Using Candlestick Charts To Spot When A Forex Storm Is Brewing

by Richard Hill

I often think the forex markets are like the sea.

The sea does what it wants, when it wants.

And there’s absolutely nothing you can do to change it.

All you can do is wait around for the right conditions, before you venture out into the deep blue.

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But when you do, you never know when the wind is suddenly going to blow up into a storm.

But imagine if you knew how to spot when a storm was brewing.

You could save yourself a lot of hassle and maybe your life.

A storm in the forex markets

In forex markets last week, a new storm blew up.

And no doubt it caught many people out.

The news came out that Greece was in danger of not repaying its debts.

But did you know, even without reading a newspaper, you could see this storm brewing on the forex chart.

Today, I want to show you how.

Take a look at this...




This chart is the EUR/USD 1 hour candlestick chart.

Can you see the two candlesticks where I have marked with arrows at either end?

See how these candlesticks are outrageously out of character, compared to the ones before?

Suddenly the market was whipped up into a storm.

The market moved within a range of almost 150 pips in a couple of hours.

More confusingly though, are the very long ‘wicks’.

The candlesticks have long black lines either end, meaning the price movement bounced between a big range.

This is a sign of indecision in the market.

In other words there was no clear direction to the news that came out.

It signals panic in the market.

Don’t misunderstand me, though; this is not an especially rare event.

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Moves like this happen fairly often especially when key news releases come out such as interest rate announcements.

But the point is, when this does happen, and you have a forex position, you may want to get out of it... and quick.

If you were in a trade at this time you could easily have been stopped out, as the price whipped up and down.

At times like this, it’s much safer to stay in the harbour, with no outstanding trades, when the sea starts to rage.

So if you spot a couple of very long candlestick with long wicks you may want to take action.

If you are in a trade you may want to consider closing it.

Or if you were getting ready to make a trade, you may want to think again and come back later.

Remember, another sunny day is just around the corner

At times like this, when you’re forced to stay out the markets, that you have to reassure yourself that there will be many more opportunities.

It’s so much better to wait for things to settle down a bit.

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That calmer sunny day is coming.

When the market settles down, you will see more regular candlesticks, and no extreme ones with long wicks.

That’s when you know the sea is calmer... and you’re less likely to get seasick.