| With the growing popularity of forex robots, one | | | | bullish and bearish engulfing patterns, the hammer, |
| question on everyone's mind is how do they work? | | | | the hanging man, and the morning and evening star |
| Of course all of these robots use different | | | | patterns. While studying chart patterns can help |
| mathematical algorithms to trade, but the principal on | | | | determine a trend, looking at these candlestick |
| which they function remains the same and has been | | | | patterns can signify whether a trend is going to |
| used for many years to trade stocks, bonds and | | | | continue, whether it is reversing itself or if you made |
| currency. They all use technical analysis to determine | | | | a mistake and there was no trend at all. |
| when to buy and sell currency. Technical analysis in its | | | | The third analysis is far more abstract and may be |
| most basic form is simply looking solely at the price | | | | considered by some traders to be more fundamental |
| movement of an investment to determine what the | | | | analysis than technical. Support and resistance levels |
| price will be in the future. There are three main areas | | | | can be set by outside stimulus. With the forex |
| that most people look at when analyzing an | | | | market many central banks tie their currency to the |
| investment, chart patterns, candlestick patterns and | | | | dollar. For instance, Japan strives to keep the |
| economic factors or government intervention. | | | | exchange rate at 100 yen per dollar. Of course this |
| Looking at chart patterns is one of the most | | | | means when the Yen goes over 100, the central |
| standard methods of determining the direction of an | | | | bank may sell yen and buy dollars. The foreign |
| investment. There are a couple distinguishing patterns | | | | exchange market functions like any business so |
| that market watchers look for. Some of the most | | | | creating a larger supply of yen, while the demand |
| used patterns are: the double bottom and double top, | | | | remains the same should lower the price of the |
| the head and shoulders, the rising and falling wedge, | | | | currency. Knowing these levels can be very beneficial |
| the triangle, and the flag and pennant patterns. All of | | | | in determining how long a trend may continue or |
| these patterns are named based on how they | | | | whether it may stop prematurely. |
| appear visually on the chart and there is a slightly | | | | This third analytical tool can be used on common |
| different way to trade each of these patterns. One | | | | shares of stock in addition to currency trades. The |
| of the benefits of using these charts patterns is that | | | | above mentioned support and resistance levels can |
| each of them provide a very definitive entry point | | | | be created by stock buy back programs, options |
| and a precise stop/loss price. This is not necessarily | | | | expiration and exercises and warrants or convertible |
| the case with analyzing candlestick patterns. | | | | shares being exchange for stock at a specific price. |
| Using candlestick patterns in your technical analysis is | | | | Most traders argue that chart and candlestick |
| primarily for a shorter time frame analysis. For those | | | | patterns do not work for analyzing individual stocks |
| of you who don't know a candlestick is a formation | | | | as they do with currency pairs. One of the reasons is |
| on the chart that contains all the trades for a certain | | | | because the forex market is so huge it takes |
| time period, for example - one minute, one hour, a | | | | important macro economic events to move it, where |
| day, or any designated period of time. It gets its | | | | as individual stocks can be crushed instantly with |
| name because the formation looks like a candlestick | | | | news so trivial as a C.E.O. retiring. That is why most |
| with a wick at the top and sometimes a wick at the | | | | traders limit their technical analysis to market indexes |
| bottom as well. Some of the candlestick patterns | | | | and the currency market. |
| traders look for are the called the spinning top, doji, | | | | |