There is a special kind of chart on the Forex market with which prices are displayed. These are Japanese candles. A distinctive feature of Japanese candles is that they respond much faster to even small changes in the value of assets on the chart that the trader works on.
For Forex, Japanese candles forexlabor was created by a Japanese trader at the end of the 17th century in order to conveniently display the maximum and minimum values ​​of the price level for a certain period of time. At that time, the prediction of the price of rice was relevant. Many tried to succeed in this direction and even came up with a variety of schemes, but in the end they agreed that Japanese candles are a more reliable way.
Japanese candle
The most optimal way to analyze Forex candlesticks is the daily timeframe. Japanese candles are divided into bearish and bullish. Candles have a body and shadows. It is accepted that the body of the bearish candle is black, and the bullish one is white.
Shadows are indicated by vertical bars. The upper one indicates the maximum price, and the lower one - the minimum. The closing price is determined by the top of the body of the bullish candle, and the opening by the bottom. You can find the opening price on the top of the bear candle, and the closing price on the bottom.
Classification of candlesticks on the "Forex"
Japanese candles can be of different types and sizes, and in each case, a particular candle means something specific.
So, for example, if the candle is white, then this means that the price is starting to rise. But the difference in price depends on the length of the candle itself. If the body of the candle is dark, the price drops.
If the candle has a long lower price, we can say that the timeframe is dominated by growth or an uptrend. If the upper shadow is long, then the downtrend dominates the chart. The shadow may be longer than the body of the candle. By the length of the shadow of the candle judge the reliability of the signal.
The shape of the candle is divided into several types. The values ​​of Japanese candlesticks on Forex differ in their form.
Hammer figure
During the bearish trend, a special candlestick appears on the charts with a small body and a much larger shadow. Usually this figure appears before the trend reversal. In other words, the hammer is a local minimum.
The body color of this figure may be different. The most important is not so much the color of the candle as the length of its body and shadow.
For the hammer figure is characteristic:
- There is no top shadow.
- The body is short, often square.
- Long lower shadow, twice the length of the body.
- The appearance of this figure accompanies a downtrend.
When sales of a certain currency pair are high, then there is overselling, the hammer appears alone.
Its appearance is explained simply: for a long time the trend was going down, thanks to the bears, but at some point, the bulls prevailed and the trend began to grow. As a result, the formation of a small body.
Inverted hammer
At its core, this Forex candlestick pattern carries the same information as the hammer pattern, the only condition for both of these patterns is the presence of an uptrend. Otherwise, such a figure is called "Hanged Man."
Hanged
This candlestick looks like a hammer, but it must have a bullish trend in front of it, and it is usually an indicator of a maximum. The hanged man is considered the forerunner of the trend reversal to the downward, that is, bearish.
Do not forget that the Japanese Forex candles are not a prophecy. They only allow you to see the future market trend on the chart. That is, it is only a signal of probability.
Spinning top
A candle with a small body and long shadows is called the Top. Her body color can be either white or dark. Usually this figure speaks of the indecisive mood of all traders in the market - both bears and bulls.
The fact that the price has not changed much since the opening to the close is evidenced by a small body, and a long shadow indicates the balance of power between bulls and bears. Despite the possibly high volatility of the pair during the bidding, the price eventually returned to its initial level. When a spinning top appears on a bull trend, this is an indicator of the "exhaustion" of the bulls. If the pattern appeared during the bearish trend, then it is likely that a bullish trend will begin soon.
Doji
Doji is a candle with a very small body, so much so that its shade is sometimes impossible to understand. The prices at opening and closing are almost the same, but may vary slightly.
Doji on the chart says that neither bears nor bulls can prevail. Doji according to the length of the shadows are divided into:
- Dragonfly - a candle gives a signal of a trend reversal.
- Grave - the closing and opening prices are equal to its minimum value. This candle at the very bottom indicates a trend reversal, in case of an uptrend. If it appears at the top - about a trend reversal.
- The long-legged doji is the signal about the trend reversal located at the top. If the candle stands between the minimum and maximum local - this is the “Rickshaw” figure.
- Cross or star - candles with minimal shadows. Typically, a star is part of other complex shapes, such as the “doji star” or “abandoned baby”.
- Doji of four prices - this candle appears during the period of the real price.
When the doji appears on the chart, you should immediately look at the previous Forex candlesticks. If a doji appeared after a series of candles that had large white bodies, this is clear evidence of the buyers ’“ fatigue ”.
To continue the price increase, new traders who are aimed at buying should enter the market. Sellers engage in combat with buyers, and this leads to an imminent drop in prices.
When the doji settles down after several dark candles, then it speaks of "fatigue" of bears. In order to maintain the trend, the emergence of new sellers, which are not yet on the market, is required.
Marubozu
The candle, which has no shadows, is called "Marubozu." This candle can be either black or white.
A marubose candle with a black body indicates dominance in the sellers market. Consequently, the price is likely to continue to decline.
White body candles marubozu - speaks of the dominance of bulls in the market, and the price is likely to grow in the future.
Candlestick analysis. Common mistakes
When analyzing Japanese candlesticks on Forex, standard errors are often made especially by beginners:
- The most reliable signals should be sought on the D1 timeframe (daily chart). They appear less frequently, but on shorter graphs, the reliability of the signals is significantly lower.
- Many traders treat Japanese candles as signals for action. In fact, candles only speak of possible changes in the market.
- You can’t determine the entry points to the market by candlesticks. The fact that they give such signals is a mistake.
- Reversal candles only warn of a possible change in the direction of the trend, but do not indicate it.
Signal significance level increases in the following situations:
- When a candle appears near a strong signal.
- The stronger the signal, the stronger and longer the trend.
Candlestick performance
Numerous analyzes and test trading show that candlestick signals are justified in only 30% of cases, so relying on this tool completely is not recommended.
Japanese candles should be used exclusively as an auxiliary, considering it only together with other tools that the trader uses.
Not bad proved a special indicator of the absorption of Japanese candles on the "Forex" Candlestick. It works on any timeframe, with any currencies, and well defines the bearish and bullish absorption of the candle.
On the Internet you can find many resources that offer their services to provide traders with supposedly reliable and accurate trading signals. Treat such offers very carefully and in no case do not trade in large amounts, relying only on such signals.
In nature, there is not a single type of analysis, much less a candlestick analysis of the Forex market, which would give a guarantee of which direction and during which time period the price of a particular trading instrument will move. Trading on the market is carried out by traders at their own risk, and success depends only on them.