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Spotting Trend Reversals Using Candlesticks
Anytime you have a breakout from consolidation and a new trend, you like to see volume and a nice green candlestick bar at the breakout. This indicates momentum and will push prices higher.
However, one when a tall green candlestick bar appears at the end of a trend, this is usually a clue that a top is in place. You can then look for a reversal and a short opportunity. If you are in a position and see a 1-minute wonder (tall green bar) it is usually a good sign to take profits or tighten your stops. A method to determine if a retracement will fail or not is to look at range expansion in candlesticks as well. If the candlestick on a reversal shows range expansion, this is an early sign of a trend failure. There is momentum and panic in that red bar. Doji's are key candestick patterns that predict a turn of events. The market is undecided on which direction to go. Tony Crabel descibed the doji as a narrow day or a NR7. A NR7 is a day in which the range is narrower than the previous 6 days. Similar to the idea of contracting bollinger bands, you can expect prices to breakout in either direction. Last edited by TAking; 09-05-2006 at 06:21 AM. |
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Do you use volume to determine whether the pullback will be shallow or deep? Pullbacks with greater volume tend to be failures while shallow volume indicate a continuation of the trend.
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Of course, volume is important as well.
__________________
James Lee Email: JamesLee@traderslaborator y.com Skype: james.lee03 TradersLaboratory.com |
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Re: Spotting Trend Reversals Using Candlesticks
I use trend reversals with candlesticks on the YM. What works best for me is a 3 min chart and use either double bottoms/tops and engulfments. I use the MACD and volume. MACD shows me where the trend is. My trades are ususally on the macd cross. It's a 3-bar method. The first bar is the base, the 2nd bar is the signal and the 3rd bar is the profit bar.
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