The Doji | Candlestick forex analysis

The Doji is probably one of the most accurate of candle reversal signals. Used correctly you will increase your forex profitability by 80%.

Understanding the candlestick patterns and graphical displays will greatly enhance your trading skill & will allow you to trade emotionlessly.

So What is the Doji candlestick?



A Doji candlestick forms when there is indecision between the Bulls & the Bears. It appears when the open and close price are very close together or identical. There are 2 ways to trade the Doji

How to trade the Doji in a Bull market?

When you see a Doji at the top of a trend the rule of thumb according to the Japanese rice traders is to get out of the trade - take profit and wait for the next signal.

How to trade the Doji in a Bear market?

When you see a Doji at or near the bottom of the trend you need to wait for further trading signals to make a decision on what to do.

Lets have a look at the picture below. Look at the red circle you can see the price of GBP/JPY (GJ) has been trading sideways ever since the Doji. The Doji formed at the top of the Bull trend and is now consolidating. It is time to take profit.

Trading candlesticks alone without another indicator will bode you well, but getting confirmation from other technical signals will further enhance your trading skill.

8EMA (8 Exponential Moving Average On The Close Price)

The 8EMA is the red & white dotted line as seen on the chart above. This line is a great tool to have in your arsenal to keep you trading emotionlessly.

Rule of thumb here is when the candle closes above the 8EMA stay in the trade & when the candle closes below the 8EMA get out of the trade. This is obviously for a Bull market. The opposite is true for a Bearish market. When the candle is below the 8EMA stay in the trade & when the candle closes above and the next candle opens above the 8 EMA get out of the trade, take profit and possibly go long.

So the above picture has a little bit of a challenge when making a decision. Does one take profit as per the rule of thumb of seeing a Doji at the top or do we wait until the candle opens and closes below the 8EMA?

The answer is simple.

You take profit and protect profits.
There are basically 4 rules in trading.

Rule 1 = Protect capital
Rule 2 =  Make profit
Rule 3 = Protect capital.
Rule 4 = Repeat steps 1-4.

What happens if the price goes up after getting out of the trade as per the pic above?

This is called a false positive. Nothing to beat yourself up about. Just get back in to the trade and carry on going long and making profit. The spread (commission to the broker) is around 2-4 pips before you begin making money, so just get back in the trade.

If you remained in the trade and the trade closed below the 8EMA it is far more than 2-4 pips you would have lost.
You would have lost about 30 pips. So very clearly using the Doji at the top is the right decision.

So when do you decide to get back in to the long trade after seeing a Doji after you got out and have made an error to get out as per the pic above?

I would wait until a new candle forms and closes above the high of the previous Doji. This way you know you are out of the sideways trade. you have protected capital & you have now positioned yourself for the next bull wave.

100MA (100 Moving Average - Blue line)

Professional traders, financial institutions, hedge fund managers & banks etc use moving averages to make decisions on wether to enter or exit trades. One of the major MA's is the 100 MA.

Before I discuss the above picture let me explain what a MA is. A Moving Average (MA) is created by taking the close out of the last X amount of candles and plotting a dot on the chart.

In the above picture each candle represents a 4 hour time frame. So the 100 MA is the average of the past 100 candles on a 4 Hour time frame. To get the next dot on the chart we wait for the next candle to open and close. We then take the past close out price of the past 100 candles add them up and divide by 100 to get the average. plot it on the graph & then join all the dots to get a line chart. Very simple.

The 100 MA in blue is shown with the arrow.

A moving average is used as a support or resistance level for traders to either get in or out of a trade. Let's now analyse the picture below.  You can see the price is trading at 142.632 and is stuck on that level. Why? Because the price has reached the 100 MA. Lots of traders have their buy & sell orders on this level. The price will either go up or down based on the amount of orders executed.

This trading game is a game of supply & demand. If there are more buy orders than sell orders then the price will go up. Conversely, if there are more sell orders than buy orders the price will go down.

We do not predict what will happen to the price, here we just follow the signals. So we have 2 signals now.

Signal 1 = Doji at the top = Take profit.
Signal 2= 100 MA & Doji = Take profit.



Signal 3. 

Stochastic
The stochastic oscillator is a momentum indicator that is widely used in forex trading to pinpoint potential trend reversals. This indicator measures momentum by comparing closing price to the trading range over a given period.

Basically it shows you either over-bought or over-sold conditions. Over-bought means too many people have bought the product and a reversal is imminent. Conversely, over-sold means to much of the product is sold and we can expect a reversal. 

To recognise over-sold conditions we would find the red dotted line and the yellow line between the 0 - 20 as seen in the picture below.

Conversely recognising an over-bought condition would show us the red dotted line and the yellow line in between the 80 - 100 area. as seen in the picture below.

So now we have 3 signals that are screaming at us. 

Signal 1 = Doji at the top = Take profit.
Signal 2= 100 MA & Doji = Take profit.
Signal 3 = Stochastic in the over-bought area.

This is now a 100% take profit signal and time to wait for the 4th signal which will tell us to get back in and go long or get back in & go short.

Understanding the above signals will improve your profit and sanity. Unfortunately trading manually takes time to learn and is time consuming in itself. Most people do not have time to trade manually as they have jobs, careers and a life.

I prefer to make Passive Income. 

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Alan Solarsh | The Passive Income Guru
+2776 4577444
How To Make Passive Income

Most if not all the richest of the rich throughout the world have more than 1 income stream & if you want to get rich you need to start emulating the richest of the rich.
How many streams of income do you have?
Warren buffet has over 10.

So what is passive income exactly?

Well lets discuss the different types of income. Basically there are 2 types of income in this world.
1. Active Linear Income
2. Passive Income

Let's begin with understanding what Active Linear Income is.
You are exchanging your valuable time for money. Mostly you will only get paid enough to keep you rooted in your chair. Traditionally this would be a job, but as of late contracting your time out has become more prominent as there is very little security in having a job. So basically your life works like this, you work you get paid, you work you get paid, you work you get paid. If you do not work you don't get paid. So your income is dependent on your time & time as we know it is very limited and finite. There are only 46-80 working hours in a week. You can't stretch that out so your income is basically capped.
The only way to increase your income is to increase your price & sometimes, in fact most times this is impossible. Even Tony Robins can only charge a certain amount for his time. So again your income has a ceiling.
Now Passive Income works completely differently. When you have $1 Passive Income More than your expenses you are what is called financially free.

So what is Passive Income?

It is money you earn passively. Money you earn when you sleep or even if you do not work. The most common type of this Income is rental income. This is money you make when you own property. You have a tenant that usually works & earns linear income & he pays you rent, which is Passive Income. There is very little if any effort done on your part as the owner of the property so as to bring in the rental income & earn passively
So how many types of Passive Income streams are there?
There are probably hundreds. but let me name a few that will assist you to make a decision in which Passive Income Opportunity suits your risk profile & life style.
Rental Income Highly Lucrative, but yet there is a very high barrier to entry. You needs loads of cash to start a decent property portfolio & you need to show your liquidity, affordability and you can't be blacklisted as a bad or slow payer.

Affiliate Marketing. Affiliate marketing is a fabulous way to start earning passively. There are many companies out there looking for quality sales people. You need to sell, subscription based products & services. an expanse of this is web site hosting services, Software, mobile phone subscriptions, Insurance, medical aid. My wife has a hair care product that she manufactures and she has brought in a subscription service that allows her clients to have their hair care products delivered to them on a monthly basis, mission free at a discounted price if they take an annual subscription. There are many products out there that offer this system. A great place to find these are affiliate web sites like Commission Junction, ClickBank many many others. You just need to find a product & service that you could align yourself with.

MLM. Multi level marketing or Network Marketing is an amazing way for any person with 1 cell of entrepreneurship in their bodies to get started in having their own business and start earning passively. A lot of the MLM companies put there offer a passive earnings on the sales you do and on the sales that your representatives that you have recruited in your organisation make. This is such am amazing business model where you can recruit people in to your organisation and whatever sales they make you get an overriding commission on their sales. The overriding commission is now money you make passively, as you did nothing to earn it except recruit the sales person. He did the sale, the follow up etc. & you earned Passively from his efforts. This is like the WOW factor.

Even if you owned your own business their are very creative ways you can adopt in your business so as to earn recurring income. Let's look at a guy that builds pools. You would think that this is just linear active income here. You would be wrong. How about the pool guy offering a subscription service for after care & maintenance. He could charge a monthly subscription to come out and backwash the pool, make sure the PH is correct, (which is such a motion for a person that does not understand PH etc). This is the Recurring Income Stream now created for the pool builder.

You really need to dig deep here and start working on your business rather than in your business. Once you do this you can begin to become creative & move your business in to or have a division of your business dedicated to making you a Recurring Income Stream. Your Recurring Income will eventually overtake your linear active income & then live for you begins. Even if you have a job, you can do affiliate marketing or MLM in your spare time as you get paid for the sales you do & not the time you put in. Obviously the more time you put in the more sales you make, but if you have not time due to having a job, don't let this be the reason not to, it should be the reason why you should do it!

I hope that this article has inspired you to make a change from Linear Active Income to Passive income.
The Passive Income Guru
Send me a "Howzit" on Whatsapp & I will mentor you.
Alan Solarsh | The Passive Income Guru
+2776 457 7444

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