YM Chart 7/27/07

[TinGull 10]

Alright, I wanted to discuss a little of how I use candlesticks in my analysis of the markets. I basically wait for the first 30 minutes to form a range, and then my day begins. I've been rethinking this lately, as the morning has provided some nice opportunities the past few days, so I'll include what I see with regards to that as well.

 

1) This isn't a trade I would take, but you can notice the hammer formation on higher volume than the previous bar. This should signify to you that price was bought up and that the path of least resistance is....up! If you are a more conservative player, then wait for a close above the hammer to get long. I know some (brownsfan) aren't so conservative and get in right when one forms, providing correct context of the hammer.

 

2) Hammer when you're long is a good thing.

 

2a) I didn't notate a 2a but if you notice the topping tail on the 3rd red candle at the top closing inside of the 30min range. This was my first trade of the day. Higher volume, lower close, inside the range...all is set for a short.

 

3) Bottoming tails, tweezers...whatever you wanna call em. Showing some signs of potential demand. The first one would be what John Person might refer to as a "jackhammer". Note the HUGE volume!! On this, you would expect to the next bar take off, as these form V pivots most often. So, when price forms another doji, then another doji...you can tell there's no follow through, so look for a short opportunity coming up. I love lack of follow through.

 

4) This is also another potential jackhammer. Big volume, big spread with a close near the middle. The next back is on SUBSTANTIALLY lower volume as it probed the 30min range, but couldn't close back inside. Red flag for the bulls, and the green flag for the bears. This was the one setup I missed today.

 

5) Note the significant volume increase, bald top and bottom, WRB...all this stuff that one would think would signify continuation of the uptrend. Well, that volume coming in there wasn't all buying volume. Remember the context of the day was down, so not all long opps should be taken. The next bar, if this was to be a continuation, should have followed through. It did not, so those who got long in that bar get worried, sell their longs and fuel the downward move a bit.

 

6) Inverted hammers, topping tails...all means the same thing. SUPPLY! This is also as price is coming back into the 30min range. If there's supply coming into the bottom of any range, it's going to get pushed back out, as it did here. The next candle was tricky, seeing a hammer on increasing volume . But knowing that a hammer to go long should be viewed at the bottom of a leg, you know this one doesn't have the right context to be viable. The next candle doesn't follow through anyways, so you're safe.

 

7) Supply again at the bottom of the 30min OR. Then, its met with yet more supply on the next candle, giving us a doji with a topping tail. While the next candle provides a little bit of evidence that price could go higher, note the decreasing volume from the bar of entry into the range. Obviously price is not attracting more volume, so the path of least resistance is down.

 

8) Nice shaven top on this candle, showing price wasn't wanting to go up at all. Increasing volume as price exited the 30min OR shows attraction of participants to lower prices and then...down it goes.

 

That's my 5min candle analysis on the day.

[brownsfan019 17]

Tin - Impressive chart and analysis! Thanks for sharing!

[Soultrader 12]

Im going to be following up with this thread Tin. Thank you very much for your analysis. I currently do not trade using candlestick pattern but do so using the psychology behind each bar. (using volume as well) I basically apply candles to determine when losers are likely to liquidate or cover or to feel the emotions behind the traders involved in it. Im looking to exploit the mistakes and ride the momentum on stop losses.