forex trading strategy Japanese candles
Forex provides many opportunities and approaches for making successful deals and increasing the profitability of trading. What forex forex trading strategy to use, and what approach to choose - depends on the trader, but what he will not be able to do without, is without schedules, which reflect the ratio of supply to demand for a particular currency.
You can select a graph representation using Japanese candles on the forex trading strategy platform by clicking the appropriate button.
A Japanese candle is a rectangle similar to a regular candle with "wicks" on both ends. Each candle is painted in a certain color, showing which trend prevailed over a selected period of time.
The size of the candle indicates the value of the change in the price of the currency pair, and the "wicks" indicate the maximum value of the changes that occurred in the specified time interval.
It was the simultaneous display of these parameters that caused the popularity of using schedules with Japanese candles. Linear and bar-based graphics do not have this information value.
The Japanese candle is characterized by 5 parameters:
Opening price - Open;
Closing Price - Close;
The lowest price for the time of formation (time of existence of the candle) is Low;
The highest price for the time of formation (time of existence of the candle) is High;
Candle Color - Shows prevailing price trends per time frame.
This information can be presented in various ways:
by means of histograms;
by means of smooth lines.
However, only one way has features that others do not have is by graphics using Japanese candles. Once exotic and unusual Japanese candles began to be used everywhere, as they clearly and clearly show the state of the market and the changes that have taken place over a certain period of time. Candle analysis makes it possible to predict market behavior with a high probability and close many deals in the plus.
What is a Japanese candle?
The size of the candle body shows:
changes in the market;
The prevailing trends are bullish or bearish (this is determined by the color of the candle).
The size of the shadows suggests price fluctuations:
Large shadow - the period of time when sales/purchases prevailed and were then offset by an increase in purchase/sales;
Small shadow - price fluctuated within minimum limits and one of the trends - growth or fall - prevailed
Basic combinations of Japanese candles
1. Candle "Hammer"
How to find it?
One of the shadows is several times larger than the body;
The opposite shadow is small or missing;
Is generated on the downtrend;
Large variation in price maximum and minimum, relative to other candles.
The hammer is characterized as a figure showing the "resale" of a given instrument and anticipating a rapid trend change.
The "Inverted Hammer" candle, has the same characteristics.
2. Candle "Hung up"
The main difference between the "Hung" candle and the "Hammer" candle is the previous trend. In this case, it is up-and-coming. The signs of the technical analysis figure are similar to Hammer.
3. Shooting star
This candle is defined by a long upper shadow and small body dimensions. Signals a possible price drop.
Characteristics of a candle:
Before the candle was formed, there was a clear growth, at least in a few candles;
Big top shadow;
No lower shadow or its small size;
How do this combination and the Inverted Hammer relate?
These candles are similar, but carry different sense loads, and an important factor is the type of candle - bear it or bull.
4. Candles "Dodges"
A characteristic feature of these candles is a small body, which indicates that since the start of the time frame the price has fluctuated slightly or sellers\buyers have been able to compensate for the attack of buyers/sellers.
An important aspect of the Forex candle shadow trade is the evaluation of their length:
The upper and lower shadows are the same - the market is in an uncertain state, because neither bulls nor bears can pull the market over.
Shadows are very short - "calm before the storm."
Shadows are asymmetric - one side has an advantage - bulls or bears.
The importance of the appearance of this candle is determined by the place in which it appears. If candles are among candles of small size, there is no special meaning in them. But if they appear among the big candles, it is possible to change the trend.
And as a confirmation, we pay attention to three things:
After the dodge there is a long candle of opposite color;
After the dodge, the candle with a large break and the break is directed towards a possible turn;
The price closing level of the dodge is significantly less than the opening level of the candle facing the dodge.
5. "Grave and Dragonfly" dodgie candles
A characteristic feature of these candles is the absence of one of the shadows: the upper or lower, and the shadow that is - very long.
The appearance of the Dragonfly candle in the downtrend - the price has reached the support line. Buyers opposed the attempt to shoot down the price and are ready to buy further, which means that a reversal is quite possible.
The appearance of the "Grave" candle in the upward trend - it is possible to fall the market and it is worth taking a pause in the trades.
6. Combination "Morning star"
This combination consists of 3 candles:
the long falling candle;
Short candle with opening level break with the previous candle and the following one;
the long growing candle.
This combination signals the willingness of market participants to buy and the market is expected to grow.
7. Combination "Evening star"
This combination is the opposite of the Morning Star combination and signals a fall in the market.
8. Combination of Harami
It is a combination of 2 candles, one of which is completely (with body and shadows) within the body of the other candle.
The combination is a strong signal of a market reversal.
! But consider that the 2nd candle opens with a price break relative to the previous candle: the smaller the body of the 2nd candle (ideally the dodge candle), the more reliable the combination.
The color combination of candles does not play a role, it is necessary to rely on the previous information: there was an upward trend - it will become, downward and vice versa. The applied meaning of this combination is to detect a likely market reversal.
9. Combination "Absorption"
This combination is similar to the previous one, with a slight difference: pay attention to the body of candles - the 2nd candle should completely cover the body of the previous one and they should have different colors.
The direction of the flip depends on the order in which the candles appear.
! Indicators showing in which zone the market is located - in the zone of overbought and resale can increase the values of this figure.
About Japanese Candle Strategies
Strategies based on the analysis of graphs using Japanese candles are easy to understand and apply: on graphs you find specific candle combinations, which are used as signals of forthcoming market behavior - to continue the existing trend or in the near future there will be a reversal. At the same time you do not need to make additional complex builds and calculations.
Because there are many pork combinations, you can use the Candles Indicator to search for them. It shows on the charts the occurrence of certain combinations, but the decision to enter or exit the market is made by you.
Consider the following points when using Japanese candle strategies:
Signal validity - if the light combination appears, look for confirmation, for example, on the trend indicator;
Limited signal in time - limit transactions in time to 4 - 5 hours;
Using a large number of candle combinations to build a forex trading strategy
Use of contrasting colors for different trends in the terminal.
Market Entry Rules
After finding a certain combination, wait for a new candle to form, which will confirm the trend change, and then enter the market. In addition, other methods of technical analysis confirm the strength of the combination. For example, if a particular candle combination is formed, and the trend has changed, and there has been a breakdown of the Forex price channel (resistance or support lines), these events amplify each other, giving a reliable signal to enter the market.
Strategies based on analysis of Japanese candles
1. 50% Previous Candle Strategy
The strategy uses an hour-long time frame and instruments with high volatility of Forex currency pairs, such as GBP\JPY. The forex trading strategy works in conjunction with Stochastic with standard settings and an RSI indicator with period 7 and standard levels.
The first step is to find a price break point using the stochastic and RSI indicator:
For uptrend - overbought zones (from 75% for stochastic and more than 70% for RSI);
For downstream - areas of resale.
The second step - analysis of candles in search of combination "Absorption" - the new candle is more than the previous half or more.
! If these conditions match, we open a deal.
Stop losses and profits can not be exposed, but close the deal when signals about trend change appear. When putting up a foot, focus on local maxima\minima.
2. forex trading strategy with "Morning Star" and "Evening Star" combination
These candle combinations occur when trends are completed. Note that combinations may not be three-light. It is possible that between candles with a large body, there will be several candles, whose bodies are small. Therefore, you should wait for the complete combination to be formed.
Rules of trade:
Entry into the market according to the level of the 1st candle after formation of the combination;
Stop loss below the minimum of the formed "morning star" or the maximum of the "evening star";
Record profit yourself or by the level of teak-profit "nearest maximum - 10\nearest minimum 10 points."
Knowledge of Japanese candle combinations greatly enhances the trader 's ability to find reliable entry points and make positive deals. However, it is not necessary to study all combinations, it is enough to include some of them in your own forex trading strategy in order to increase the reliability of the signals given by other trading instruments.