Category: Trading Strategy

LEARN TO TRADE THE BULLISH HARAMI

LEARN TO TRADE THE BULLISH HARAMI

The Bullish Harami consists of two candlesticks and hints at a bullish reversal obtainable available in the market. The Bullish Harami candlestick should not be traded in isolation nevertheless instead, must be considered along with totally different parts to realize Bullish Harami affirmation.

This article will cowl:

  • What is a Bullish Harami Pattern
  • How to Identify a Bullish Harami on a shopping for and promoting chart
  • How to commerce the Bullish Harami candlestick sample

WHAT IS A BULLISH HARAMI PATTERN?

The Bullish Harami candle pattern is a reversal pattern displaying on the bottom of a downtrend. It consists of a bearish candle with an enormous physique, adopted by a bullish candle with a small physique enclosed all through the physique of the prior candle. As a sign of adjusting momentum, the small bullish candle ‘gaps’ as a lot as open near the mid-range of the earlier candle.

The reverse of the Bullish Harami is the Bearish Harami and is found on the prime of an uptrend.

Bullish Harami candlestick explained

The Bullish Harami Cross

Traders will normally seek for the second candle throughout the pattern to be a Doji. The objective for that’s that the Doji reveals indecision obtainable available in the market. The shade of the Doji candle (black, inexperienced, crimson) is not going to be of an extreme quantity of significance on account of the Doji itself, displaying near the underside of a downtrend, affords the bullish signal. The Bullish Harami Cross moreover affords a stunning hazard to reward potential as a result of the bullish switch (as quickly as confirmed) is barely merely starting.

Bullish Harami Cross

HOW TO IDENTIFY A BULLISH HARAMI ON TRADING CHARTS

The Bullish Harami will look fully totally different on a stock chart compared with the 24- hour overseas change market, nevertheless the an identical strategies apply to decide the pattern.

Bullish Harami Checklist:

  1. Spot an present downtrend
  2. Look for indicators that momentum is slowing/reversing (stochastic oscillators, bullish transferring frequent crossover, or subsequent bullish candle formations).
  3. Ensure that the physique of the small inexperienced candle measures no additional that 25% of the earlier bearish candle. Stocks will gap up, exhibiting the inexperienced candle mid-way up the earlier candle. Forex charts will principally current the two candles facet by facet.
  4. Observe that the entire bullish candle is enclosed all through the measurement of the earlier bearish candle’s physique.
  5. Look for confluence with the utilization of supporting indicators or key ranges of assist.

Formation of the Bullish Harami Pattern throughout the Forex market

The overseas change market operates on a 24/5 basis which means when one candle closes, one different opens at nearly the an identical stage of the earlier candle’s closing worth. This is often observed beneath common market circumstances nevertheless can change throughout instances of extreme volatility. The Bullish Harami pattern in overseas change will normally look one factor like this:

Bullish Harami pattern in forex GBP/USD

The small inexperienced candle opens on the related stage that the prior bearish candle closed at. This is normally observed throughout the overseas change market.

Formation of the Bullish Harami Pattern on Stock Charts

Stocks alternatively, have specified shopping for and promoting hours in the middle of the day and are recognized to gap on the open for lots of causes. Some of these is probably:

  • Company info launched after the shut of commerce
  • Country/sector monetary data
  • Rumoured takeover bids or mergers
  • General market sentiment

Therefore, the usual Harami pattern appears, as seen below for Societe General (GLE FP) which trades on the CAC 40:

Bullish Harami in the stock market

Notice how there are fairly a number of areas on the chart the place the market has gapped – exhibiting in depth open areas between candles. This is often observed throughout the stock market.

HOW TO TRADE THE BULLISH HARAMI CANDLESTICK PATTERN

Traders can undertake the Bullish Harami using the five-step pointers talked about earlier throughout the article. Looking on the below chart on GBP/USD we’re capable of observe the subsequent

  1. There is a clear downtrend.
  2. A Bullish Hammer appears sooner than the Bullish Harami and affords the first clue that the market may be about to reverse.
  3. The bullish candle is no more than 25% the measurement of the earlier candle.
  4. The bullish candle opens and closes all through the measurement of the earlier candle.
  5. The RSI affords an indication that the market is oversold. This may indicate that downward momentum is bottoming nevertheless retailers must await the RSI to cross once more over the 30 line for affirmation.

Stops could also be positioned below the model new low and retailers can enter on the open of the candle following the completion of the Bullish Harami pattern. Since the Bullish Harami appears originally of a attainable uptrend, retailers can embody various objective ranges to expertise out a model new extended uptrend. These targets could also be positioned at newest ranges of assist and resistance.

Bullish Harami pattern confirmed by RSI

HOW RELIABLE IS THE BULLISH HARAMI?

The validity of the Bullish Harami, like all totally different overseas change candlestick patterns, relies upon upon the worth movement spherical it, indicators, the place it appears throughout the sample, and key ranges of assist. Below are various the advantages and limitations of this pattern.

ADVANTAGESLIMITATIONS
Attractive entry ranges as a result of the pattern appears originally of a attainable uptrendShould not be traded based totally on its formation alone
Can provide a additional engaging hazard to reward ratio when compared with the Bullish Engulfing patternWhere the pattern occurs all through the sample is important. Must appear on the bottom of a downtrend
Easy to decide for novice retailersRequires understanding of supporting technical analysis or indicators.Popular: Stochastics and RSI

FURTHER READING ON CANDLESTICK PATTERNS

  • The Bullish Harami is just one of many candlestick patterns usually used to commerce the financial markets.
  • Candlesticks kind an crucial place throughout the analysis of overseas forex buying and selling. Learn How to Read a Candlestick Chart.
  • If you may be merely starting out in your overseas forex buying and selling journey it is essential to know the basics of overseas forex buying and selling in our New to Forex info.

Business News | Stock and Share Market News

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Gann Angles in Stock Market

Gann Angles in Stock Market

DEFINITION of Gann Angles

Gann angles are named after their creator W.D. Gann. They are regarded as a method of predicting price movements through the relation of geometric angles in charts depicting time and price. Gann was a 20th-century market theorist. Although his techniques have been largely disproven, his work helped lay the foundation for technical analysis and modeling financial derivatives.

BREAKING DOWN Gann Angles

The ideal balance between time and price exists when prices move identically to time, which occurs when the Gann angle is at 45 degrees. In total, there are nine different Gann angles that are important for identifying trend lines and market actions. When one of these trend lines is broken, the following angle will provide support or resistance.

More specifically, a Gann angle requires a straight line on a price chart, given a fixed relationship between time and price. According to Gann, the most important angle was a line representing one unit of price for one unit of time, now widely regarded as the 1×1 or the 45° angle. In this instance, the value of a commodity or stock which conforms to a 1×1 angle is said to increase by one point per day. The collection of Gann angles follows as 2×1 (moving up two points per day), 3×1, 4×1, 8×1, and 16×1. These movements are not limited to up moves; the angles for decreases in the price of a security apply just the same.

Gann Angles in the Stock Market

Students of financial markets will recognize the natural connection between Gann’s angles and technical analysis methods for analyzing the stock market. In reality, the Gann angle approach contradicts the weak-form of the efficient market hypothesis, which concludes that past price movements cannot be used to forecast future price movements.

Applying Gann’s angles to the market is not complicated. The application begins with tracking and waiting for tops and bottoms to form on a daily, weekly or monthly chart. Changes in these trends then allow for drawing an angle, hence, the Gann angle. When the trend is up, and the price stays in the space above an ascending angle without breaking below it, the market is regarded as strong; when the trend is down, and the price remains below a descending angle without breaking above it, the market is considered weak. Resulting in theory, the market revealing its relative strength or weakness based on the angle it is above or below.

How To Use Gann Indicators

Gann studies have been used by active traders for decades and, even though the futures and stock markets have changed considerably, they remain a popular method of analyzing an asset’s direction.

Newer trading areas, such as the foreign exchange market and the invention of exchange-traded funds (ETFs), have made it necessary to revisit some of the construction rules and application concepts. Although the basic construction of Gann angles remains the same, this article will explain why the changes in price levels and volatility have made it necessary to adjust a few key components.

Basic Elements of Gann Theory

Gann angles are a popular analysis and trading tool that are used to measure key elements, such as pattern, price and time. The often-debated topic of discussion among technical analysts is that the past, the present and the future all exist at the same time on a Gann angle. When analyzing or trading the course of a particular market, the analyst or trader tries to get an idea of where the market has been, where it is in relation to that former bottom or top, and how to use the information to forecast future price action.

Gann Angles vs. Trendlines

Of all of W.D. Gann’s trading techniques available, drawing angles to trade and forecast is probably the most popular analysis tool used by traders. Many traders still draw them on charts manually and even more use computerized technical analysis packages to place them on screens. Because of the relative ease traders today have at placing Gann angles on charts, many traders do not feel the need to actually explore when, how and why to use them. These angles are often compared to trendlines, but many people are unaware that they are not the same thing.

A Gann angle is a diagonal line that moves at a uniform rate of speed. A trendline is created by connecting bottoms to bottoms in the case of an uptrend and tops to tops in the case of a downtrend. The benefit of drawing a Gann angle compared to a trendline is that it moves at a uniform rate of speed. This allows the analyst to forecast where the price is going to be on a particular date in the future. This is not to say that a Gann angle always predicts where the market will be, but the analyst will know where the Gann angle will be, which will help gauge the strength and direction of the trend. A trendline, on the other hand, does have some predictive value, but because of the constant adjustments that usually take place, it’s unreliable for making long-term forecasts.

Past, Present and Future

As mentioned earlier, the key concept to grasp when working with Gann angles is that the past, the present and the future all exist at the same time on the angles. This being said, the Gann angle can be used to forecast support and resistance, strength of direction and the timing of tops and bottoms.

Gann Angles Provide Support and Resistance

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Image Source © Investopedia 

Using a Gann angle to forecast support and resistance is probably the most popular way they are used. Once the analyst determines the time period he or she is going to trade (monthly, weekly, daily) and properly scales the chart, the trader simply draws the three main Gann angles: the 1X2, 1X1 and 2X1 from main tops and bottoms. This technique frames the market, allowing the analyst to read the movement of the market inside this framework.

Uptrending angles provide the support and downtrending angles provide the resistance. Because the analyst knows where the angle is on the chart, he or she is able to determine whether to buy on support or sell at the resistance.

Traders should also note how the market rotates from angle to angle. This is known as the “rule of all angles”. This rule states that when the market breaks one angle, it will move toward the next one.

Another way to determine the support and resistance is to combine angles and horizontal lines. For example, often a downtrending Gann angle will cross a 50% retracement level. This combination will then set up a key resistance point. The same can be said for uptrending angles crossing a 50% level. This area becomes a key support point. If you have a long-term chart, you will sometimes see many angles clustering at or near the same price. These are called price clusters. The more angles clustering in a zone, the more important the support or resistance.

Gann Angles Determine Strength and Weakness

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Image Source © Investopedia

The primary Gann angles are the 1X2, the 1X1 and the 2X1. The 1X2 means the angle is moving one unit of price for every two units of time. The 1X1 is moving one unit of price with one unit of time. Finally, the 2X1 moves two units of price with one unit of time. Using the same formula, angles can also be 1X8, 1X4, 4X1 and 8X1.

A proper chart scale is important to this type of analysis. Gann wanted the markets to have a square relationship so proper chart paper as well as a proper chart scale was important to his forecasting technique. Since his charts were “square”, the 1X1 angle is often referred to as the 45-degree angle. But using degrees to draw the angle will only work if the chart is properly scaled.

Not only do the angles show support and resistance, but they also give the analyst a clue as to the strength of the market. Trading on or slightly above an uptrending 1X1 angle means that the market is balanced. When the market is trading on or slightly above an uptrending 2X1 angle, the market is in a strong uptrend. Trading at or near the 1X2 means the trend is not as strong. The strength of the market is reversed when looking at the market from the top down. Anything under the 1X1 is in a weak position.

Gann Angles Can be Used for Timing

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Image Source © Investopedia

Finally, Gann angles are also used to forecast important tops, bottoms and changes in trend. This is a mathematical technique known as squaring, which is used to determine time zones and when the market is likely to change direction. The basic concept is to expect a change in direction when the market has reached an equal unit of time and price up or down. This timing indicator works better on longer term charts, such as monthly or weekly charts; this is because the daily charts often have too many tops, bottoms and ranges to analyze. Like price action, these timing tools tend to work better when “clustered” with other time indicators.

Conclusion

Gann angles can be a valuable tool to the analyst or trader if used properly. Having an open mind and grasping the key concept that the past, present and future all exist at the same time on a Gann angle can help you analyze and trade a market with more accuracy. Learning the characteristics of the different markets in regard to volatility, price scale and how markets move within the Gann angle framework will help improve your analytical skills.

What is Supply and Demand trading strategy?

What is Supply and Demand trading strategy?

Supply and demand are the very determinants of price – any price. This applies to everything from your local farmers market, to a rare, one of a kind jewel, to any exchange market. Traders that understand the dynamics of demand and supply are better equipped to understand current and future price movements in the forex market.

This article covers the following talking points:

  • Supply and demand trading explained
  • Understanding Supply and Demand Zones
  • 3 Tips for using supply and demand to trade forex
  • Supply and demand trading strategies

SUPPLY AND DEMAND TRADING EXPLAINED

Often, a currency pair will climb to an area of resistance called a ‘selling zone’, where sellers perceive there to be great selling potential at a relatively overbought price. The reverse is also true for currency pairs that drop to relatively low levels, ‘demand zone’ where buyers perceive there to be great value to buy.

UNDERSTANDING SUPPLY AND DEMAND ZONES

Supply and demand zones are observable areas where price has approached many times in the past. Unlike lines of support and resistance, these resemble zones more closely than precise lines.

Traders can customize charts to identify the demand and supply zones as shown on the Nifty50 below.

3 TIPS FOR USING SUPPLY AND DEMAND TO TRADE

1) Use longer time frames to identify supply and demand zones

By zooming out, traders are able to get a better view of areas where price had bounced off previously. Be sure to use the appropriate charts when altering the between multiple time frames. Draw a rectangular shape to denote this zone. Demand and supply zones do not necessarily have to appear together.

2) Identify strong moves off the potential demand/supply zone

Certain price levels offer value to either bullish or bearish traders. Once institutional traders and big banks see this value, they will look to capitalize on it. As a result, price action tends to accelerate relatively quickly until the value has diminished or has been fully realized. Witnessing multiple instances of this at the same price level increases the probability that it is an area of value and therefore, a supply or demand zone.

3) Use indicators for confirmation of support and demand zones

Traders can incorporate daily or weekly pivot points to identify or confirm supply or demand zones. Traders should look for support and resistance levels to line up with demand and supply zones for higher probability trades.

Furthermore, traders can use Fibonacci levels for greater accuracy on possible turning points at supply or demand zones. The 61.8% level is regarded as a significant level and corresponds with the supply zone in the chart below.

SUPPLY AND DEMAND TRADING STRATEGIES

Range trading strategy

Supply and demand zones can be used for range trading if the zones are well established. Traders can incorporate the use of a stochastic indicator or RSI to assist in identifying overbought and oversold conditions.

Since this is a non-directional trade in terms of the trend, both long and short entries can be spotted. After viewing oversold/overbought conditions on a longer-term chart, traders can zoom into a smaller time frame to spot an ideal entry.

Breakout strategy

The breakout strategy is another supply and demand trading strategy. Price cannot remain within a defined range forever and will eventually make a directional movement. Traders look to gain favorable entry into the market, in the direction of the breakout, as it may be the start of a strong trend.

The chart shows a break out of the trading range but then retraces back towards the demand zone. Traders that place a short trade at the breakout are susceptible to being stopped out in this scenario. One way to mitigate this is to anticipate the retracement back to the demand zone before pacing the short trade.