This is a great chart and a currency pair I am trading at the moment, so it is very relevant and has three excellent signals on the daily chart, all of which I have used to identify reversals in the last few weeks. The first of these occurred just before Christmas last year, with a great bullish engulfing signal following a sharp sell of which is a pre-requisite for this signal – in other words we must see a strong move before the signal in order for it to carry enough weight. In this case it did, and prices rose accordingly supported by the moving averages. The next signal occurred early in January again after a strong rally, with a classic shooting star above the 40 day moving average, indicating possible weakness in the market. The bulls have been in charge for the last few weeks, but the bears have now won the battle on the day forcing prices off their highs and back down to the open. With a confirming down bar the following day, this gave us an excellent signal to sell and to profit from the short side of the market.
Finally we have the third signal in the third week of January, a deep hammer with a narrow body and long lower wick. The important aspect to note here is that the lowest price on the day was identical to those of the bullish candle – a real giveway for us as traders and one which gives us extra confidence in the trade. Whilst this took some time to take effect, it was the first signal that a bottom had been reached and one that I have been trading ever since with last nights rise fueled by the awful economic news for Japan’s export markets. I actually entered the trade 5 days after the signal first appeared, once the wide spread up bar of the first week in February had appeared, and bought the following day on the reaction lower, a position I have held ever since. I am now looking for a target of 98.50 for the position in the short term. So in summary, three great candles, all of which gave us signals of a reversal.