How to trade japanese candlesticks?


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  • #1 Collapse

    How to trade japanese candlesticks?
    Today, Japanese candlestick charts are the most popular way to quickly analyze price action. But I want to know what are your strategies to trade in japanese candlesticks.

    Hope you will help me
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  • #2 Collapse

    Japanese Candlesticks

    Japanese candlesticks nowadays are deemed one of the important tools that can help any Forex trader in making a good technical analysis to any currency pair or financial instrument in Forex market, as candlesticks patterns can help us in predicting price action during price movements. But you need to know all types of candlestick patterns in order to be able to use them in making technical analysis to the market, and in order to be able to predict the action that the price is likely to take when one of these candlestick patterns appear on the chart. And based on them, you can decide when to buy and when to sell. And this makes you able to achieve very good profits from your trading in Forex market. So, step by step, i will explain to you each type of these candlestick patterns. And how to benefit from them during your trading.

    The most powerful Japanese candlestick patterns :

    Doji patterns :
    Dojis candlestick patterns are typically formed on the chart when open and close price are same, and appearing them at end of an up trend or at end of a downtrend indicates that a potential reversal may occur in market trend. And also when the Doji candlesticks appears below a resistance line, this indicates that the resistance line will pushes the price down. And when they appears above a support line, this indicates that the support line will pushes the price up. And there are four types of Doji candlesticks, which are :

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    Hammer and inverted hammer patterns :
    Both hammer and inverted hammer candlestick patterns typically appears at end of an uptrend or a downtrend. And appearing them refers that a potential reversal may occur either from an up trend to a downtrend or from a downtrend to an uptrend. And you can know those two types of candlestick patterns from the image below :

    Morning star and evening star patterns :
    Appearing the evening start pattern at end of an uptrend indicates that a bearish reversal is likely to occur in market trend from an uptrend to a downtrend. And appearing the morning star pattern at end of a downtrend indicates that a bullish reversal is likely to occur in market trend from a downtrend to an uptrend. And you can take a look on the image below to know those two patterns well :

    Bearish engulfing and bearish engulfing patterns :
    Appearing the bearish engulfing pattern in the market refers that a bearish reversal is likely to occur in price trend from an uptrend to a downtrend. And vice versa, appearing the bullish engulfing pattern in the market refers that a bullish reversal is likely to occur in price trend from a downtrend to an uptrend. And the below image can shoes you those two patterns :

    The mentioned above candlestick patterns are deemed the most important candlestick patterns that can help you in predicting price action after appearing one of them on the chart during your trading in Forex market.
    My Trading Journal


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    • #3 Collapse

      Every forex trader does trading by looking at charts. This is a visual representation of the changes in price levels. We can use indicators, trend lines, economic events, speculations, support and resistance levels etc., to determine in which direction the price would move.

      However, candlestick charts provide us with more in-depth information. We can identify certain candlestick patterns to make buy or sell decisions. There are many popular candlestick patterns which are being used by most of the traders to become successful in the forex trading profession.

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      Apart from the candlestick chart, there are other types of charts. Actually, there are three types of charts namely Bar chart, Line chart and Candlestick chart. The bar chart shows open, close, high low levels in each bar. However, the candlestick chart also shows open, close, high low levels but in a more clear visual form. We can easily recognize bull and bear candles by looking at the colour of the body of the candle. Also, it is very easy to read the chart and trade accordingly. On the other hand, the line chart is a very simple chart which connects closing price levels in different time periods.

      You might like my other post: How many types of chart?

      The Candlestick chart is also called a Japanese Candlestick chart because it was first created in Japan centuries ago. It was basically used by Rice traders. Later it became popular among all and now it is widely used by most of the traders around the world. Not only forex traders but also the stock market traders use Japanese Candlestick chart for their trades.

      What are the main characteristics of the candlestick?
      • When we see a long bull candle with no shadow at all then it is confirmed that the trend is bullish and buyers are more active.
      • When we get to see long bear candles without any upper or lower shadow, this means the trend is strongly bearish and sellers are active.
      • Long upper shadow with smaller body indicates that sellers are more active than the buyer.
      • Long lower shadow with a smaller body shows buying power is more than the selling power.
      • A series of candles with a small body with small upper and lower shadow confirms that the market is flat and it is in the consolidation phase.
      • Three bull candles in a row or three bear candles in a row confirms that the price is going to move in one direction. We can be more confirmed of the bullish trend if three bull candles formed above support area. On the other hand, we can strongly take action by selling an order if we see three consecutive bear candles just below resistance area.

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      The Japanese Candlestick chart is popular for many reasons:

      1) It is easy to analyze because of good visual representation.

      2) It forms certain candlestick patterns to determine whether to buy or sell orders.

      3) Easy to read price action in the candlestick chart.

      4) Even small movements in the candlestick chart can be identified because of its clear visual form.

      As mentioned, among all three charts the Candlestick chart is commonly used to perform trading activities. Most of the technical trader like to use candlestick chart to analyze the trend. It also forms some candlestick patterns which can be useful to identify a bullish and bearish trend. Most probably these candlestick pattern being formed due to traders trading behaviour over a period of time.

      What is a candlestick pattern?

      We can get some candlestick pattern formation either in reversal or in continuation trend. A single candle or a combination of more than one candle in a particular formation can be identified as a candlestick pattern. This is not a difficult task to identify candlestick pattern but to identify at the correct time is very much important.

      A candlestick pattern is only valid if all candles are being closed. We can't jump to any conclusion before the formation or closing of any candle. Suppose in support area one big bull candle is forming and the previous candle has been closed in bearish form i.e. in black. We can't say that the candle has formed bullish engulfing candlestick pattern unless the second candle should be closed with appropriate size i.e. bigger than the previous bear candle.

      Before identifying any candlestick pattern we've to be careful to look at the size of the candles too. There are three parts of a candle, upper shadow, real body and lower shadow. In some candlestick pattern, there would be no upper shadow, only body and lower shadow will be visible. Similarly in some candlestick patterns first candle would be in bearish form and second would be in bullish form. So we've to look at the overall formation and only then we'll able to identify the actual candlestick pattern.

      Where we can find candlestick patterns?

      Most of the candlestick patterns are found near support area, resistance area and in between a trend. We can call a candlestick pattern as bullish reversal when it forms near a support area. We can get a bullish signal and thus we can open buy order here.

      Similarly, when sell signal formed by candlestick at resistance area we call it as a bearish reversal. We can make a sell order in such candlestick patterns. Normally one or more than one candlesticks form bearish reversal candlestick patterns.

      Another candlestick pattern formation can be found in between a trend. We can call it a continuation candlestick pattern. We can definitely hold our existing positions here if we get continuation candlestick pattern. However, we can also open new orders here, depending on the strength of the trend and distance from the resistance level. If the price already reached near resistance then we must not open any new order in such continuation candlestick pattern.

      We can identify common candlestick patterns, which are as follows:

      1) Bullish engulfing pattern: When the price reached the support area, the price started to move towards up and form bull candles. If the first bull candle in the support level is bigger than previous bear candle then we can consider it as a good sign of a bullish trend. A combination of short bear candle followed by a bigger bull candle in support area is bullish engulfing candlestick pattern. In this type of candle formation, the body of the candles is measured which are probably bigger than the upper/lower shadows.

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      Key points to be noted:

      a) This is a combination of two candles formation.

      b) This type of candle formation can be found in the extreme support area.

      c) The first candle is a bear, and the second candle is a bull candle. The bear candle is the last candle of a bearish trend, while the bull candle is the first candle of the bullish reversal. The bull candle would be bigger in size than the previous bear candle.

      2) Bearish engulfing pattern: Once the price reaches the resistance area. The price would start to fall from overbought territory. Bearish candles started to form and if the first bearish candle is bigger than previous bull candle we can confirm it as a bearish engulfing candlestick pattern. Here the real body of candles can be considered for the candlestick pattern and which are probably bigger in size compared to the upper/lower shadows.

      Key points to be noted:

      a) This is a combination of two candles formation.

      b) This candlestick pattern is being formed at the highest level of the resistance area.

      c) The first candle is a bull candle and the second one is a bear candle. The bear candle would be bigger than the bull candle. The first candle i.e. bull candle is the last candle of the bullish trend and the bearish candle is the first candle of bearish reversal.

      3) Doji: This is a single candle formation. In Doji candlestick pattern formation the open and close price level is the same and don't create anybody of the candle. However, we can find the shadow of a Doji candlestick pattern. But the shadow formation in all Doji candlestick patterns is not equal.

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      Generally, Doji candlestick pattern formed when both buyer and seller are equal in strength. This also represents the weakening of strength. Suppose after a bullish trend we get Doji candlestick pattern, we can assume that bullish trend is now come to end. So this is a good sign of some reversal trend formation too.

      However, only Doji can't be considered to take any trading decision. We should look at further price action and only then we can we should go for any trades. Apart from this, we can also use some indicators to get a clear confirmation at the same time.

      There are a few types of Doji candlestick patterns based on the different forms of shadow:

      a) Long-legged Doji: This is very easy to identify. When we get upper shadow and lower shadow with good length we can consider it as a long-legged Doji. When buyer and seller are equal in volume we can get such long-legged Doji candlestick formation.

      b) Dragonfly Doji: This type of Doji is formed in an extreme support level. When this type of Doji candlestick pattern formed we get a long lower shadow. And the upper shadow is not visible here. The open, close and high price level are the same.

      c) Gravestone Doji: This is just opposite of Dragonfly Doji. This type of candlestick pattern formed in the extreme level of the resistance area. We can get a long upper shadow with no lower shadow. Here the open, close and lower price level are same. A good signal for sell entry popularly known as Gravestone Doji.

      4) Hammer: The shape of the hammer is very similar to a hammer. A small body with a long lower shadow can be found in this type of candlestick pattern. We can also find a little upper shadow which could be hardly visible, sometimes we can't find an upper shadow in Hammer candlestick pattern formation. The body colour of the hammer could be white or black.

      5) Shooting Star: This is just opposite to Hammer candlestick pattern. Normally forms during an uptrend and at resistance levels. When we see a small body with a long upper shadow. We can consider it as a Shooting Star candlestick pattern. Here lower shadow could be formed with small in length which is hardly visible. Sometimes the lower shadow won't be formed.

      6) Hanging Man: A small body with a long lower shadow formed at a resistance area. The body is either in black of in white colour. The upper shadow is slightly visible or not visible at all because it is very short in length. Sometimes upper shadow doesn't form. This is a good sign of bearish trend and we can make good sell entry here.

      Conclusion: There are a lot of candlestick patterns, more we learn more we'll able to get an opportunity in the forex market. These candlestick patterns formation is easy to read and a large number of traders do trade by looking at similar patterns.

      This is very important to detect early and take action on time. Only then we can easily grab a good profit from the market. If someone is very new to the forex trading fiend then he or she must require to spend more time to practice well. A great way to identify candlestick patterns is by looking back at previous records of charts.

      If a trader spends more time in finding previous days chart then it'll really help. Also, a trader can go to forums, forex news sites to get updated with latest candlestick formation. And come back to look at his/her own chart. This way a trader can easily gain good knowledge about all the types of candlestick patterns.
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      Last edited by ; 28-09-2020, 04:59 AM. Reason: Inverted Hammer change into Shooting Star on client request


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      • #4 Collapse

        Trading Japanese candlesticks is a very complex method and can be very effective, that is yielding a good profit for traders depending on the time frame used by the traders, candlestick formation and patterns just like many trading systems can be effective on the medium time frame such as 1hr, 4hrs, and daily time frame.

        The Japanese candlesticks can be utilized in conjunction with traditional forms analysis, such as the use of trading indicators, using indicators with candlestick patterns or formation when making analysis add another dimension to our understanding of the market behavior, it improves your awareness of the danger in the market while it can also spur a trader to success in the market by generating quality trading opportunity.

        You first need to understand each candlestick in the market represents a set period. for example, if your time frame is set to 1hr, then on your chart a single candlestick either bullish or bearish represents an hour period and it also represents what has happened in that hour.
        And some candlestick has a meaning in the market, some represent, reveals patterns, and some can represent trend continuation and some also represent market indecision. this takes us to the various type of Japanese patterns

        • Various types of Japanese candlestick formation and patterns
        • engulfing patterns candlestick pattern

        This is a reversal pattern, and they are divided into bullish and bearish engulfing patterns, they give traders info about a probable change in the price direction.

        • Hammer and inverted hammer patterns
        The hammer pattern is a single-candle bullish reversal pattern that can be spotted at the end of a downtrend.
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        Note: Don't buy every time the hammer candle form, the three candlesticks that follow is as important as the candle, they serve as the confirmation, so they are not to be underrated

        other candlestick patterns are
        • Marubozu pattern
        • Shooting Star
        • Bullish and bearish engulfing patterns
        • Tweezer top and tweezer bottom pattern
        • Morning star and evening star patterns


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        • #5 Collapse

          how to trade the Japanese candlestick successfully.

          In the forest market the remaining reading tools that one can use in his analysis and there are many chatting Potter. For example we have a line graph, we have a bar chart, and we have the Japanese candlestick chart which is what the topic of this discussion is all about.

          Incredibly Japanese candlestick however, there is no one prescribed way of looking at it. While many will tell you buy when you have engulfing candle or when you have a pin bar, or when you have it dogi candlestick: but at the end of the day what will really matter is your analysis of the current trend in the market. So here in our little discuss I am going to concentrate on trading the candlestick chart in the direction of the current trend in the market.

          Trend trading candles

          One of the first thing you will want to do is making sure you understand the direction of the flow of the market. For example if I want to buy a bullish engulfing candle or a bullish pin bar, I want to first of all make sure that the trend is also in an upward direction. In this way I will be more right than I would if I was trading in the counter direction. Always however make sure that there is a pull back before you went to her.

          Waiting for pull back

          Even though the market is still in an uptrend for example, it is always a best idea to wait for a retracement before looking for an opportunity to buy.

          Support and resistance level

          After identifying the trend, waiting for a proper retrenchment of price, the next thing I suppose will be very important is making sure that one is buying at a support level in the direction of the current trend. Doing this will increase that particular traders odds tremendously.


          Japanese candlestick are a beautiful tools to have if you do a proper analysis of the chart. Without this kind of analysis, they are actually useless.


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            The origin of candlestick.

            Candlestick is a term used to identify a set of indicators used in the financial market. This indicator was first invented several hundred years ago in Japan during the rice trading era by Japanese rice traders. The one who invented this is a Japanese trader by the name of Munehisa Honma. It is said that he was so profitable because he used this technique and some say he had a very long winning streak that no one can even replicate today.

            These days though, candlestick is no longer included in the list of indicators and it is instead used by default to display the price feed. So all of us are using candlestick by default no matter what trading strategy we used. Technology is really a blessing as making candlestick used to be a very tedious task because you have to plot the price manually while today we have the computers to do the job.

            The development of candlestick

            In the western world, the candlestick technique was brought by a technical analyst Steven Nison who is among the first to have received the title CMT (Certified Market Technician). His book shed light on the subject like no other people can do. Ever since he wrote that book, many others have made simplified versions by eliminating much of the details and/or arranging them into a more understandable textbook.

            Although the candlestick has many forms/patterns there is actually not that many of them that are applicable to forex trading due to the efficient pricing nature of the forex market compared to the other financial markets. Rarely will you find a market gap in the forex market unless there is a very important thing that happened during the weekend which will cause a gap on the market open on Monday. So let’s check some of the more frequently used pattern in the forex market...


            Doji. This is one of the most important candlestick patterns in not just the forex market but also in every other financial market. The visual is very easy to identify and here’s the checklist of ideal form of a doji pattern:

            The open price and close price of the candle must be very near to each other. Ideally, the open and close price is the same.
            The body of an ideal doji is very small.
            Doji might have a very small bullish or bearish nuance to it.

            This pattern is significant because it shows the hesitation from the market participants and because the range of the price is very small compared to the other candle. When a doji appears it signals caution to the traders and usually they wait for the confirming candle before they enter the market.

            The chart below shows how to use the doji correctly. It is important to remember that the doji is not used as an entry candle but rather as a candle to alert traders about the hesitation that’s currently happening in the market. The following candles will decide whether the hesitation will lead to a trend continuation or a trend reversal.

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            Doji patterns have several variations and among them are the hammer, hanging man, abandoned baby, gravestone doji, dragonfly doji. Another extension of doji that’s gaining a large following is the pinbar. This pattern is the extreme version of doji where the body of the candle is extremely small compared to the overall size of the wick. The pinbar is mainly used not as a hesitation candle but as a rejection candle.

            Harami. This pattern is also commonly found in the financial market and not only in the forex market but it's more prominent use is in the forex market. Haramis can be a bullish pattern but also a bearish pattern. Here’s the checklist of an ideal harami pattern:

            It requires 2 candles to form this pattern
            The body of the first candle must be bigger than the body of the second candle.
            Ideally, the body of the first candle is different than the body of the second candle
            The body of any candle in this pattern can’t be a doji candle

            The reasoning behind the pattern is there is a decrease in the momentum and the tide might be turning to the other side. A reversal usually starts off with a harami pattern and you can see this on any chart of any currency pair. The chart below shows how good this pattern is in identifying the change of the momentum and reversal of a market. However, it’s also critical to be able to judge whether this pattern can provide a valid reversal or not as not every harami is a trend changer pattern. Blindly taking entries based on harami will lead to major account loss.

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            Like doji, harami also have a variation called the inside bar. This pattern is very similar to harami but with additional restriction and that is the whole candle and wick of the second candle must be engulfed entirely by the whole candle and wick of the first candle. Inside bars can be used as hesitation candles and also as minor rejection candles and even as reversal candles depending on the underlying market condition.

            Tsutsumi. This pattern is the exact opposite of harami and it has a significant impact on the nature of the market move. There is a bullish tsutsumi and there’s also a bearish tsutsumi. Here’s how the ideal tsutsumi setup should be:

            Just as harami, this tsutsumi pattern also requires 2 candles to form
            The body of the first candle must be smaller than the second candle
            The color of the first candle and second candle must be different
            There should be no doji in this formation

            The psychology behind this pattern is that there is a striking shift of momentum in the market where one side of the market is acting strongly against the other and as a result it brought price to a big, strong momentum. Strong trend reversal usually starts with this pattern. Also, major rejection from a level can be found when you see this pattern. You’d be wise to check the surrounding environment before entering the market based on this pattern because not every surge in price that resulted in the formation of tsutsumi is gonna be a trend changer. Some tsutsumis are just a pullback from a profit taking activity by those who are already in profit. See the chart above on how the tsutsumi work.

            Shooting star/evening star. First we have a doji which is a one-candle pattern and then we have harami and tsutsumi which are both a two-candle pattern and now we move on to a three-candle pattern. A shooting star pattern is a bearish reversal pattern while the evening star is a bullish reversal pattern. They require a set of condition to form:

            Must form with 3 candles
            The first candle must have a different color than the second and third candle (or the same with the second candle)
            The second candle (the middle candle) should be a type of doji (a pinbar is preferable though)
            The color of the middle candle and the last candle must be the same (different color is still acceptable though)
            The last candle must be bigger in size in comparison to the first and/or the second candle

            A 3-candle pattern is stronger than just a two or one candle pattern due to the conformity that it brings. The shooting star/evening star pattern is a strong candidate for a reversal pattern in the market and traders usually combine this pattern with other forms of analysis such as support and resistance. Try to spot this pattern on your chart and make keen observations of how they form and the surrounding market environment to avoid the potential pitfalls. Here's how it look like:

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            Rising three and mat hold. The last candlestick pattern on this list is the rising three and the mat hold patterns. They both are big formations pattern compared to the previous patterns we’ve talked about and this is how they are formed:

            The pattern requires 5 candles to form
            The color of the first and last candle must be the same
            The color of the 3 middle candles must be the same in the case of rising three pattern but for the mat hold the 3 candle must be of the same color with the first and last candle
            The size of the 3 middle candles must be small when compared to the first and last candle

            Unlike the previous patterns I’ve mentioned before, this pattern is not a reversal pattern but rather a continuation pattern and it signifies a pause in the market before the trend resumes again. This pattern has different variations with the amount of candles involved and the colors of those middle candles. The main theme among all of those variations is the size of the first and last candle are much bigger than the candles in the middle. Of course, this is the textbook definition and we are bound to encounter slight differences in the actual trading market. Check the chart below to see this pattern in action:

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            Let's recap.

            Candlestick was invented several centuries ago, it has a lot of pattern but not all of them are useful in forex trading. Candlestick is very useful for forex traders because they can help you identify certain market change or certain market condition and when coupled with other tactic like support and resistance it will become a very accurate combination in your trading arsenal.
            You only need to read THIS ARTICLE to make money from forex trading,


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