Introduction to Japanese Candlestick Patterns in Forex
Japanese candlestick patterns display visually to forex traders how the size of prices moves in relation to different colors.
So, they help forex traders make trading decisions/strategies better. Regularly occurring patterns can assist traders in forecasting 1 second, short-term or even up to the 1-year direction of the prices.
What are forex candlesticks?
There are three exact points that make a candlestick. They are the open, the close, and the wicks.
The candle will turn green or blue should the close price is above the open price. The candle will change to red if the close price is under the open price.
However, the appearance of the colors will depend on the chart settings.
This is based on the chart with a daily setting that each candle means one day: the open price is the first price traded for the day and the close price is the last price traded for the day.
Open price: The open price symbolizes the first traded price during the formation of a new candle.
High price: At the top of the upper wick. If there is not any upper wick, then the high price is the open price of a bearish candle or the close price of a bullish candle.
Low price: At the bottom of the lower wick. If there is not any lower wick, then the low price is the open price of a bullish candle or the close price of a bearish candle.
Close price: The close price is the last price traded throughout the formation of the candle.
Basic Candlestick Patterns
Patterns are separated into bullish and bearish territories. Bullish patterns signal the price is likely to increase, while bearish patterns inform the price is likely to drop.
There is no single pattern that works each time. This is because candlestick patterns represent likelihoods in price movements and are not flawless.
There are numerous candlestick patterns in the market. Here is a sampling to get you to read and understand how they work.
Below are some key features about candlesticks formation:
- Candlestick charts are used by traders to determine possible price movement based on past patterns or clues on where a market is headed next. A market trend forms when recognisable shapes often lead to continuations or reversals.
- Candlesticks are handy during trading as they tell traders 4 price points (open, close, highest, and lowest) throughout the period of time the trader specifies.
- Emotion often dictates trading, which can be read in candlestick charts.
Different types of candlesticks
Traders use candlestick construction and price patterns as entry and exit points (trade positions) in the market. Individually, forex candlesticks develop into candle formations.
So, what are some examples? They are the hanging man, hammer, shooting star, and many more.
Japanese forex candlestick charts also make up different price patterns, namely triangles, wedges, as well as head and shoulders patterns.
As a matter of fact, traders and investors in other financial markets, such as equities (stocks) and cryptocurrencies use Japanese candlesticks in their trading.
Trade forex with candle formations
The hanging man candle is a candlestick formation that shows a sharp rise in selling pressure at the peak of an uptrend.
This formation features a long lower wick, a short upper wick, a small body and a close below the open.
It projects a bearish signal in which the market is going to continue in a downward trend.
A shooting star candle formation, similar to the hangman, is a bearish reversal candle. It includes a wick at least half of the candle length.
The long wick informs that the sellers are outweighing the buyers. A shooting star typical means a short entry into the market or a long exit.
Traders could use the shooting star candle to their advantage by entering a short trade after the shooting star candle has closed.
They could later place a stop loss above the shooting star candle, followed by targeting a past support level or a price that promises a positive risk-reward ratio.
Successful traders use positive risk-reward ratios as their popular assessment tool during trading.
The hammer candle formation is the opposite of the shootings star candlestick. It is a bullish reversal candle and this indicates the bulls are beginning to override the bears.
The features of the hammer candle formation are via its long wick and small body. Forex traders use a hammer candlestick as a long entry into the market or a short exit.
These forex candlestick charts signal a forex trader the price movements, thus they shape opinions of trends, and help to determine trading entries, exits and so on.
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