The analysis by the Japanese candle instrument dates back to the late seventeenth century in the East, when they were used to control the cereal market. To date they are still widely used especially by those who invest online through trading, both by experts and beginners. The success of this chart is due in the first place to its simplicity of interpretation, which allows you to understand the market trend between buyers and sellers, also to build it is enough to know the classic bar graph.
The candlestick graph shows the main data regarding the market price during a session, specifically: the opening price, the minimum and maximum price reached, the closing price.
The body of a candle (also known as Real body) is made up of a rectangle that includes the opening and closing price of the session and some lines, also called shadows, that instead combine the minimum price (Lower Shadow) and maximum (Upper Shadow) reached in the same.
Japanese candle graphs often have different colors depending on the type of closure: green or white if it was greater than the opening, red or black if not.
Now that we have understood how the structure of a candle looks, let's see which the main types are and how they are used to provide information on the trend of the financial market. It must be kept in mind that these are only some basic representations (patterns), which exploit only the single candle, but there are graphs that can represent up to five simultaneously, each with a different indication regarding the various forecasts
We have seen so far how Japanese candle charts are structured, one of the most reliable tools for financial market analysis. Often, even if they know the various types of base, they are difficult to interpret, for this reason, over the years, patterns or recurring training have been studied, which help investors to make predictions as certain as possible. The training is mainly of two types: reversal and continuation. The former indicate the certainty of a forthcoming upward or downward trend, while the latter confirm the continuation of a given trend. For a correct interpretation of the series it is advisable to also analyze the volume of the figures, which in most cases also indicates a minimum price value for earnings or to calculate any losses.
Also called candlestick, the analysis of Japanese candles is one of the most used in Forex because it provides the opportunity to take a closer look at the price developments that the market offers daily.
Learning to read and analyze Japanese candles in forex
First of all, we can say that the japan candlestick represents a graphic method to represent the prices of currencies. Why are candles being used? Because this evaluation system works through symbols that look similar to the more familiar wax objects that we need so much when we complain about the problems of electricity in the home. We come to us. Each "Japanese candle" is formed by:
After having explained what they represent and how our candles are made up, we move on to analyze in more detail what could be the effects visible thanks to them. In this case, when the opening price is lower than the closing price, the market is in an upward trend: in this case we will say that ours will be a bullish candle (coloured white). Conversely, when the opening price is higher than the closing price, we will have a bearish market with our candle to measure the trend of the red coloured forex. Here are a couple of figures to reflect upon:
Lift direction change following a bearish trend.
Conversely, with respect to the previous one. Little is happening on the stock markets.
In this case we have a strong market indecision. These forms are made of a rather small realbody positioned in the central part of the figure.
They are those that have a double upper shadow compared to realbody. The white upper shadow reproduces a bearish alarm signal.
This type of spark plug illustrates a recovery in the market.
They represent patterns of inversion: they warn in practice that the market is changing and that its trend will be affected by a reversal.
They represent the way prices vary, through which the daily "battles" between buyers and sellers are carried out in practice. With these types of graphs it is possible to identify almost immediately the force that is predominant within a specific time frame. Instead of price bars, as seen, we will find coloured candles (green to underline the bullish type and red for the bearish type).
How do they make up?
This is how the graphs we are dealing with are composed:
Going to the candles analysis, we see that the lines at the top and bottom of the candlestick tell us the maximum and minimum day. Let's see how the analysis of his body helps us:
So why is Forex candlestick analysis considered an excellent trading tool? We strongly recommend that you carry out a thorough study of it, especially to deal with the high volatility of prices and the indecision that you very often have to deal with when investing online.
Doji are different types of candles. In this case the body is annulled because the forces acting on the market match each other. Therefore, doji are used as indicators that clearly illustrate market reversal patterns.
We have a price pattern when a number of candles form patterns that have already (in the past) proved their reliability (because they may have been able to anticipate a trend reversal). Among the most famous ones, we would like to mention the inverted hammer. As far as the latter is concerned, we can say that it consists of a candle with a small body and a shadow at the top. Its nemesis, that is the hammer is formed instead by a small basic body and a long lower shadow. The hammer is predicting a reversal of the upward trend.
Looking at other price patterns we can certainly cite the bullish english, which occurs when a bearish candle is followed by a bullish candle.
We continue talking about the Morning Star configuration (an eye not to get confused because if you are looking for information on the web there will be several sites that talk about the film by Marco Ristori or the Tribute Band Blackmore's Night) which consists of three candles (the first bearish).
In the field of bearish price patterns, we can certainly point out the Shooting Star (its opposite is called hanging man), formed by a candle with a long tail in the upper part and a small body (typically occurs after a bullish movement).
So, try to study the theory and analyze as many graphs as you can with Japanese candles and figures (maybe try to grab some pdf or videos to consult), you must be able to analyze, from the very first moments, all the distinctive elements of any change in direction of the market, drawing the important elements to develop effective and successful strategies.
About video and pdf, we recommend the section of 24Option which in this sense is more than fed. Take a look by clicking on the image on the left.
Let's try to summarize the main signs of candlestick. It is clear that you will need to deepen in some appropriate way topics such as technical analysis, trying to practice, where possible with simulations and demos.
These are two patterns of strong reversal both bullish and bearish. Engulf in English means swallowing up these formations are in fact made up of a small candle, followed by a long candle that completely swallows the price range of the previous candle.
With this first training we have a Bullish Engulfing that signals a bullish reversal. The small black bearish candle is completely contained and swallowed by the white bullish candle, signaling bullish reversal.
With this second formation the Bearish Engulfing we have a bearish reversal signal, the bullish white candle is completely contained in the bearish black candle, bearish strong reversal signal.
Another very significant training for the trend reversal is the Hammer and Hanging man candles
The Hammer or hammer spark plug is a bullish formation, which forms during the downtrend phases.
It consists of a small body, while the lower shadow is twice the body and the upper shadow is very small or absent. Its color is indifferent.
The Hanging man is a bearish pattern that indicates a downward reversal. It forms at the top end of the trading range and is characterized by a small body, long lower shadow and small upper shadow.
Now we see some of the most important patterns of trend continuation
Separating Line is a trend continuation pattern. In the uptrend phase consists of a bearish candle followed by a bullish candle with the same opening price as the first.
During the downtrend phase it consists of a bullish candle followed by a bearish candle that opens at the same price as the first.
Bearish 3 is a pattern of bearish training.
The Bullish 3 is the opposite of the Bearish.
Indicates continuation of bullish trend. Consisting of two long bullish candles with center lowered candles that remain in the range indicated by the first bullish candle.
These are the most useful price patterns that help us understand the behavior of the trend. Based on these formations we can predict how the graph will behave on any expiry date or any timeframe. Much also lies in the trader's skill in being able to interpret the various graphic formations.
CFDs are Contracts for Difference, instruments used to move the prices of shares, government securities, indices, etc., in the market. CFDs are used at precise times in the market. For example, if you think that certain actions, in an already bullish context, could rise even more level, it's time to buy.
Some important strategies have been developed, such as spread trading, a particular technique that allows you to have a completely neutral exposure on the market.
We have seen how, in the field of technical analysis, it is also necessary to consider in depth the psychological aspect that in fact can influence the market even in a more than decisive way.
The technique I will describe to you today is a technique with a deadline of 10-15-20 minutes that uses a few simple but effective indicators.