Technical analysis is one of the most powerful weapons in a trader’s arsenal to grasp market opportunities. It allows you to predict price moves of the asset of your choice by studying past price patterns and current market conditions. One of the most popular ways to do this is with Japanese candlesticks. In this article, Fxview analysts take a deep dive into the origin of candlesticks, candlestick patterns and how they can help traders understand trends.

The Origin of Candlestick Analysis

Although Steve Nison’s book, Japanese Candlestick Charting Techniques, popularised using candlestick patterns for trading, he wasn’t the creator of this technical analysis tool. Homma Munehisa, a Japanese rice trader, pioneered the technique as far back as the 18th century. Candlestick patterns are considered the oldest price charting technique today.

Munehisa recorded the price of rice every day for 15 years. He would compare the price of the previous day and assess whether it had increased or decreased. He also discovered that trader psychology influenced prices. Using his knowledge, he created a trading system. Munehisa’s system was based on assessing whether the price had moved up or down during a certain period, which led him to create candlesticks. He used candlesticks to assimilate the entire range of price movement through opening and closing prices. Candlesticks formed patterns that he used to assess trends (‘Yin’- uptrend or ‘Yang’ – downtrend) and rotations (retracements).

While other traders were merely buying and selling rice, Munehisa was tracking and understanding how the price moved. He worked with 3 principles.

1. Price Considers Everything

Homma Munehisa believed that price changes were the result of several factors. These factors include supply, demand, traders’ fear or greed, news or rumours, politics and weather (critical for agricultural products like rice). For this, he used a team of about 100 messengers between Osaka and Sakata to learn how prices changed from one place to another.

2. Price Movement Creates Trends

Regular gains or declines in prices result in the formation of trends. Any disruptions due to news events, supply/demand changes or any other factor may cause the trend to change. Munehisa also identified factors that could lead to trend reversal.

3. History Repeats Itself

The Japanese rice trader also understood that markets are cyclical. This helped him add important dates and times of the year as critical parametres to his price speculation. He used available records of price history over the past 100 years to discover more patterns and cycles.

Munehisa’s technique benefited him and he became one of the greatest market analysts of his time. He is known for introducing the Sakata Rules, the principles used to develop his trading techniques and strategies based on clear candlestick patterns. These rules gained so much attention that the then-Japanese government recognised his success and hired him as a financial aide. He was also awarded the honourable position of a Samurai and is still often referred to as the “Father of Price Action Trading” among Japanese trading communities.

Candlesticks Patterns

Homma Munehisa’s system forms the basis of present-day technical analysis using candlesticks. A trader can gauge complete price action with a single glance at candlesticks. There are two types of candlesticks – bullish and bearish.

Bullish Candlestick

A bullish candlestick is green or black in colour, indicating that the price rose during the chosen period. The width of the candlestick is the duration of the price action. The bottom of the bullish candle is the opening price and the top is the closing price. The top and bottom wicks or shadows of the candle indicate the maximum and minimum price points for the period.

Bearish Candlestick

A bearish candlestick is either red or white in colour. The top of the bearish candle is the opening price and the bottom is the closing price. The width and the wicks represent the same duration of price action and maximum and minimum price points, just like bullish candles.

Benefits of Using Candlestick Charts for Technical Analysis

● Candlesticks are the simplest-to-read price indicators to identify entry and exit points.

● Using candlestick patterns gives traders a comprehensive view of the price movement for the time frame under consideration.

● Candlestick charts can be easily combined with other indicators for greater accuracy.

Bullish Candlestick Patterns

Candlestick patterns can be single, double, triple and multi-stick patterns. These patterns help traders discover trends and predict reversals. Based on their prediction, these patterns are also classified as bullish or bearish patterns. Traders identify bullish patterns to take long positions. Some of the most popular bullish multi-candlestick patterns are:

Head and Shoulders

Head and shoulder chart is widely used for reversal patterns. The normal head and shoulders is a bearish reversal pattern, indicating, with varying degrees of accuracy, that an uptrend is about to end. Comparatively, an inverted head and shoulders is a bullish reversal pattern, which signals that the downtrend is approaching an end.

The inverted head and shoulders pattern is formed when the price makes three consecutive valleys after a downtrend. This pattern forms when a security’s price reaches three consecutive lows separated by temporary rallies. The main characteristics of the inverted head and shoulders are:

1. An initial price decline to a trough (left shoulder) followed by a rise
2. A second price decline below the previous trough followed by another rise
3. A third price drop, yet not as low as the previous trough (right shoulder)
4. Once the last trough is reached, the price will start climbing towards the resistance point (neckline), which usually forms near the top of the previous troughs.

The trend reversal is confirmed when the next candle after the right shoulder breaches the resistance and the price begins to rally, as shown below.

Falling Wedge

A wedge pattern is formed when two trendlines converge. It indicates that the strength of the price movement is fading and could lead to a pause or reversal of the current trend. A falling wedge is considered a bullish candlestick pattern that occurs during a downtrend. Here, the price hits consecutive lower highs and lower lows, such that the trendlines for the high and low prices slope downwards to converge.

Ascending Triangle

Triangle patterns are used to identify trend continuation or reversal. When the trendlines form an ascending triangle, it is considered a bullish signal, regardless of whether it occurs during an uptrend or a downtrend. For an ascending triangle to form, the asset price needs to make higher lows, indicating that the number of buyers is increasing. As buyers take control of the market, the former resistance level becomes the new support level as the price continues to rise.

Candlestick charts are one of the most popular tools for effective technical analysis. Mastering these charts can help traders build a robust trading strategy and a decision-making system to discover and act on entry and exit points. To learn all about technical analysis and trading candlestick patterns, head to Fxview’s rich library of video tutorials.

This article was written by FL Contributors at www.forexlive.com.

• Prior 6.5%; revised to 6.4%

The euro area jobless rate holds steady in June after the revision to the May reading and that continues to hint that labour market conditions are still holding up well in the region. That is at least a positive development for the ECB in spite of the intensifying economic slowdown as we head into Q3.

This article was written by Justin Low at www.forexlive.com.

Headlines:

• USD/JPY at three-week highs as buyers look for further upside
• The dollar looks set to end the month as the weakest major currency
• Eurozone July preliminary CPI +5.3% vs +5.3% y/y expected
• Eurozone Q2 preliminary GDP +0.3% vs +0.2% q/q expected
• A little bit of this and that for the ECB today
• Germany June retail sales -0.8% vs +0.2% m/m expected
• Germany June import price index -1.6% vs -0.7% m/m expected
• Italy Q2 preliminary GDP -0.3% vs 0.0% q/q expected
• UK June mortgage approvals 54.66k vs 49.00k expected

Markets:

• AUD leads, JPY lags on the day
• European equities slightly higher; S&P 500 futures up 0.1%
• US 10-year yields down 0.6 bps to 3.962%
• Gold flat at $1,958.00
• WTI crude up 1.0% to $81.42
• Bitcoin up 0.2% to $29,391

It’s a pretty tame start to the new week, although not so much if you are a Japanese yen bull. The currency itself continues to suffer from the post-BOJ hangover, falling further today by over 100 pips.

USD/JPY was already higher in Asia around 141.70 before extending gains to 142.50 in European trading. That also comes amid a more positive risk mood in markets, recovering after an early setback in US futures – which are now higher.

The aussie and kiwi are also beneficiaries of that, aided by China stimulus news. AUD/USD is up 0.9% to 0.6705 currently and sitting at the highs for the day. Meanwhile, NZD/USD is up 0.6% to clip the 0.6200 mark.

The dollar is seen steadier across the board with just light changes against the euro, pound and franc. The ranges for the day are still rather narrow for those currency pairs, with European traders a little more guarded ahead of month-end trading later.

In terms of data, euro area core inflation remains sticky and Q2 GDP beat estimates by the slightest. But all in all, it offers up a mixed picture and one that the ECB can spin however way they would want still for now.

This article was written by Justin Low at www.forexlive.com.

The earnings season continues with Apple and Amazon leading the charge this week. They will release their earnings after the market close on Thursday. The Nasdaq index has seen an increase of nearly 36.8% this year, while the S&P 500’s is up 19.3%. More than half of the companies listed on the S&P 500 had reported their second-quarter earnings by Friday, with 78.7% of them surpassing analysts‘ expectations, as per data from Refinitiv reported by Reuters.

The major companies reporting this week by data include:

Monday, July 31

• Sofi

Tuesday, August 1

• Uber
• Pfizer
• Caterpillar
• Merck
• Altria
• AMD
• Starbucks

Wednesday, August 2

• CVS
• Humana
• Kraft Heinz
• PayPal
• Shopify
• Qualcomm
• Unity

Thursday, August 3

• Warner Bros. Discovery
• ConocoPhillips
• Expedia
• Moderna
• Amazon
• Apple
• Coinbase
• Airbnb
• Draft King’s

This article was written by Greg Michalowski at www.forexlive.com.

Last week, the Fed hiked by 25 bps as expected and left everything
unchanged. The market was more focused on the press conference to see if Fed
Chair Powell would hint to the next policy move. Unfortunately, Powell just
repeated that they are data dependent and that all options are on the table for
the September meeting. Since the FOMC meeting, the data has been supporting the
soft-landing narrative as the US Jobless Claims beat expectations once again and
the US PCE and the Employment Cost Index missed forecasts.

Nasdaq Composite Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Nasdaq
Composite bounced again on the red 21 moving average and it’s
now eyeing the key 14649 resistance. A break
above that level would open the door for the all-time high, but the sellers are
likely to step in aggressively there.

Nasdaq Composite Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have a divergence with the
MACD which is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, the price pulled back to the trendline and
bounced as the buyers stepped in to target the breakout of the resistance.

Nasdaq Composite Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we
also had the 50% Fibonacci
retracement level near the trendline, so the buyers
had some good confluence there.
This is clearly a bull market, so the sellers are likely to lean on the 14649
resistance with a defined risk above the level to target a bigger pullback or
wait for the price to fall below the trendline to pile in and extend the fall
into the next major trendline.

Upcoming
Events

This week is packed with several top tier economic
indicators. We start tomorrow with the US Manufacturing PMI and the US Job
Openings data. Moving on to Wednesday, we will see the latest US ADP report. On
Thursday, the market will be focused on the US Jobless Claims and the US ISM Services
PMI. We then conclude on Friday with the main event of the week: the US NFP
report.

This article was written by FL Contributors at www.forexlive.com.

At one point after the US CPI report this month, the dollar looked like it was bound for a major breakdown. But as USD/JPY found its footing for a rebound, so did the dollar and that correlation was also highlighted at the time already here. The dollar is still set to end the month as the weakest among the major currencies but it really could’ve been a lot worse.

As the month draws to a close, dollar buyers will be happy with the fact that they avoided a much uglier scene – especially against the euro and pound. Against the yen itself, the BOJ played a helping hand in USD/JPY on its latest jump since Friday. As such, the pair is „only“ down 1.3% on the month so far.

So, what’s next moving forward for the dollar?

It’s going to be all about the data, specifically big data as highlighted here. The first of which is the US non-farm payrolls and labour market report coming up at the end of this week.

In the bigger picture though, what matters will be the Fed’s take on inflation and if we have seen a peak in interest rates already. There is certainly a suggestion that policymakers are looking to adopt that view, but it isn’t a given just yet.

For now at least, market pricing is definitely siding with that and so the dollar will go according to the flow in that regard.

But all else being equal, confirmation of a Fed pivot will not bode well for the dollar’s prospects. However, the saving grace for the greenback is that the US economy is continuing to surprise with stronger data while other key economies look to be flagging.

Europe is seeing credit conditions tighten significantly and dark clouds are starting to hover over the economy ahead of Q3 and Q4. Meanwhile, in the UK you have the cost-of-living crisis still to contend with alongside risks of stagflation building.

And when you consider rate differentials, the dollar is still in a good spot as well with many major central bank also looking to pivot alongside the Fed.

The RBA, who is meeting tomorrow, may not hike again and the ECB could be on a similar path as well. And in the case of the BOJ, sure they are letting yields push higher, but they’re not exactly capitalising on higher inflation to leave behind their ultra loose monetary policy – something which they might regret.

So, the dollar definitely still has a couple of redeeming qualities. So, unless we are due a hard landing in the US (which implies the Fed will have to cut rates sooner rather than later), the dollar might still find some backing or at least reason to not depreciate too rapidly.

Fed funds futures are showing that traders are anticipating the first rate cut to either be in March or May next year. If that pricing is wrong and the Fed is going to hold rates higher for longer while waiting on inflation to fall further (since the economy can take it), that is one tailwind that markets should really consider for the dollar.

In some sense, it is similar to this story right here. At the time, traders were seeing the Fed funds rate fall to 4.30% by December. For some context, that pricing is now seen at 5.37%.

This article was written by Justin Low at www.forexlive.com.

Almost
everyone who is engaged in social or algorithmic trading sooner or later
recognizes the need to rent hosting for their robots or subscriptions.
Maintaining stable and uninterrupted hardware operation at home while ensuring
minimal delays to the broker’s servers can be quite a challenging task.

Numerous
factors can affect trading results, including power outages, internet provider
issues, and technical problems. Even a one-hour power cut can be crucial due to
potentially missed trading opportunities. There are other unforeseen events,
such as power supply failure or accidental damage to your laptop, which can
occur at any time.

These
problems are not uncommon. For example, in 2022, broadband outages experienced
by remote workers caused the UK economy to lose around GBP 1.3 billion
(Uswitch.com report). Professional traders, who value control over all
trading-related processes, prefer not to leave their valuable strategies to
chance.

Measures
like uninterruptible power supplies or connection to multiple internet
providers offer only partial solutions. That is where renting a reliable
machine for your robots and signals becomes the reasonable choice. Physical
servers can be costly, and thus a virtual private server (VPS) is the logical
and cost-effective solution.

However, in
practice, hosting solutions often fail to work properly due to various reasons,
and many traders have already had negative experiences with general-purpose
virtual servers.

Here are the
most common problems with conventional dedicated servers:

Low
performance.
Trading strategies require adequate technical resources, including CPU, RAM,
and disk space. Smaller hosting providers often offer limited-performance
machines which can let you down at the most critical moment. Another common problem
is overselling, where companies sell more resources than they actually have.

Assuming that subscribers do not use the
maximum resources all the time, such providers rely on the consumption-based
floating load distribution across the cluster. However, if all users
simultaneously start using the maximum resources, the system can fail.

Poor
location of access points.
It is not always possible to find a reliable and high-performance VPS in close
proximity to your broker’s trading servers. Trading from home can sometimes be
more efficient than using a virtual server located on a different continent.

High
price.
High-quality solutions meeting all your requirements can be expensive. While
companies can offer low-cost basic rates of USD 2-3 per month to attract
customers, a powerful machine may cost up to 10 times more.

Difficult
setup. If your VPS
is not designed specifically for trading, setting up the server, establishing a
connection, installing the trading platform, and launching your Expert Advisors
can be time-consuming. Even if you follow all steps from multi-page
instructions, the desired result is not guaranteed. This issue is closely
related to the next problem.

Inadequate
technical support.
When problems arise, it may take a long time to solve them. In a fast-paced
trading environment, where every minute counts, waiting for days to receive a
response is totally unacceptable.

Insufficient
security. Traders
value the confidentiality and safety of their trading algorithms. However, some
VPS services fail to provide any guarantees regarding personal data security.

Low
uptime. Every
hosting provider asserts the reliability of their services. However, even the
most reliable global providers always include additional information in their
agreements to acknowledge the possibility of downtime, for example, during
service maintenance. 100% uptime is unrealistic, but it is important that
downtimes do not happen too often.

Provider
shutdowns. While
this is not the most common case, smaller providers sometimes cease operation
for various reasons. Even though hosting users can be notified of such changes
in advance, cease of operation means that the trader will have to reconfigure
the entire trading environment from scratch.

MetaQuotes
offers a solution for those who are considering renting their first cloud
hosting server, as well as for those who have been disappointed with previous
solutions. If you are looking for a reliable VPS which overcomes the
aforementioned disadvantages, consider MetaTrader VPS — a specialized hosting
solution for MetaTrader platform users. Thousands of traders already use the
MetaTrader VPS every day.

MetaTrader VPS is a
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algorithmic trading, which does not require additional activations or
configurations. It is designed specifically for the MetaTrader platform,
ensuring full compatibility and performance. Robots and subscriptions can be
easily migrated to a virtual server in a few clicks. More than a dozen hosting
points are located around the world, to ensure optimal access with less than 5
milliseconds for 82% of all brokerage servers.

This means
that most traders can obtain a significant gain in execution speed through
MetaTrader VPS. MetaQuotes servers are hosted by the most reliable providers to
ensure a maximum uptime of 99.99%. You can be sure that your trading strategies
will run consistently 24/7.

Smart
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disk space, and several CPUs are allocated on demand. In case of any
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assistance.

The rental
cost starts at USD 15 per month, with potential reductions for long-term
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VPS projects for their clients. Contact your broker to inquire about the
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MetaTrader VPS surpasses
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trading. MetaTrader VPS is the best virtual private server created by
MetaQuotes specifically for your trading requirements.

This article was written by FL Contributors at www.forexlive.com.

EURUSD:

USDJPY:

GBPUSD:

AUDUSD:

This article was written by Greg Michalowski at www.forexlive.com.

• US June core PCE inflation +4.1% y/y vs +4.2% expected
• Canada GDP for May +0.3% versus +0.3% expected
• US employment costs for Q2 1.0% versus 1.1% expected
• Germany July preliminary CPI +6.2% vs +6.2% y/y expected
• July final UMich US consumer sentiment 71.6 vs 72.6 expected
• Atlanta Fed GDPNow model starts Q3 growth at 3.5%
• Dallas Fed June trimmed mean price index falls to 2.5% m/m annualized versus 3.2% prior
• Former ECB VP says ’no need for more hikes‘
• Canadian Q2 GDP is tracking at about 1%
• Baker Hughes weekly US oil rig count -1

Markets:

• Gold up $14 to $1958
• US 10-year yields down 4.9 bps to 3.96%
• WTI crude oil up $0.33 to $80.42
• S&P 500 up 45 points, or 1.0%, to 4608
• GBP leads, JPY lags

The Bank of Japan offered plenty of volatility and drama to wrap up a busy week for central bankers but as the dust settled the market grew comfortable selling the yen. USD/JPY started US trade near 139.00 before finishing near 141.00 after several moves in that wide range in the past 24 hours.

Helping the move were lower yields after a goldilocks US PCE report and falling employment cost index.

Outside of the yen, trading wasn’t exactly straightforward as a positive risk trade certainly didn’t flow into commodity FX, perhaps owing to domestic concerns and month-end flows. USD/CAD finished slightly higher despite another gain in crude and a rip in equities. AUD/USD tried to mount a comeback in North America but made little progress and finished the day down 0.8% as the market frets about next week’s RBA decision.

The euro and pound finished higher but only recovered a portion of the drop a day earlier. The gains came early in Europe and it was mostly sideways in North America with volatility low compared to JPY trades.

Have a great weekend, it was certainly an interesting week. Note that the VIX is down to 13 as the market grows increasingly sanguine.

This article was written by Adam Button at www.forexlive.com.

The major indices are ending the day with solid gains. The gains are led by the NASDAQ index which surged by 1.86%. The Dow industrial average was the laggard today, but still rebounded by 0.50% on the day. All the major indices are closing higher for the week.

The final numbers for the day are showing:

• Dow industrial average up 176.20 points or 0.50% at 35458.97
• S&P index up 44.76 points or 0.99% at 4582.16. The S&P closed at its highest level since January 2022.
• NASDAQ index up 266.54 points or 1.90% at 14316.65

The small-cap Russell 2000 is also solidly higher with a gain of 26.64 or 1.36% at 1981.53.

For the trading week, the NASDAQ index is leading the way with the largest gain this week. The Dow industrial average which ended a 13-day win streak yesterday closed higher for the week, but was the laggard of the major indices.

• Dow industrial average rose 0.66%
• S&P index rose 1.01%
• NASDAQ index rose 2.02%

This article was written by Greg Michalowski at www.forexlive.com.