How To Use Japanese Candlesticks
A Japanese candlestick chart provides the trader with crucial information about price action at any given point in time. Traders often confirm their signals with Japanese candlestick patterns, improving the odds of success on a trade.
Trading price action using candlestick analysis alone is a very common trading technique. Yet, candlestick trading tends to be the most powerful when confirmed with additional indicators or when combined with Support and Resistance zones.
Candlestick patterns in Forex are specific on-chart candle formations, which often lead to certain events. If recognized on time and traded properly, they can assist in providing high probability setups.
Forex candlestick patterns are classified within two types candlestick continuation patterns and candlestick reversal patterns. We will now go through the most common reversal and continuation patterns and we will discuss their potential.
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The Best Way To Practice With Candlestick Patterns
As always, it is best to practice a strategy before putting money to work in the market. There is no better way to do this than with a simulator.
One of the best methods to train your chart eye to see these patterns is to simply replay the market, noting each time you see a particular candle.
As you put in deliberate practice, ask yourself the following questions:
- What candle formation is this?
- What is the context? Uptrend? Down trend? Sideways?
- Does this candle meet the criteria for a proper reversal?
- Where could I enter with the least amount of risk?
- What would confirm the pattern?
We have a wealth of knowledge on many different candlestick patterns, so be sure to check out those lessons, too!
Put Your New Knowledge to the Test
Want to practice the information from this article?get trading experience risk-free with our trading simulator.
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Intro: The Strength Ratio Bulls Vs Bears
To understand the price and candlestick analysis, it helps if you imagine the price movements in financial markets as a battle between the buyers and the sellers. Buyers speculate that prices will increase and drive the price up through their trades and/or their buying interest. Sellers bet on falling prices and push the price down with their selling interest.
If one side is stronger than the other, the financial markets will see the following trends emerging:
- If there are more buyers than sellers, or more buying interest than selling interest, the buyers do not have anyone they can buy from. The prices then increase until the price becomes so high that the sellers once again find it attractive to get involved. At the same time, the price is eventually too high for the buyers to keep buying.
- However, if there are more sellers than buyers, prices will fall until a balance is restored and more buyers enter the market.
- The greater the imbalance between these two market players, the faster the movement of the market in one direction. However, if there is only a slight overhang, prices tend to change more slowly.
- When the buying and selling interests are in equilibrium, there is no reason for the price to change. Both parties are satisfied with the current price and there is a market balance.
Element : Body To Shadow Ratio
For a better understanding of price movements and market behaviour, the first two elements must be correlated in the third element.
Important factors in this context are:
- During a strong trend, the candlestick bodies are often significantly longer than the shadows. The stronger the trend, the faster the price pushes in the trend direction. During a strong upward trend, the candlesticks usually close near the high of the candlestick body and, thus, do not leave a candlestick shadow or have only a small shadow.
- When the trend slows down, the ratio changes and the shadows become longer in comparison to the candlestick bodies.
- Sideways phases and turning points are usually characterised by candlesticks that have a long shadow and only short bodies. This means that there is a relative balance between the buyers and the sellers and there is uncertainty about the direction of the next price movement.
Figure: There are almost no shadows during the left rising phase, confirming the strong trend. Suddenly long candlestick shadows are visible in the sideways phase these indicate uncertainty and an intensified battle between the buyers and the sellers. When candlestick shadows increase, it can foreshadow the end of a trend.
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What Is A Bullish Candle
A bullish candle is formed when the price at the closing of the candle is higher than the open. This can be on any time frame: from a 1-minute candle to a 1-month candle. It will all be the same.
Typically these candles close with a green or white body color, though most charting platforms allow for customization these days.
Is The Candlestick Chart Different From A Bar Chart
Yes the candlestick is different from the bar chart, but they share some similarities because they both display the same amount of price data. However, most traders agree that candlestick charts are easier to read.
Disclaimer
This article is intended for and only to be used for reference purposes only. No such information provided through Bybit constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific person. These forecasts are based on industry trends, circumstances involving clients, and other factors, and they involve risks, variables, and uncertainties. There is no guarantee presented or implied as to the accuracy of specific forecasts, projections, or predictive statements contained herein. Users of this article agree that Bybit does not take responsibility for any of your investment decisions. Please seek professional advice before trading.
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Learn More Candlestick Patterns
Of course, you should not limit yourself to the 10 candlestick patterns above.
However, you should familiarise yourself with one pattern before moving to the next. Trying to look out for dozens of patterns without knowing what they are trying to tell you lands you in a confusing mess.
Start with Steve Nisons Japanese Candlestick Charting Techniques, which is the closest you can get to the source of candlestick patterns without picking up a Far Eastern language with three scripts.
Mexican White Cheese Dip/sauce
This whitecheese dipping sauce is an almost identical version of what is made in Mexican restaurants. You are given complete leeway to how much heat you choose to add to this. Many people prefer with no heat at all, while others add additional amounts. White cheese sauce is a creamy and delicious variation of authentic cheese dip.
This white Cheese sauce is excellent as a sauce for over vegetables, as a topping for casseroles and especially as a dip. With that aged cheddar taste, it is perfect for dipping tortilla chips in. It also makes a good fondue cheese for bread cubes, or cubed and sliced vegetables.
As stated, you will likely find white cheese sauce or dip in most Mexican restaurants. There really is no difference between the white cheese sauce or the yellow cheese sauce. There is yellow food dye added to the yellow version of American cheese. It is known to be more of a mental or emotional reaction to the color of cheese.
As a majority have grown up eating yellow American cheese, the artificial coloring added. If you were to taste them side by side while blindfolded, you would not likely be able to tell the difference.
Frequently Asked Questions:
Can I eliminate the added heat in the recipe?
The way this recipe is made is actually quite kid friendly. In other words, there is not much of a bite to it. If you prefer, you can leave out the green chillies and the cayenne pepper.
What if I want more heat?
How do I thin the sauce down?
2 tsp onion powder
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Piercing Line / Dark Cloud Cover
What does it look like?
The Piercing Line and the Dark Cloud Cover refer to the bullish and bearish variants of the same two-bar pattern.
The first candlestick of the Piercing Line pattern is bearish. The second candlestick:
- Opens below the low of the first candlestick and
- Closes above the mid-point of the first candlestick.
As for the Dark Cloud Cover pattern, the first candlestick is bullish. The second candlestick:
- Opens above the high of the first candlestick and
- Closes below the mid-point of the first candlestick.
Due to the first criterion of both patterns, the second bar must open with a gap away from the close of the first bar. Hence, these candlestick patterns are unusual in intraday time-frames where gaps are uncommon.
What does it mean?
It means some traders are sorely disappointed.
In the Piercing Line pattern, the second bar opened with a gap down, giving an initial hope of a strong bearish follow-through. However, not only did the bearishness fail to materialise, it proceeded to erase more than half of the bearish gains from the first bar. This bullish shock offers a great long trade.
Likewise in the Dark Cloud Cover pattern, the first gap up prompted hope from the bulls before the lower close crushed it.
How do we trade it?
Analyzing A Candlestick Chart
Candlestick charts are usually analyzed using patterns. Patterns can be categorized as either bullish or bearish. A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. The opposite of a bear market is a bull market, or the condition of a financial market in which prices are rising or are expected to rise.
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Ability To Signal Turning Points
It analyzes the charts and accordingly buys strength alongside selling weakness. The bullish candle represents strength and the bearish candle represents weakness.
These are easily recognizable by the color associated with them that makes buying and selling more convenient. The bullish candle is blue whereas the bearish candle is red.
Benefits Of Using Candlestick Charts
There are many benefits of using candlesticks patterns when trading. Some of these benefits:
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They tell us more Unlike other types of charts, candlesticks tell us more about the financial asset. For example, they tell us when it opened and when it closed.
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More accuracy Candlestick patterns are usually relatively accurate in predicting the future price of an asset.
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Used by most traders These charts are used by most traders in the market. This means you are in good company.
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Reversals and extensions Candlesticks are excellent in helping you identify reversals and extensions.
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How Did Japanese Candlesticks Originate
Munehisa Homma, a renowned rice merchant from the Japanese town of Sakata traded in Dojima market in the 1700s. Further study of Candlesticks mentions Sakatas Methods or Sakatas Rules, that are based on the name of this particular market.
Homma is said to have developed candlestick charts during in his lifetime by studying years of historical data and comparing them with weather conditions across the years which also helped him understand the role of emotions on the value and pricing on the trade of rice.
He was known for having practised financial instruments at that time. But then, wouldnt there be some story behind Candlesticks present globally and how word spread about it? So, we ask this:
Use All Candlestick Patterns
CandlePatternsAll strategy calculates all candlestick pattern indicators that are available in the platform. Essentially, the strategy differs from the CandlePatternsMultiple strategy only by calculated indicator count and by the way the list of indicators gets compiled.
The strategy retrieves all candlestick pattern indicators in the following way:
Collection< String> indNames = indicators.getAllNames for}
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Take Time To Learn Candlesticks Patterns
Treat trading seriously and not as a hobby if you want to become successful long term. Its important to immerse yourself into the trading world if you want to make it as a trader. Treat it like you would a job or starting a new career. Go easy on yourself and dont get frustrated if it takes you awhile to learn how to read candle charts. Thats a totally normal process.
It takes looking at hundreds of charts over the case of several months for understanding candlestick charts to make sense. Dont worry though. After enough studying and looking at a lot of charts, the patterns will start to jump out at you and make sense.
Thats why its important to download our wallpapers, so the patterns will be in your subconscious, and after enough time, they will eventually enter into your brain consciously and make sense. Reading candlestick charts begins to make more sense the more that you look at the charts.
Its like anything in life or starting a new career or profession. It takes time to learn a new skill. When starting a new education or career it many of times takes a year or so to get the hang of things.
Weve invested a lot of time into creating useful candlestick resources that will help the patterns become easier to understand. We suggest swapping out our wallpapers every couple of months or so to keep the patterns fresh in your mind and so youll learn other ones as well.
The Story Behind Each Candle
Each candlestick represents a story in relation to price action. Consider each candlestick like a corner store in the neighborhood that sells fresh bread dynamically priced based on the days supply and demand.
Every open the first customer buys the first loaf and then the rest of the customers come do their shopping. Based on supply and demand, someone will pay a high price and someone will pay a low price. At the close of store hours, the last customer to buy a loaf of bread represents the close. If the last loaf sold for less than the first loaf, it indicates that demand has fallen. On the flipside, if the last loaf was sold at a higher price than the first loaf, it indicates demand is good. If customers came in and continues to buy bread at higher prices and the last load sold at the highest price of the day, it would be represented by a candlestick with no upper wick indicating demand was very strong.
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When Prices Follow The Trend Wait For The Stars
This is the first result I want to talk about from my stats. The stars here mean the Morning Star and the Evening Star reversal candlestick patterns. These are the two best signals that prices will continue to follow the trend once they appear.
Specifically, when the price goes uptrend and the Morning Star pattern appears, it is a good omen to open UP orders. Lets look at the following typical example.
On the contrary, when the price is in a downtrend, wait for the Evening Star to open an order. It yields a win rate of up to 80-85%. This is a very good signal for you to open DOWN orders following the trend. Lets take a look at a typical example of the power of Evening Star when prices go in a downtrend in Olymp Trade.
Candlestick Patterns Cheat Sheet
Like learning any new skill it is important to get to grips with it and practice as much as possible.
That is why we have included this candlestick patterns cheat sheet for you to use as a reference about which way the markets may go if you identify a chart pattern!
This is a great resource if you want to view just the patterns, what they look like and which direction they indicate the market will move towards.
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Serving And Storage Tips
Serve: The cheese dip will harden as it cools. It is best to serve directly from a skillet or keep it warm in a mini-crock pot. If it does harden, reheat in 30 second intervals to make it creamy and smooth again.
White queso dip is traditionally served with tortilla chips, but there are plenty of options to suit your personal preference or dietary restrictions:
- Sliced veggies like cucumbers or bell peppers
- Poured on top of our Delicious Enchiladas or Carnitas Tacos
- Scooped up on roasted potato wedges
PRO TIP: A mini crock pot like this is perfect for keeping dips just the right temperature to keep them melty and smooth! Perfect for parties or enjoying snacking and dips.
Store Leftovers: Store leftover dip in the refrigerator in an air-tight container. I would say it lasts about a week, but we always seem to gobble it down. Its easiest to spoon out how much you want and reheat in the microwave in 15-30 second intervals depending on volume. If you reheat too often, the cheese can turn hard but 1-2 times should be fine.
# Evening Star Candlestick Pattern
The evening star is a three-candlestick pattern that is the equivalent of the bullish morning star. It is formed of a short candle sandwiched between a long green candle and a large red candlestick.
This signifies the reversal of an uptrend and is particularly strong when the third candlestick wipes the gains of the first candle.
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