MONTHLY CHART
In analyzing this monthly chart I am starting at the left edge of the chart. Looking at the first eight candles I see they are all moving downward indicating a downward trend. In analyzing the trading psychology that goes into forming this downward trend I notice that all these candles are red, except for one. Red candles are formed by the Close being below the Open. Red candles indicate the Sellers were able to overpower the Buyers. Next, I see that the red candles closed near the Low of each session meaning the Sellers were in control of the market by the end of each session (candle). I also see long upper shadows (also known as wicks) on candles 3,4,5,6 and 7. These upper shadows are a rejection of higher prices. The trading psychology that goes into forming these upper wicks is that buyers were able to move each candle higher but then sellers were able to overpower the buyers and move the price back lower. Further, candle number 4 is a neutral candle. Neutral candles are formed when the Close of the session is very near the middle between the High and the Low of the candles range. This neutral candle divides the downward trend into two waves. Wave number 1 is formed by candles 1,2 and 4 while wave number 2 is formed by candles 5,6,7 and 8.
To recap I see the sellers in control during these first eight candles. However, what I don't like about these first eight candles is the five long upper shadows. What I am about to share is what the typical retail trader misses when he or she sees a downward trend and just simply adds a downward sloping trendline of a moving average and does not understand the trading psychology going into the formation of this downward trend. These five long upper shadows indicate the period of time during the formation of each candle when buyers attempted to drive the market higher and sellers jumping back in driving the market back downward. This price action caused the sellers to use up resources needed to continue to move this market lower in the future. This alerts me this market may not be able to move further down and to expect a change in trend. This is my first warning of a possible reversal in trend. However, what I don't know is how much of their resources sellers still have they can use to continue to move this market lower. What I do know is that they used up a lot of their resources in overpowering the buyers and this alerts me to a possible trend change in the future.
In part 3 I will look at what happened next.
In analyzing this monthly chart I am starting at the left edge of the chart. Looking at the first eight candles I see they are all moving downward indicating a downward trend. In analyzing the trading psychology that goes into forming this downward trend I notice that all these candles are red, except for one. Red candles are formed by the Close being below the Open. Red candles indicate the Sellers were able to overpower the Buyers. Next, I see that the red candles closed near the Low of each session meaning the Sellers were in control of the market by the end of each session (candle). I also see long upper shadows (also known as wicks) on candles 3,4,5,6 and 7. These upper shadows are a rejection of higher prices. The trading psychology that goes into forming these upper wicks is that buyers were able to move each candle higher but then sellers were able to overpower the buyers and move the price back lower. Further, candle number 4 is a neutral candle. Neutral candles are formed when the Close of the session is very near the middle between the High and the Low of the candles range. This neutral candle divides the downward trend into two waves. Wave number 1 is formed by candles 1,2 and 4 while wave number 2 is formed by candles 5,6,7 and 8.
To recap I see the sellers in control during these first eight candles. However, what I don't like about these first eight candles is the five long upper shadows. What I am about to share is what the typical retail trader misses when he or she sees a downward trend and just simply adds a downward sloping trendline of a moving average and does not understand the trading psychology going into the formation of this downward trend. These five long upper shadows indicate the period of time during the formation of each candle when buyers attempted to drive the market higher and sellers jumping back in driving the market back downward. This price action caused the sellers to use up resources needed to continue to move this market lower in the future. This alerts me this market may not be able to move further down and to expect a change in trend. This is my first warning of a possible reversal in trend. However, what I don't know is how much of their resources sellers still have they can use to continue to move this market lower. What I do know is that they used up a lot of their resources in overpowering the buyers and this alerts me to a possible trend change in the future.
In part 3 I will look at what happened next.