In this 3rd lesson in the course of trading to learn from scratch, we talked about the read candlesticks, some excellent graphical tools for the interpretation of the information of the variations of prices and / or score. I recommend you visit the first few lessons before you continue.
- 1 Course of trading: Japanese candlestick
- 2 Reading candlestick
- 3 Then, the types of candles most commonly used to predict movements
- 4 Trading strategy with reading japanese candlestick
- 5 Did you like the content? Share it
Course of trading: Japanese candlestick
What are they?
Originating in Japan, specifically in the EIGHTEENTH century, have an initial goal: the graphical representation of the rice trade. They are currently one of the technical analysis techniques most commonly used. Were popularized by Steve Nison, then learn from a fellow runner japanese. The best way to explain that is through the following image: japanese Candles. Course of trading to learn from scratch. Each candle is the japanese representation of the trade a product in a specific period of time. Their parties indicate specific values of the day, as shown in the image above. The information provided by a candle is: a Maximum and a minimum represented in the form of a wick, and opening and closing in the form of a body. Also known as candlesticks japanese, can be used in any color, but are usually used green for candles bullish, and red for candles bearish.
These graphical tools are often the main sources of information for a trader to take decisions. Although it is virtually impossible to be useful if not used in conjunction with other techniques, such as support and resistance, and correlation of different temporalities. The japanese candles often read in groups to identify potential reversals or continuations in a trend. These groups are known as patterns, and are used both for trends bearish as bullish. The theory remains, only reverses the direction of the candles. A single candle may give a signal of buying/selling at a particular time, if also used with other tools of technical analysis, mainly in areas of support/resistance.
Then, the types of candles most commonly used to predict movements
Remember that all are valid for both scenarios are bearish to bullish, only reverses the direction of the candle.
Are candles a great body and a few wicks, capable of wrapping one or several candles earlier, and indicate a reversal of the trend. Sailing surround bullish. Course of trading for free to learn from scratch, Lesson candlestick.
Indicate indecision during the trading period, and although they do not support more to one direction or another, is used in conjunction with other candles to try to predict the future. Usually indicate exhaustion of the trend or movement prior, but that may just be a break that has the control, in order to subsequently continue. So nearly always used to read patterns, but not a day specific. Candle doji. Course of trading for free to learn from scratch, Lesson candlestick.
Are candles with a long wick at one end. In the case of bull, the wick more length is to the bottom, indicating that despite a strong attempt to bassist, shoppers wrapped all the intention, and even generated a profit during the day. Candle hammer. Course of trading for free to learn from scratch, Lesson candlestick.
Are the opposite of hammers, but they also indicate change of address. They are composed by a long fuse to one of the two sides, and a body of smaller size. In the case of bull, represent the attempt of the sellers to eliminate the earnings of one day (wick), but buyers are able to keep control of the body, indicating that the time period was controlled by the force upward. Wing man pendant. Course of trading for free to learn from scratch, Lesson candlestick.
Trading strategy with reading japanese candlestick
As discussed, the japanese candles are usually used with support and resistance to predict future movements. The main rule to operate in favor of signals thrown by these graphical tools, is to wait for the closing of the same, because it may be that half of the time the feeling to turn around and totally eliminates the odds in your favor. Some traders use either the maximum or the minimum of the candle, or expected pattern for positioning your stop loss. While support/resistance nearby are used as profit taking. Below, examples of how they can take advantage of the signals dropped by the japanese candles to make entries:
In the chart above we can see a big support zone, left by a long wick, part of a hammer is bullish. Later, we see it as the price of Bitcoin reacts leaving rejection of a resistance zone nearby, and after a new test of the area, an inverted hammer occurs, possible sell signal. However, because the price was in a support area historical, the priority was shopping, so in the new visit to the support zone, the candle surround bull could have been exploited.
Chart BTC USD. Source: TradingView The price creates an area of resistance, leaving a strong rejection of prices upward. Shortly after, it is visited and rejected again. In a 3rd attempt, a candle inverted hammer demonstrates the inability of the buyers to cross that level. As a 4th bearish signal, after a slight decline, an important envelope has a presence.
Chart BTC USD. Source: TradingView In the previous paragraphs I said that the japanese candles are also used in conjunction to predict future movements of the market, and for example the seen in the image above. A resistance nearby it may be observed, the buyers are attempting to overcome it, but the break is invalidated for the observe as the bears returned fully intended. As a result, a pattern known as the star of the sunset can be observed.
Chart EUR USD. Source: TradingView As a last example of this lesson in the course of trading for free to learn from zero, we observe a different pattern of candles known as the Harami. In the image above we see the chart of the Euro vs the us Dollar in the span of 4 hours. A Shoulder Head Shoulder is observed, indicating a possible reversal of the trend. Indeed, the bears manage to pass through the support. Then, after performing a pullback of validation on the same level, the bulls demonstrate the completion of the backward movement in the form of a pattern Harami, formed by a small wing wrapped by the previous, indicating a loss of momentum prior.
Did you enjoy this lesson in the course of trading?
I hope your answer is yes, and we encourage you to stay tuned to our upcoming publications. Remember that the knowledge learned in this lesson may only be really effective if you add it all together with what you will learn throughout this course of trading to learn from scratch.