If you are a Forex trader, surely you often come into contact with Japanese candlesticks. When using this type of tool, traders often pay attention to Japanese candlestick patterns to make decisions when making transactions. So that traders can easily access and use it. In the article below, Forex Trading would like to introduce to you Japanese candlestick patterns today.
General information about Japanese candlestick patterns
The Japanese candlestick patterns are a visual representation of the market’s price movements. Each type will have its own unique style and characteristics.
What is the Japanese candlestick pattern in Forex?
The Japanese candlestick pattern is a form of financial chart that uses candlesticks or candlesticks. Aims to describe the price movement of an asset over a certain time frame. Each candle represents 4 important information about the opening price, closing price, highest price, and lowest price.
Characteristics of Japanese candlestick patterns
The Japanese candlestick patterns often have the following characteristics:
- The body of the candle is usually blue or red. This type of color helps investors easily grasp information.
- Each candle will usually have two so-called shadows or wicks. The candlestick shadow represents the high and low of the price over a certain period of time. Therefore, the upper shadow represents the top, and the lower shadow the lowest point the price reaches.
- Each type of Japanese candlestick will provide 4 important types of data such as:
Opening price: This is the first transaction price in the session.
Closing price: This is the last transaction price of the session.
Highest price: This is the highest price achieved during the session.
Lowest price: This is the lowest price achieved during the session.
How do Japanese candles work?
Japanese candlestick patterns often operate according to the following principles:
- Each candle represents a certain time frame: This time frame can be 1 day, 1 week, or 1 month. Or any other timeframe depending on the chart settings.
- Position of candle body: If you see a blue (or white) candle body, it is above the horizontal line connecting the opening price and closing price. Then this is a bullish Japanese candlestick. Conversely, if the candle body is red and located below the horizontal line connecting the opening price and closing price. This is a bearish candle.
- Length of the candle body: If you see a long candle body, it means the price amplitude fluctuated strongly during the session. If the candle body is short, the price amplitude fluctuates weakly during the session.
- Candle shadow length: Seeing long candle shadows means strong buying/selling pressure, short candle shadows indicate weak buying/selling pressure.
See more: Analyze & forecast trend effective candlestick pattern
Advantages and limitations of Japanese candles
Advantage:
- The intuitive shape and color of candles help investors easily grasp information.
- Japanese candlesticks provide 4 important price data to help evaluate market trends.
- Can be combined with Bullish patterns to increase analytical efficiency.
- Provides signals for potential trade entry/exit points.
- Japanese candlesticks can be applied to many types of assets such as stocks, foreign exchange, and commodities…
Limit:
- Influenced by market factors: Can be disturbed by news, economic events…
- Not completely accurate: Signals can be distorted if analyzed incorrectly.
- Experience required: Effective use requires knowledge and experience in technical analysis.
- Subjectivity: Interpretation of candlestick patterns can be subjective depending on the experience of each investor.
- Limited time frame: Japanese candlesticks only reflect price fluctuations within a certain time frame.
16 popular Japanese candlestick patterns that traders need to remember
The Japanese candlestick patterns on the market so investors can easily choose the model that suits their needs.
- Hammer candlestick pattern: Hammer candlestick represents a strong decrease during the trading session. But then it skyrocketed, causing the closing price to be close to or higher than the opening price.
- Upside engulfing: A strong bullish reversal pattern showing the possibility of an uptrend reversal.
- Piercing Line Candle: This type appears at the bottom of a downtrend, at support, or during a pullback.
- Japanese Morning Star candlestick: The Morning Star candlestick suggests that the selling pressure of the first stage is gradually decreasing. Signs that a bull market is forming.
- Japanese Hanging Man candlestick: This candlestick appears at the end of an uptrend.
- Shooting star candlestick pattern: Shooting star candlestick is a bearish reversal candlestick pattern that appears during an uptrend.
- Evening star candlestick: Evening star candlestick is a bearish reversal candlestick pattern that often appears at the top of an uptrend.
- Three Black Crow: This is a bearish reversal candle line that often appears after an uptrend.
- Doji Candlestick: doji candlestick pattern is simple but powerful. Shows the temporary balance between buyers and sellers in the market.
- Spinning Top: This candlestick shows hesitation and a temporary balance between buyers and sellers.
- Falling Three Method: Candlestick reversal pattern from bullish to bearish appears in an uptrend.
- Rising Three Method: This is also a candlestick reversal pattern from down to up that appears in a downtrend.
Instructions for trading with Japanese candlestick patterns
To trade with Japanese candlestick patterns, you can follow these steps:
How to trade with the Japanese candlestick reversal pattern
How to effectively trade the Japanese candlestick reversal pattern. Refer to some of the following steps:
Step 1: Evaluate and identify market trends
First, it is necessary to consider and evaluate the market trend at the current time. To be able to determine whether the current trend is increasing or decreasing.
Step 2: Determine the appearance of reversal candles
Each reversal candlestick pattern will have unique characteristics. Based on that characteristic, determine which model is appearing. However, it should be noted that the candlestick reversal pattern will give accurate results when appearing in strong resistance and support areas.
Step 3: Combine the candlestick reversal pattern with other tools
You should combine the candlestick reversal pattern with the double top, RSI, and MACD models. After completing the combination, monitor the candlesticks that appear after the reversal pattern.
Step 4: Place trading orders according to forecast results
After combining with other tools to analyze trends. You proceed to place orders according to the trend forecast results obtained. If you see a bullish reversal Japanese candlestick pattern, you should place a buy order. If a bearish reversal candle appears, you should place a sell order.
How to trade with the Japanese candlestick continuation pattern
Here are the basic steps to trade with the Japanese candlestick continuation pattern:
Step 1: Identify the continuation candlestick pattern
Each candlestick pattern has its own shape and meaning. Therefore, you need to learn how to accurately identify these patterns on the price chart.
Step 2: Determine the current trend situation
Before using the continuation candlestick pattern to predict, it is necessary to determine the current trend of the market. You can use other technical analysis tools such as trend lines and moving averages to identify trends.
Step 3: Combine with other technical indicators
Continuation candles are not perfect signals and can be misleading. Therefore, it is recommended to combine continuation candles with other technical indicators to confirm the signal.
Step 4: Place an order
The entry point for a Japanese candlestick continuation pattern is usually placed when the price breaks out of the pattern in the current trend direction.
The stop loss should be placed outside the candlestick continuation pattern or against the current trend.
The take profit point should be set in the direction of the current trend.
See more: Exness – Trade With The World’s Leading Broker Exness
A few things to keep in mind when trading with Japanese candlestick patterns
Japanese candlestick patterns only provide information about past market sentiment. There is no feature to accurately predict future price movements. Therefore, you need to combine candlestick patterns with other technical analysis tools.
Before using candlestick patterns for prediction, it is important to determine the current trend. Because the Japanese candlestick patterns only make sense when the current trend is confirmed.
Do not rely solely on a single candlestick pattern to make trading decisions. You should use a combination of 16 candlestick patterns or many Japanese candlestick patterns. This will help you get a more comprehensive view of the market.
Always use risk management tools like setting stop losses and profit limits. Aim to limit losses and protect your profits.
Conclude
So in this article, Forex has brought you information about Japanese candlestick patterns in the financial market. Hopefully, with this information, you can apply it effectively in your trading process. In particular, don’t forget to follow Forex Trading to update more useful information!
FAQS
Can Japanese candlestick patterns be used to forecast market turning points?
The answer is yes. Several candlestick patterns are used to predict reversals of market trends.
Is using the Japanese candlestick pattern effective or not?
Using Japanese candlestick patterns can be effective in financial trading.
Are Japanese candlestick patterns the only trading analysis tool?
Japanese candlesticks are a useful tool in technical analysis. But not the only tool to make trading decisions.
