Hello traders! This week’s newsletter will be a short lesson on candlestick stock charts and how to use them for hints on your trades.

First of all, Japanese candlesticks were first invented in Japan hundreds of years ago to try and predict the future price of rice. The interpretation of candlesticks is very fast and efficient, which is why they have remained so popular even in this day and age. There are dozens and dozens of different patterns that exist in the world of candlesticks. I plan on giving you an easy way to interpret the very basics of them to help with your trading.

Every candlestick shows us four data points, the open (first trade in the time period), the high (highest trade in the time period), low (lowest trade in the time period and the close (last trade in the time period).  Of these four data points, each is important in its own way, but for this technique we are more interested in the close.

In the following image, you can see that I’ve marked two different candles with blue arrows, One and Two. I’ve also broken down these candles into five equal parts – quintiles. I look at where the candle closes within this range of quintiles to give me a bias of, from very bearish to very bullish.

If the candle closes in the highest quintile, that is very bullish (meaning a strong bias to higher prices).

If the candle closes in the next lower quintile, that is bullish (meaning a bias to higher prices).

If the candle closes in the middle quintile, the bias is neutral.

If the candle closes in the next lower quintile, that is bearish (meaning a bias to lower prices).

If the candle closes in the lowest quintile, that is very bearish (meaning a strong bias to lower prices).

NZDUSD

So, on the candle labeled One, it closed in the top quintile giving a very bullish bias/hint for what will happen in the next candle. Lo and behold, the next went up as well! As you look at each of the following green bodied candles, you can see that bullish bias held until the move was nearly complete.

On the candle labeled Two, it closed in the lowest quintile, giving a very bearish bias/hint for what will happen in the next candle. Lo and behold, the next candle went down as well!

Notice the following large red candle closed near the very bottom of its range as well, but the next candle obviously didn’t continue down. Location on the chart is more important than the shape of the candle. What this means is that a very bearish candle after a long move down is much less important than after a long move up! On the other side of the coin, a very bullish candle after a long move up is much less important than after a long move down!

So how can we use this information? On the following image, I have put on two charts of the USDCAD. The chart on the left is a daily chart with the very bearish candle from September 3 marked in.

NZDCAD

Notice we already had a move up from about 1.3020 to 1.3380 over a period of six weeks or so. The upward trend seems to be getting tired, the Sept 2 and 3 closing prices are indicating a bearish bias. On Sept 4, price traded below the Sept 3 low, indicating the bears are finally taking over. The plan would be to then go short in a smaller time frame supply zone.

The breakdown is, look for a bearish close after a move up into supply, drill down to a smaller time frame to find a supply zone for a short entry. Look for a bullish close after a move down into demand, drill down to a smaller time frame to find a demand zone for a long entry.


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Editors’ Picks

EUR/USD fails to gather traction, remains below 1.1700

EUR/USD fails to gather traction, remains below 1.1700

EUR/USD fails to gather momentum, trading below 1.1700 at the end of the week.  The pair is pulled down by dwindling prospects for an EU-US trade accord, as US President Trump is expected to send a tariff letter to the European Union later today, while the continued demand for the US Dollar also keeps the risk complex under extra pressure.

GBP/USD drops below 1.3500, flirts with three-week lows

GBP/USD drops below 1.3500, flirts with three-week lows

GBP/USD continues its weekly retracement on Friday, trading at its lowest level in nearly three weeks below the 1.3500 support.  The UK's poor GDP statistics drags on the British pound, while the US Dollar continues to profit from safe-haven flows, sending Cable and its risk-related peers to lower levels.

Japanese Yen trims part of intraday losses as trade jitters boost safe-haven demand

Japanese Yen trims part of intraday losses as trade jitters boost safe-haven demand

The Japanese Yen meets with a fresh supply as traders pare BoJ rate hike bets amid rising trade tension. Domestic political uncertainty also undermines the JPY and provides a goodish lift to the USD/JPY pair. The USD sits near a two-week top amid reduced Fed rate cut bets and contributes to the pair's move up.


Editors’ Picks

EUR/USD fails to gather traction, remains below 1.1700

EUR/USD fails to gather traction, remains below 1.1700

EUR/USD fails to gather momentum, trading below 1.1700 at the end of the week.  The pair is pulled down by dwindling prospects for an EU-US trade accord, as US President Trump is expected to send a tariff letter to the European Union later today, while the continued demand for the US Dollar also keeps the risk complex under extra pressure.

Meme coins to watch as Bitcoin hits record high

Meme coins to watch as Bitcoin hits record high

Meme coins Bonk, Dogwifhat, and Floki are positioned to extend gains as the weekly recovery reaches crucial resistance levels. The meme coins gain bullish momentum on the back of Bitcoin’s (BTC) recovery run, hitting a new all-time high on Thursday. 

Gold price retains its positive bias amid a broadly weaker USD; lacks bullish conviction

Gold price retains its positive bias amid a broadly weaker USD; lacks bullish conviction

Gold price trades with a mild positive for the second straight day on Thursday, though it lacks follow-through and remains below the $3,350 level through the early European session. Reports that US President Donald Trump was considering replacing Federal Reserve Chair Jerome Powell raised concerns over the future independence of the US central bank.

Bitcoin Cash targets 52-week high as on-chain data indicate room for growth

Bitcoin Cash targets 52-week high as on-chain data indicate room for growth

Bitcoin Cash (BCH) is trading in the green by 2% at press time on Thursday, following a 6.39% price surge on Wednesday. Rising in a parallel channel pattern, BCH shows signs of increasing bullish momentum and nearing the $500 psychological level.

Could Iran block the Strait of Hormuz? Why Oil is on edge after US strikes

Could Iran block the Strait of Hormuz? Why Oil is on edge after US strikes

As the Israel-Iran conflict reaches new heights, an old threat is coming back to haunt the markets: that of the closure of the Strait of Hormuz. This narrow arm of the sea in the Persian Gulf, wedged between Iran to the north and the United Arab Emirates and Oman to the south, is much more than a simple sea passage.

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