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gandra
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ma1 Kangaroo Tails are Long

on Sun Sep 13, 2015 2:21 pm
Most kangaroo tails are longer candles. This means that the kangaroo tail will be a bit longer than the surrounding candlesticks. Longer kangaroo tails have a tiny body and a long tail. Take a look at the kangaroo tail on the USD/CHF monthly chart in Figure 8.4.

FIGURE 8.4 This is a nice bullish kangaroo tail on the USD/CHF monthly chart with a very small body and a very long tail.
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The long tail is ideal. The best kangaroo tails will have very long tails and very short bodies.Why is it important for a kangaroo tail to have a long tail? A long tail suggests that themarket has gone a bit too far when testing a zone, whereas a short tail may suggest that the market simply brushed up against a zone.

Remember, as a naked trader, you want to look for trade opportunities on zones. Zones, as you recall, are those spots on the chart where the market repeatedly reverses. A kangaroo tail is a valuable clue, a particularly valuable clue when it occurs on a zone. The kangaroo tail with a very long tail suggests the market has become extremely excited before reversing sharply. So, a kangaroo tail on a zone is a high-probability reversal candle at a spot on the chart where the market has historically reversed time and time again.

Here you see how this kangaroo tail penetrated through the zone, suggesting that the market became very excited when pushing price through the zone, and then retreated for the close of the kangaroo tail (Figure 8.5).

FIGURE 8.5 Kangaroo tails often penetrate a zone before closing on the other side of the zone. This bullish kangaroo tail on the GBP/JPY daily chart penetrates the support zone before closing back above the zone at 167.00.
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This is a common kangaroo-tail formation. Most kangaroo tails will push through the zone and then come back and close on the other side of the zone.The kangaroo tail is a catalyst that suggests the market has gone too far, and has quickly reversed course. Recall that zones are those spots on the chart where the market has reversed repeatedly.

Therefore, a kangaroo tail on a zone is a reversal candle on a reversal zone. It is important to remember that as a naked trader you are using price patterns that are clues—hints about where the market may be headed. By trading these price patterns only on those spots on the chart where the market has repeatedly reversed, the odds are in your favor.

Kangaroo tails exhibit extreme market behavior. Kangaroo tails often push through a zone briefly (see Figure 8.6) before returning to the other side of the zone.

FIGURE 8.6 This bullish kangaroo tail on the USD/CAD daily chart has a very short tail. Notice how the market came back down after the kangaroo tail to test the 1.0450 zone.
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This is typical of the kangaroo-tail formation, and it is good to see. It is a sign that the market has tested the zone and rejected this level. Exceptionally long-tailed kangaroo tails are wonderful, as they suggest that the market, after pushing through the zone, has gone too far, and then settles back on the zone.

Very small tails on kangaroo tails are not ideal. A small tail suggests that themarket may come back and test the zone once again. The USD/CAD daily chart in Figure 8.6 is an excellent example of what often happens after small-tailed kangaroo tail prints.

The long-tailed kangaroo tails are often better trade signals than the very small kangaroo tails. The long tails suggest that the market has made a good test of the zone, and then, the zone rejects it. (See Figure 8.7).

FIGURE 8.7 The kangaroo tail on the AUD/USD four-hour chart is exceptionally long. This suggests that, although the market has pushed through the 1.0000 zone, it has been strongly rejected by the 1.0000 zone. The market moves over 600 pips higher after the kangaroo tail.
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When the market prints a long-tailed kangaroo tail, the suggestion is that the market has gone too far. Even though the market went through the support and resistance zone, in the end, the market closed on top of the zone. This is a hint—a very strong hint—that the zone will likely hold the market. A smaller tail on the kangaroo tail does not inspire as much confidence, because a half-hearted test of the zone suggests that the market may decide to come back for a good test of the zone again.

FIGURE 8.8 The GBP/CHF four-hour chart is in a very strong downtrend. Notice the small-tailed kangaroo tail in between the zones. This is not a reliable kangaroo tail trade.
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Also, during runaway markets, kangaroo tails may print, but smaller kangaroo tails are often simply weak pauses in the market (see Figure 8.8 and Figure 8.9).They often have very small tails and will print in between significant zones; in other words they are not reliable signals.

FIGURE 8.9 On the EUR/USD daily chart a bearish kangaroo tail prints in the midst of a strong uptrend. A longer tail on this kangaroo tail would have been a better sell signal.
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