This is a follow up on last month’s article “Elliot Wave on EUR/AUD”. I think that it is wise to read them both in order to understand this month’s article better. The idea behind this article is to show how more than one tool or indicator can play together, and give one more confidence before reaching a conclusion, about the markets. Later in this article there will be examples of, ways to combine “Elliott wave” and “Japanese Candlesticks”. This article will not go in details with “Japanese candle sticks” or “Elliott Wave”, and this is because there are tons of free materials out there if you wish to study about these subjects. This article is mostly about combining a few tools to get a better analysis. In This case “Elliot Wave” and “Japanese Candlesticks”.

On the monthly chart below is a “Dark cloud cover”, at the highlighted blue area. Since this pattern appeared at a support level from back in late April, it might be considerable to cover longs for a bit at least. Notice also that the move from back in May started with a “Piercing Line” pattern which is the direct opposite of a “Dark cloud cover” pattern (Look at the illustrations at the end of this article).Below is a weekly chart with useful details. People who are familiar with Japanese candlesticks knows that it is a tool that can be beneficial in all types of markets. A “dark cloud cover” is highlighted on the chart below, and that means that there were possibilities for a trend reversal. But be aware that such a pattern is mostly lucrative to trade after a series of white candles. The green support zone is based on the area where price failed to make a new high twice. The reason for this is that old resistance becomes new support when price breaks above it, and just the opposite the other way. It would be wise, in my opinion to stand aside until a clear signal, in a situation like this, or go down to smaller timeframes.

Further down is a daily EUR/AUD chart. This is the "zigzag" pattern that was highlighted in last article. Here is a closer look for a possible count. The black line is a support line that price has respected since early July 2012. At this moment price action was once again touching the support line. In my opinion there was reason to wait for things to clear out, at that state. The red area on the top of the chart is the same resistance area discussed earlier in this article. As well as price touched the support line once again, there also appeared convergence between the price and Macd histogram. This does not have to be a significant reversal signal as the red line shows divergence throughout a longer period of time.

Note: This article was written and ready last month, so that is why recent chart data is not available on the pictures.

Here are some Japanese candlestick patterns I find useful to pick up reversals. Remember that these signals works best after a long trend (after series of white or black candle sticks).

Bearish engulfing:

A "Bearish engulfing" pattern is when a black body covers all of the previous white body.




Dark cloud cover:

A"Dark ckoud cover" appears when when a black body travels more than 50%in to the previous white body. The black body dosen't have to begin higher than the white in forex markets. That is due to it is a 24h market so we rearly se a candle begin higher/lower than the previous.



Bullish Engulfing:

A "Bullish engulfing" pattern is when a white body covers all of the previous black body.





Piercing Line:

A "Piercing" pattern appears when when a white body travels more than 50% in to the previous black body. The white body dosen't have to begin lower than the previous black in forex markets




Conclusion:

I don’t believe that any theory or indicator is 100% right when it comes to trading in real life. I think that combining a few tools gives better results at the end of the day. This article was just an idea on how, two very different tools like “Elliott” and “Candlesticks” can be combined and give a trader more confidence before choosing position.

Translate to English Show original