the formula is (0.0001/exchange rate) x contract size
Watching the Clock
In forex markets, it is widely known by experienced traders that volume
generally trails off noticeably leading up to noon EST and stays
very low until the Tokyo open. Regardless of your own experience
in trading, you do not want to initiate short-term trades that
are based on individual candles or candle formations during
those hours. The exception to this would be U.S. stock indexes
such as the E-mini S&P future and the mini Dow futures contract,
which still have high volume and good trader participation rates.
The inside candle is telling us that the market lacks conviction
in regard to its direction. The inside candle is considered
pivotal in that the market is expected to increase
momentum in whichever direction it closes in relation to the
high and low of the inside candle. A close above the high of
the inside candle is considered bullish, and a close below the
low of that candle is considered bearish. When you are viewing
intraday forex charts, keep in mind that low-volume candles
such as those between 17:00 and midnight Greenwich
Mean Time (GMT) should be discounted, as their behavior is
not considered nearly as significant as that of candles on
higher volume.
Two candle formations that often signal a market pause or
reversal are the bullish engulfing pattern and the bearish
engulfing pattern. Both also can be change-of-direction
candles, depending on their close in proximity to the
previous candle’s high or low.
Engulfing != COD candle
Bullish Engulfing: Green body closes above prev red bar’s body.
Bullish COD: Green bar closes above prev bar’s high.
A benchmark candle (see Figure 4-9) is an elongated engulfing
candle with few or no wicks and leaves no doubt about
who won out at the end of the candle, the bulls or the bears.
a tendency to pull back in the opposite direction after a benchmark
candle to retest the previous conviction. A rule of thumb
is that if we see a retracement after a benchmark candle, we
should look for it to stop halfway into the candle, giving us
a 50 percent retracement, before resuming the direction set by
the benchmark.
followed two candles later by a sharp change-ofdirection
candle higher ahead of the weekend as longer-term,
higher time frame traders take profits ahead of the weekend.
It is often said in this business that one day does not
make a trend, but one candle can shift a trend, another can reinforce
that shift, and a third can confirm that shift. The study of
individual candles and candlestick formations in all time
frames is an important aspect of trading and is well worth the
time it takes to review their behavior on a regular basis.
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