downward pullbacks;
  • Sometimes, spring causes absorption;
  • Minor upthrusts fail to become full-fledged breakouts during absorptions.

Absorption of buyers, in most cases, is on top near the resistance area, as it is shown in Picture 11.

Absorption of sellers is the process of overcoming closing short positions and opening new long positions. The area of absorption of sellers is usually located at the support level. The key feature of absorption of sellers is a repeated inability of prices to go higher. The absorption of sellers, in most cases, results in the breakdown.

In the majority of cases, absorptions last for several days. It is very difficult to analyze the volume indicator absorptions.

Here we have a day WTI oil futures (CLF9) chart.

The price reduction started from October 3. The price stopped and tried to reverse several times but in vain. October 11-15, 18-19, 23-28 and November 13-18 are the areas of absorption of sellers. Nervous sellers registered their profit and courageous buyers opened long positions. Those actions were “digested” by the market in the course of the bearish price movement.

The situation was very ambiguous, especially on October 23-28 and November 13-18. The buy volumes were stable and the bar closings consistently grew upward. The cluster bar type, delta and horizontal volume will help to understand what happens in a complex situation.

It is better to monitor the bar cluster in a day chart on a big screen – the level of detail is very high.

October 23 – the volume moves upward and the delta is positive – attributes of buyers’ appearance.

October 24 – bar closing is above the closing and maximum volume of the previous day, but the volume and delta are lower. Buyers try to increase the pressure.

October 25 – the maximum volume of trading takes place at the level of the maximum volume of trading on October 24 despite the closing above the previous day’s one – you should be on the alert and wait for the next day.

October 28 – the market is balanced and ready to start a new focused movement – the bell shape of the bar testifies to it.

October 29 – the closing is below the closing and maximum volume level of the previous day and the delta is negative. Sellers absorbed all buyers and nervous sellers, who closed their positions. The market would move from the middle of the balanced area of 66.73. Probability of the price fall is higher than its growth, since the closing is below this level.

Let us consider this situation at a different angle.

The chart shows the vertical volume of the current WTI oil contract (CLF9), delta , cumulative delta and horizontal volume in candles. The chart gives a general understanding of the situation with the WTI oil prices for the past 1.5 months. Price reduction is confirmed by increase of the horizontal volume and fall of the cumulative delta. Short periods of price bounce are the periods of absorption of sellers. The market reaches a balance during these periods of time and then continues a focused movement.

Advantages and disadvantages of methods based on vertical volumes

  • could be used on various timeframes, which means many trading opportunities;
  • small stops in case of a correct assessment of a market situation;
  • correct understanding of the market.
  • subjectiveness of the method;
  • it takes much time to study it;
  • absence of measuring instruments.

Summary

Methods of analysis of vertical volumes make the market situation clear and transparent. Professional traders accumulate the competitive advantage and reduce the risk through connecting the logical understanding of the smart money action with advanced software.

“Big victories sometimes start with a small advantage” Sarah J. Maas

How to Read a Candlestick Chart

Reading candlestick charts – Talking points:

  • Candlestick charts differ greatly from the traditional bar chart
  • Traders generally prefer using candlestick charts for day-trading because they offer an enjoyable visual perception of price
  • It’s important to understand the key components of a candle, and what they indicate, to apply candlestick chart analysis to a trading strategy

What is a candlestick chart?

A candlestick chart is simply a chart composed of individual candles, which traders use to understand price action. Candlestick price action involves pinpointing where the price opened for a period, where the price closed for a period, as well as the price highs and lows for a specific period.

Price action can give traders of all financial markets clues to trend and reversals. For example, groups of candlesticks can form patterns which occur throughout forex charts that could indicate reversals or continuation of trends. Candlesticks can also form individual formations which could indicate buy or sell entries in the market.

The period that each candle depicts depends on the time-frame chosen by the trader. A popular time-frame is the daily time-frame, so the candle will depict the open, close, and high and low for the day. The different components of a candle can help you forecast where the price might go, for instance if a candle closes far below its open it may indicate further price declines.

Boost your chart patterns expertise with our interactive quiz!

Our Forex Trading Patterns Quiz will test your knowledge of some of the most important trading patterns. Take the test today by clicking on the link and raise your technical analysis game!

Interpreting a candle on a candlestick chart

The image below represents the design of a typical candlestick. There are three specific points (open, close, wicks) used in the creation of a price candle. The first points to consider are the candles’ open and close prices. These points identify where the price of an asset begins and concludes for a selected period and will construct the body of a candle. Each candle depicts the price movement for a certain period that you choose when you look at the chart. If you are looking at a daily chart each individual candle will display the open, close, upper and lower wick of that day.

The open price depicts the first price traded during the formation of the new candle. If the price starts to trend upwards the candle will turn green/blue (colors vary depending on chart settings). If the price declines the candle will turn red.

The top of the upper wick/shadow indicates the highest price traded during the period. If there is no upper wick/shadow it means that the open price or the close price was the highest price traded.

The lowest price traded is the either the price at the bottom of the lower wick/shadow and if there is no lower wick/shadow then the lowest price traded is the same as the close price or open price in a bullish candle.

The close price is the last price traded during the period of the candle formation. If the close price is below the open price the candle will turn red as a default in most charting packages. If the close price is above the open price the candle will be green/blue (also depends on the chart settings).

The next important element of a candlestick is the wick, which is also referred to as a ‘shadow’. These points are vital as they show the extremes in price for a specific charting period. The wicks are quickly identifiable as they are visually thinner than the body of the candlestick. This is where the strength of candlesticks becomes apparent. Candlesticks can help traders keep our eye on market momentum and away from the static of price extremes.

The direction of the price is indicated by the color of the candlestick. If the price of the candle is closing above the opening price of the candle, then the price is moving upwards and the candle would be green (the color of the candle depends on the chart settings). If the candle is red, then the price closed below the open.

The difference between the highest and lowest price of a candle is its range. You can calculate this by taking the price at the top of the upper wick and subtracting it from the price at the bottom of the lower wick. (Range = highest point – lowest point).

Having this knowledge of a candle, and what the points indicate, means traders using a candlestick chart have a clear advantage when it comes to distinguishing trendlines , price patterns and Elliot waves .

Bar Chart vs Candlestick Chart

As you can see from the image below, candlestick charts offer a distinct advantage over bar charts. Bar charts are not as visual as candle charts and nor are the candle formations or price patterns. Also, the bars on the bar chart make it difficult to visualize which direction the price moved.

How to read a candlestick chart

There are various ways to use and read a candlestick chart. Candlestick chart analysis depends on your preferred trading strategy and time-frame. Some strategies attempt to take advantage of candle formations while others attempt to recognize price patterns.

Interpreting single candle formations

Individual candlesticks can offer a lot of insight into current market sentiment. Candlesticks like the Hammer , shooting star , and hanging man , offer clues as to changing momentum and potentially where the market prices maytrend.

As you can see from the image below the Hammer candlestick formation sometimes indicates a reversal in trend. The hammer candle formation has a long lower wick with a small body. Its closing pricing is above its opening price. The intuition behind the hammer formation is simple, price tried to decline but buyers entered the market pushing the price up. It is a bullish signal to enter the market, tighten stop-losses or close out a short position.

Traders can take advantage of hammer formations by executing a long trade once the hammer candle has closed. Hammer candles are advantageous because traders can implement ‘tight’ stop-losses (stop-losses that risk a small amount of pips ). Take-profits should be placed in such a way as to ensure a positive risk-reward ratio. So, the take-profit is larger than the stop-loss.

Recognizing price patterns in multiple candles

Candlestick charts help traders recognize price patterns that occur in the charts. By recognizing these price patterns, like the bullish engulfing pattern or triangle patterns you can take advantage of them by using them as entries into or exit signals out the market.

For example, in the image below we have the bullish engulfing price pattern. The bullish engulfing is a combination of a red candle and a blue candle that ‘engulfs’ the entire red candle. It is an indication that it could be the end of a currency pairs established weakness. A trader would take advantage of this by entering a long position after the blue candle closes. Remember, the price pattern only forms once the second candle closes.

As with the hammer formation, a trader would place a stop loss below the bullish engulfing pattern, ensuring a tight stop loss. The trader would then set a take-profit. For more forex candlestick charts check our forex candlesticks guide where we go in depth into the advantages of candlestick charts as well as the strategies that can be implemented using them.

Further tips for reading candlestick charts

When reading candlestick charts, be mindful of:

At DailyFX we offer a range of forecasts on currencies, oil, equities and gold that can aide you in your trading. It is also worth following our webinars where we present on a variety of topics from price-action to fundamentals that may affect the market.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Education.
    Free Demo Account.
    Get Your Sign-Up Bonus Now!

  • BINOMO
    BINOMO

    Recommended Only For Experienced Traders!

Like this post? Please share to your friends:
Binary Options Brokers, Signals and Strategies
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: