The EURUSD has shown weakness this week and failed to hold on to some good gains during trading yesterday.
The rise and sharp reversal resulted in an inverted hammer candle on the daily chart. Traders tend to associate these with tops or topping formations, yet they are far more useful and can often signal the continuation of a move when they appear in a downtrend, or bearish price move. The individual candle consists of a small body with a long higher wick above. I tend to count and allow for a small wick showing below the body as long as the high wick is much longer and pronounced.
The Inverted Hammer Candle can be used in this way on any time frame. – The stop should be placed at, or just above the top of the candle wick. On many occasions the succeeding or following candle will attempt to retrace upwards in normal market flowing conditions……….The most effective way of trading this candle on a daily chart is to fade/sell into the following candle once the Inverted Hammer has formed.
Once you have marked your stop loss on the daily,–, then switch to a one hour chart to try and time your entry.. The whole of the candle will be your tradable range for the day. A move above your stop and the trade is void and should be abandoned.
Hopefully today’s EURUSD Daily chart below is self explanatory. The tradable range for the day is the light blue box background with the stop loss at the red line…..The breakdown if we get one in the coming days is marked by the yellow arrow at the 1.1900 area / 50% fib of the last swing high………..The choice is to sell into any move higher — or sell (add to trade) on the breakdown.
Below is an example of a short trade from November 2017 using the method described above .
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