Forex Trading Using Intermarket Analysis

8 – Bullish engulfing pattern. 
After declining sharply for sev-
eral days, the market hits a slight pause at 8 with the white body 
engulfing the previous candle body. However, the candle body is 
not very large and convincing. With the predicted moving aver-
age below the actual moving average, the trend indication is still 
bearish, and there is no reason to abandon the short position. 
9 – doji. 
Depending on how tightly you placed a buy stop, you might 
have been stopped out of the short position on the doji two candle-
sticks after 8 or after the doji candlestick at 9. But the moving average 
crossover signal is still in a bearish mode. A doji candlestick after a 
downtrend is not as reliable a reversal signal as a doji after an uptrend.
10 – Pause. 
A pause of several days takes the predicted moving 
average above the actual moving average, indicating a shift to a long 
position, but the action again to make such a switch is not very com-
pelling. Buy stops placed above the candlesticks around 10 would not 
have been triggered, maintaining the short position as the predicted 
moving average once again slides below the actual moving average.
11 – Hammer and upsurge. 
The action between candlesticks 
10 and 11 provides more conclusive evidence of a bottom as a 
doji is followed by a hammer – the market plunges to a low, then 
rejects the lower price level and rallies to near the high of the 
day at the close. The long white candlestick at 11 confirms the 
turn, and the crossover of the predicted moving average above the 
actual moving average suggests an uptrend. Again, it takes another 
day’s action before the market is ready to move into its new trend.
12 – Pause. 
As often happens, the market reacts to the new 
trend by pausing – perhaps a flag in Western parlance – but the 
candlesticks do not provide any strong signal on direction. Stops 

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placed below the lows would have maintained a long position at 
this point, but it would take additional bullish candlesticks to 
make the case for the uptrend to extend itself. You may need to 
make a quick adjustment in your thinking if the moving aver-
ages and candlesticks do not continue to support a long position.