In the field of trading, there is one topic that definitely needs to be mentioned - Japanese candlesticks, they are used by investors to analyze the market. This tool is a kind of technical indicator that displays price behavior in a graphical interpretation and indicates the dynamics of changes in the market trend over a certain period of time. The Japanese candlestick method can be compared in its importance to technical analysis, but often, investors combine these techniques for a clearer understanding of the situation that is happening in the market. In the field of binary options, there are things that every investor, even a beginner, must take into account.

Trading using Japanese candlesticks is a fundamental concept that can be a good basis for creating your own trading system through which you will trade. From the very beginning, trading with Japanese candlesticks may seem quite complicated and confusing, but with time and experience, you will learn to easily recognize important patterns and trade with them.

Japanese candles. Story

It is believed that the Japanese candlestick chart first appeared in the 17th century in Japan. It was created by Munehisa Homma, an ordinary rice trader, Homma used this tool to more clearly interpret the lows and highs of the market over a selected time period. In addition, he believed that candlesticks should reflect information related to the opening and closing prices of the selected trading asset.

Japanese candlesticks are very popular among traders trading in various markets because they reflect all the important market information in a simple format that is understandable even for novice investors. Beginning in the 17th century, many additional tools were developed that visually reflected price movements and made it possible to predict trends that might develop in the future.

However, no tool has been able to surpass Japanese candlesticks in its popularity and technical potential, because they reflect all the information that investors need to predict future price movements. It is worth noting that many investors are sure that Japanese candlesticks and graphical analysis are identical things and in themselves they are an integral part of technical analysis. In fact, this theory is erroneous, such an analysis is an independent and self-sufficient methodology, there are historical data that confirm this. For example, candlesticks are known to have been used in the 17th century, and Charles Dow is known to have introduced the concept of technical analysis three centuries later, so candlestick chart analysis even predates technical analysis. In any case, the combined use of these techniques will affect your trading from the best side, since you will be able to more objectively assess the current situation, which is why these concepts are often considered as one whole. In the United States of America and Europe, this type of chart appeared only in the 80s of the last century, thanks to the book by Steve Nison, which described various formations and methods of applying them in practice. Over time, interest in the Japanese candlestick chart has increased significantly, and this trend continues as more and more investors use this tool in their trading.

Basics

Trading using Japanese candlesticks is a very broad topic that cannot be fully mastered in a few days; it will take some time to develop the necessary practical skills that will allow you to trade using this technique. Before looking at the patterns that are important to us, we need to understand the basics and understand how Japanese candlesticks are built.

If you open a live chart for binary options, you will see something like the one shown above. You may notice that all candles have a similar structure, but their shapes and sizes can vary significantly. Any candle is based on four points that are interconnected with each other - these are prices formed over a certain period of time. The figure shows an hourly chart; accordingly, one candle reflected the dynamics occurring in the market within one hour. If you select, for example, a weekly chart, the price movement for one selected week will be reflected. Points at which Japanese candlesticks are drawn:

• Opening. Indicates at what price the new candle opened.
• Closings. Reflects information about the price at which the closing occurred for the selected period of time.
• Minimum. This is the minimum value that the price has reached for some time.
• Maximum. It is the maximum point that the price has reached over a certain time.

On the left is a bullish candle, its closing price is always higher than the opening point. On the right is a bearish candlestick with a closing price below the opening price. There are also so-called neutral candles, their opening and closing coincide. Bullish candles in the standard form have a transparent body, and bearish candles have a shaded body. The body is the distance the price has traveled over some time. However, in any modern trading terminal, an investor can independently set the colors in which your desktop will be painted.

Even without taking into account different patterns, candlesticks can give you a lot of useful information. For example, by their size you can judge market activity; the minimums and maximums reflect the activity of buyers and sellers, and its body shows the final result. The entire analysis of Japanese candlesticks is based on the interpretation of the interaction of buyers and sellers; their activity creates a number of important formations in the market, by considering which an investor can predict possible situations that will occur in the future.

Analysis

This is a fairly popular technique that is used with great success by many investors. Analysis of Japanese candlesticks involves identifying various combinations on the chart that tend to form again from time to time. Any setup can consist of one or a group of Japanese candles, and each of them has its own interpretation and is formed at certain moments. Candlestick patterns have a huge variety; in Steve Nison's book you can find over a hundred different formations that are used in trading. As practice shows, investors who use this technique choose several patterns for trading, which they use in practice. There are simpler formations that can be found very often in market conditions, and there are complex ones that are much less common.

Pay attention to the figure above, it shows the most popular setup that is used in the described analysis - the “shooting star”. This model works well in any market, from Forex to binary options. Japanese candlestick analysis in Forex is the most popular technique for market analysis, which helps many investors earn stable profits; this analysis is also very often used in the field of binary options! You must understand that each Japanese candlestick formed on the price chart reflects the result of the struggle between buyers and sellers.

Accordingly, each formation that appears on the chart means something and reflects the true mood of market participants. It is important to take into account not only the nature of the Japanese candlestick itself and the pattern formed by it; in addition, you need to analyze its size, lows and highs, and consider its location. In addition, each formation needs to look for additional confirmation to be confident in a potential trade. The formation that has formed on the chart can confirm the current price movement, or signal the investor about a possible reversal. In any case, you need to analyze the market context and take into account a wide period of time, because one formed Japanese candlestick, which does not have confirmation, will not give you an objective picture. If you take into account some points and devote time to practice, an investor will be able to earn a stable profit in the market using this method.

It is worth touching on one more topic that is related to the analysis of formations - this is Price Action. In fact, this technique is a somewhat simplified analysis, the tool of which is Japanese candlesticks. Only the names of the models differ, but there are no global changes. Price action appeared relatively recently, but in a short period of time, this methodology has won a huge number of fans trading on the stock exchange.

Features of application

Any tool used on the market has its own characteristics that need to be taken into account. Japanese candlesticks are no exception to this rule; there are certain points without taking into account which it will not be possible to trade profitably using patterns. Let's look at the main features that you need to focus on:

• Models provide reliable signals only over long time intervals. It is better to look at candles and the patterns formed by them on the daily time frame - this is the optimal period of time that allows you to evaluate the market well and conduct active trading. The smaller the time frame you use, the more false signals will appear.
• Formations on weekly and monthly intervals have a high percentage of reliability. Considering the fact that the candle is formed over a long period of time on the monthly timeframe, it reflects market activity at a more global level. But here you need to take into account the fact that the price range is very wide and a candle can be formed by several full-fledged trends. Plus, you will have to wait a very long time for trading signals at such intervals. It is better to use long periods of time for a general assessment of the market, but there is no need to focus your attention on them.
• Market context is an important parameter to consider in any case. You need to understand that it is not the pattern itself that is extremely important, but the place where it appeared. For example, a reversal formation based on an important level is more reliable. Each market situation is unique and requires separate consideration and a number of details must be taken into account for greater confidence.
• Some traders believe that reversal formations indicate to investors a trend reversal, but this opinion is somewhat erroneous. There are two concepts - trend and trend. A trend is a global price movement that can continue for a long time, and the trend can change several times in one trading session. Japanese candlesticks to a greater extent indicate a possible change in trend; there is no need to count on the fact that when a reversal pattern appears, the global trend must change.
• Pay attention to gaps. At its core, a gap is a gap between quotes, which can often be observed at the market open on Monday. Such areas indicate a significant imbalance between supply and demand, and in the future they may act as important areas where changes in price dynamics may occur.
• You must approach the choice of formations with great responsibility. Japanese candlesticks and the setups formed by them have a huge variety, but this does not mean that you will need to use every existing formation. You should choose only those models that are most understandable to you and are comfortable to use in practice. You must develop your own system; if you try to analyze every formation, you will quickly get confused, which will lead to large losses.
• Good signals are given only by those formations that are clearly visible. You must understand that two identical setups can have different importance. Priority should be given to those models that immediately catch the eye and are visually fully formed.

Search for strong formations

Not all Japanese candlesticks and the formations formed by them are of practical importance for an investor. For trading, we must choose strong patterns; we will talk about how to find them later. To begin with, take into account the general trend; the appearance of a reversal pattern after a long period has a higher chance of positive development. Again, you should not expect that the appearance of such a signal will mark a change in trend, but in this case you can catch a corrective movement, which over long intervals can amount to a large number of points. Remember, we are only interested in those formations that are supported by a strong level; if you have identified a pattern without support, then it is better to refrain from trading using such a formation.

Technical analysis and the shapes of Japanese candlesticks are two important concepts; if you combine these techniques, you will get a powerful tool for extracting constant profit from the market. Additionally, you can use technical analysis indicators; if their signals confirm the combination of a level and an important formation, then you can safely purchase an option. This way, you will ensure yourself a high potential profit and little risk in the transaction. Remember, only high-quality and in-depth analysis will make it possible to make a profit on a stable basis! In order to learn how to use this technique, you need to spend some time mastering the information.

Of particular value is the video material about Japanese candlesticks; videos of this nature can be found on the Internet without much effort. The main advantage is that you will be shown the features of this lysis using real examples. Take your training seriously, because it is the foundation on which you will build your own vision of the market over time.

Advantages and disadvantages

All existing trading methods have certain pros and cons. The described methodology is no exception, let’s first look at the advantages:

• This analysis can be applied to all existing markets. A similar method is practiced by many investors on stock, futures, commodity and other exchanges. This versatility is due to the fact that the setup reflects the psychology and actions of exchange participants. As a rule, investors act in relatively the same way in certain situations.
• Using this analysis, we take into account the most important thing - price! We do not consider market dynamics from the point of view of mathematical formulas, but analyze the distribution of supply and demand - this is the main aspect influencing the pricing process.
• High performance. Compared to indicator systems, strategies built on the basis of this method have a higher level of effectiveness. This is due to the fact that the indicators significantly lag behind the price; accordingly, investors using such systems enter the market only when the trend has already changed, and most of the price movement is not captured. Traders using the described technique very often enter at market peaks and troughs, catching trend reversals, thus they always purchase an option at a better price! Naturally, in order to learn how to catch price reversals, you need to spend some time learning, but, as a rule, the time spent more than pays off in the form of large profits.

In fact, this methodology has many more advantages, but to fully describe them you will need a whole series of articles! Let's touch on the disadvantages; perhaps, we can highlight only one disadvantage of this technique - its complexity. Taking into account price movements is always more difficult than trading based on signals coming from indicators. However, if an investor is unable to interpret price movements, then he will not last long in market conditions!

conclusions

The importance of Japanese candlesticks cannot be overestimated! For more than three hundred years, they have acted as reliable assistants, enabling many traders to perform high-quality market analysis. This topic is very broad and there is a lot to learn! Fortunately, there will be no problems with a lack of information; videos about Japanese candles, various articles, and training courses can be found on the Internet in a few minutes. Initially, this analysis may seem very simple to you, but such an opinion, as practice shows, is erroneous.

The model is an abandoned baby. This Japanese pattern appears rarely, in a top or bottom reversal. It is considered a very strong reversal pattern consisting of a doji star separated by spaces from the previous and subsequent candle. At the bottom of a downward trend, following the black candle, there is a small white candle with a closing price, usually above the bottom of the black candle. After breaking through the minimum level of a predominantly white candle, the price decline will usually continue.

Evening Star. An important figure that determines reversals at the top. Formed from three candlesticks. The first is a tall white candle. The second is with a short black (possibly white) body, creating a gap upwards. The third, black candle covers approximately half of the first, white candle.

Japanese formation, 2 crows flying up. It consists of three candles. The first is an elongated white candle, followed by a small black one at short intervals. The third candle, the black body, closes slightly below the closing price of the 2nd candle. This formation signals a trend reversal at the top.

Doji. The Japanese Doji is characterized by the same opening and closing prices. Separate several Japanese Doji candles (see picture). They give very strong signals.

A curtain of clouds. This Japanese pattern foreshadows a bearish reversal. With an upward trend, a large white candle is followed by a black candle, its opening price is higher than that of the previous candle, and its closing price is in the area of ​​the middle of the body of the first candle.

Belt grab. This Japanese pattern appears on charts in two forms: bearish and bullish. A bullish formation consisting of a large white candle, its opening price is near the minimum. It usually gives when it is formed in a low price zone.

A bearish formation consists of a large black candlestick, whose opening price itself is in the area of ​​the maximum and signals a bearish market movement if it is formed in the high price area.

Stars. A short body that forms a gap relative to the previous large body. It confirms the weakening of the previous trend. The star that forms immediately behind the elongated black candle, during , is called by the Japanese “raindrop.”

Doji stars. Doji forming a gap from a large white and black candle. This is an important Japanese reversal pattern when confirmed by another signal in the passage of the second session.

Counterattack. Following a black candle during a downward trend or a white candle during an uptrend, the market usually opens with a large interval downwards (in the second case up), and then by the time it closes it returns to the border of the price that closed the previous session. This Japanese formation speaks of equal forces in the confrontation between the bulls and bears themselves.

Japanese crossharami, whose reversal zone begins with a doji. It signals a reversal at the bottom or at the peak of the rise, especially if it is followed by a large white (in the second case, black) candle.

Hammer. Japanese pattern giving a significant reversal signal. A short black candle (or white) located at the bottom of the entire price range, with a large lower shadow. Its upper shadow is usually short, and sometimes it is not there at all. The appearance of this candle in a downtrend indicates an increase in prices.

Window. The windows indicate a continuation of the current trend. When a window appears on the chart during an uptrend, a pullback to the same gap is likely to occur. This could even become a support level for the price. At the time when the window opens in the process of falling prices, there is usually a rise to the window. In this case, window . The Japanese usually say: - the market is returning to the window.

The Japanese model is the “three rivers” foundation. As a rule, it includes three candles. The first has a large body and is black. The second, a small black candle, defining . The third, at the base with a short body.

The attack repulsed. Similar to the Japanese “3 white soldiers” formation, the last 2 white candles here give a signal of a weakening of the uptrend. This combination indicates a weakening of the power of buyers or an increase in the influence of sellers.

Japanese shooting star model an upper candle with a large wick on top and a small wick below (sometimes without it at all), a small body near the lows, which appears after the trend has risen. Signals a bearish position in an uptrend.

Inverted hammer. A candle formed following a downward trend, with a high upper shadow and a rather small body, which is located below the price. The shadow below is usually short (sometimes there is none). The shape of an inverted hammer is similar to a bearish shooting star, but when it appears in a downtrend, it is analyzed as a bullish bottom turn breakout. Such a signal must be confirmed during the next session, with a white candle with opening (or closing) prices higher than the previous one.

Tweezers. This Japanese formation gives an average signal of a trend change. It is of great importance if two candles included in its composition also form a candlestick indicator again. For example, if in both sessions the harami cross formation contains an equal high, this may be an important signal at the peak, since 2 of the same candles form the upper part of the “tweezers” and the bearish “harami cross” formation.

Japanese hanged man (or hanged man). Significant reversal signal at the top. The Hanged Man and the Hammer are practically the same candle. It is characterized by a short body (white or black), usually located at the highest part of the price range of the current session, and a fairly long shadow below. The upper shadow is usually short (sometimes completely absent).

When such a candle is formed during an uptrend, it is considered a bearish hanging man and indicates that the market has begun to weaken, but requires bearish evidence in the second session, for example, a black candle with a price slightly below the open or close. As a rule, the lower wick of this candle should be at least 2...3 times the height of the body.

Clearance in the clouds. Japanese reversal formation at the bottom. During a downtrend, a large black candle is formed at the beginning of the second session. It all ends with the appearance of a large white candle, with the closing price just above the center of the previous candle.

Separation. This type of Japanese pattern appears during a downward or upward trend, while the market forms around the opening price level of the previous candle, and then closes below or above it. Once this pattern has formed, the previous trend usually resumes.

Breaking the tasuki. Such a gap can happen both downward and upward. A downward gap is formed when, during a trend tending to the bottom, a downward gap is made by a black candlestick. Following it is a white candle, similar in size, with the opening price at the limit of the black candle, but with the closing price, a level higher. Which is bearish.

“Tasuki gap” - up, considered a bullish pattern in the continuation of the trend. In this case, after the white candlestick, which breaks upward, a black candlestick similar in size grows, with the opening price at the limit of the white body and the closing price itself slightly below it. The Japanese “tasuki gap” formation appears on charts quite rarely.

Push. Japanese formation, in which a white candlestick with a closing price is within the previous black body, but lower than its middle. The Japanese "push" pattern is larger than the "bottom" pattern, but gives a stronger signal than the "cloud break". In a downtrend, the “push” will be bearish. But in a rising market, this Japanese model will be bullish.

3 white soldiers. A formation of 3 white candles, with gradually increasing closing prices. These candles indicate market strengthening when they are formed after a moment of stabilization and in the area of ​​low prices.

Formation - three Buddhas. The Japanese model of three Buddhas is similar to the famous “head and shoulders” graphic formation. According to the Japanese definition, this is one of the types: “three mountains”, in which the peak located in the center should be higher than the side ones. The “three Buddhas” formation is essentially “head and shoulders”.

Three mountains. Japanese reversal formation at the top, where the price forms 3 peaks similar to each other. It happens that this type of formation is considered as 3 gradually.

Three rivers. 3 depressions are formed. When prices exceed the intermediate highs with a white candlestick or gap, this signals that the market has reached bottoms. At the bottom, during a downward trend, behind the black candlesticks, there is a small white candlestick, its closing price is near the lows of the black candlestick.

This type of Japanese formation is considered a trend continuation formation. After the line of lows of the white candlestick breaks through, the price decline will continue.

Holding on the tatami. A strictly bullish formation, foreshadowing the continuation of the trend. Following the white gap candle is a short black candle. Next, it is followed by 2 short black candles, and after them - a powerful white candle, or a candle whose opening price forms a gap upward relative to the outer black candle.

Morning Star. An important Japanese reversal formation at the bottom, which includes three candles. The first candle has a long black body. The second has a short one (white or black), forming a space downwards. The third, white candle covers most of the 1st, black candle.

Formation - Morning Star "Doji". The Japanese model, which has many similarities with the morning star, only the candle in the center (star part), is represented here as a doji. Due to the presence of the doji, this formation is more bullish than the standard morning star.

Harami. A Japanese formation consisting of 2 candles, where the short body lies within the long body of the candle following it. Harami portends that the previous trend has ended, and there has been pacification in the struggle between bulls and bears. The color of the 2nd candle can be either white or black. In most cases, it is the opposite color of the first candle.

Remembering all types of ideal Japanese candles is difficult, but possible. When speculating on the market for a long time, you can easily recognize a particular situation that has arisen on a chart of Japanese candlesticks. But today, when you are just starting your journey as a trader, review the above illustrations again, and if you find something already familiar on the charts in a real trend, look at this situation again and you will find out what “the candles want to tell you.”

VIDEO: Candlestick patterns

Candlestick analysis

Japanese candlesticks refer to one of the methods of constructing a price chart, when one candle corresponds to a certain time interval of price fluctuations. On this site you will find a lot of materials on this topic, but here we will talk about the basics of candlestick analysis, laying the foundation for novice traders.

Basic principles

In a time when Godzilla was a small lizard and samurai carried katanas freely, or rather in the 17th century, the Japanese began to use technical analysis to trade rice.

Although this early version of technical analysis differed from the Western or classical version developed by Charles Dow around 1900, many of the underlying principles are very similar:

1. The “what” (price movement) is more important than the “why” (news, earnings, etc.).
2. All known information is reflected in the price.
3. Buyers and sellers move the market based on expectations and emotions (fear and greed).
4. The market has the inherent property of moving in waves.
5. Current price may not reflect true value.

Based on information from Steve Nison, a leading expert on Japanese candlesticks, candlestick charting in Japan first appeared sometime after 1850. His story is connected with a cult figure among Eastern traders, Munehisa Homma. His trading principles, methods and strategies were picked up by his followers and laid into the foundations of candlestick analysis.

In the West, Japanese candlesticks became known only in the second half of the 20th century thanks to the works of Steve Nison (his books can be safely recommended to novice traders), which are considered classic and the most complete to this day.

More details on topics " Candlestick chart" And " Candlestick analysis"You can read in the relevant articles.

The structure of Japanese candlesticks and their advantages?

You can use them on any timeframe: from minute to weekly. One candle equals a certain period: 15 minutes, 4 hours, 1 day, week, month, and sometimes even a year. The same information is shown everywhere:

1. Opening price– a new period begins to count from it.
2. Closing price– it ends the time period.
3. Maximum– maximum price value for the selected period.
4. Minimum— minimum price value for the selected period.

The opening and closing levels frame the body of the candle, and the distances from the body to the high and low of the candle correspond to the wicks or shadows. Here's what it looks like schematically:

The first eastern traders who began to build charts used real wax candles. The price scale was carved into their wax body. When fresh quotes arrived, the ends of the candles were broken off at levels corresponding to the prices received. The candles were placed in a certain order, thus forming something like a chart.

Classically, a bearish candle, in which the closing price is lower than the opening price, has a black body, and a bullish candle, in which the closing price is higher than the opening, has a white body (it is empty, colorless). Most often today you will see them in red and green colors respectively.

When comparing candlestick and traditional bar charts, many traders prefer the Japanese instrument. It is visually much better perceived and easier to interpret. If you are a novice trader, then be sure to pay attention to this.

Basics of Japanese Candlestick Analysis

The Japanese pay more attention to the opening and closing prices, that is, the bodies of the candles, than to the highs and lows. Shadows are market noise, but very important noise. Below are the basic principles of candlestick analysis:

No other tool will give you such a simple and visual analysis of a chart: be it a bar or, especially, a line. Japanese candlesticks are the best method for determining the prevailing mood of exchange players, as well as its changes. And this is the whole essence of trading.

Types of Japanese candles

Candlestick analysis is represented by many different patterns, which usually consist of two or three candles. Japanese candlesticks that form these patterns have “funny” and sometimes “mysterious” names. To keep you informed, we will analyze them further:

– a black or hollow candlestick in which the opening and closing levels correspond to the highs and lows. That is, there are no shadows here. It speaks of an uncompromising victory of buyers over sellers or vice versa. Appear during very strong price movements.

2. Doji– one of the most common candles that is part of candlestick patterns, and is formed when the opening and closing prices are at the same level. Talks about the equality of power between buyers and sellers and a possible change in the existing trend. When a doji has very long shadows, it is called a "rickshaw".

– the opening and closing prices are the same and are at the low level of the candle. It is analyzed as a candle with a long upper shadow, which we discussed above.

– opposite to the previous one.

– they can be black or white with small bodies and the presence of approximately equal small upper and lower shadows. These Japanese candlesticks themselves carry little information, but they play an important role in the formation of candlestick patterns, such as stars.

– a very strong candle with a small body (black or hollow, no difference), a long lower shadow (twice the body) and no or very small upper shadow. It appears at the base of a downward trend and is a strong signal for an upward reversal.

7. Hanged Man– the hammer responds externally to the switch, but appears at the top of the upward movement and signals a downward reversal.

8. P inverted hammer - also formed at the bottom and signals bullish sentiment, but has the form of a vertical hammer display: a small candle body below, a long upper shadow and no or very small lower shadow.

9. Shooting Star- has the appearance of an inverted hammer, but is a powerful reversal pattern at the top.

Presence of a trend. I don’t know why many people forget about this simple, but very important condition.

• If the strategy is built on reversal patterns, then they need to be looked for on pullbacks or corrections.
• If trend continuation patterns are traded, then the corresponding waves are looked for.
• Purchases are made on a global uptrend, which appears to be on a higher timeframe than for trading. Shorts are made on a global downtrend.

Look at the chart below and compare two engulfing patterns: the first occurred in a flat, and the other during a beautiful correction in an uptrend.

One long shadow. Some of the best reversal candles. These include, especially, the hammer and the shooting star. The first occurs after a downward wave (rollback on an upward trend), and the second occurs after an upward wave (correction of a downward trend).

Their essence is this. When one bearish candle is drawn with a large range and short shadows, then another one of the same kind, and then comes a hammer with the same range as the previous ones, but a long lower shadow and a “tucked” body up. That is, the sellers calmly continued to paint their picture until they stumbled upon the level of customer support.

Especially, these Japanese candles are effective near levels.

What is absorption? We will look at 4 more strong patterns and what their essence is. These are bullish and bearish engulfing, dark cloud cover and a break in the clouds.

The essence or psychology behind these patterns is the same as behind the hammer and the shooting star. It just takes a little more time to implement it. If you don't believe me, see for yourself:

When these combinations are superimposed on each other, they overlap and form the above-mentioned patterns.

Conclusion

Japanese candlesticks are a powerful tool for analyzing price charts, especially when used on higher time frames (daily and higher). They completely outshine the bars in terms of their visibility and interpretability. Friends, everyone is waiting for a few words from you in the comments, useful tips, advice, in general, any information useful for society. Be successful.

Forex Japanese candlesticks are a special type of price display in the Forex market. It is most often used to conduct technical analysis. Its main distinctive feature is that the candle reacts more quickly even to small changes in quotes, which makes it possible to quickly analyze price trends on the chart used.

History of appearance

Japanese candlesticks were created by a Japanese trader in the late 17th century to display the minimum and maximum value of a price level during a given time period. During that period, traders tried to predict the price of rice, developed various schemes and eventually came to the conclusion that candles were the most reliable way to determine future prices.

Today, Japanese candlesticks in Forex are quite popular due to the simplicity of data display and ease of reading.

Forex video Japanese candlesticks:

Candle shape

Analysis of Japanese candlesticks on Forex is best done on daily time frames. Japanese candlesticks can be of two types: bullish and bearish. A bullish candle has a white body, while a bearish candle has a black body. Both have a body and shadows, which are indicated by vertical lines. The upper border of the line indicates the maximum price level, and the lower border - the minimum. The top of the body of a bearish candlestick shows the opening price level, and the bottom shows the closing price level. The top of the body of a bullish candle, on the contrary, displays the closing price level, and the bottom – the opening.

Hammer

This tool deserves special attention. A hammer is a candlestick with a small body that is placed at the top of the session's price range and has a large lower shadow.

A small body is evidence that the price level has remained virtually unchanged since the opening and closing, while long shadows are a sign that the bulls and bears are tied. Note that the volatility of the pair was high, but the closing price was almost back to the opening value. In the case when a top appears during a bearish trend, this is evidence that the bears are tired and, most likely, a bullish trend will appear. If a top appears during a period of dominance of a bullish trend, then this is evidence of exhaustion of the bulls.

Doji

For figures of this type, the opening and closing price levels have the same values, and there may also be a slight difference. A Doji is a candle with a very small body, so you won't even be able to recognize its shade. This icon is evidence that neither bulls nor bears can gain the upper hand. Doji are divided among themselves according to the size of shadows into the following types:

• A long-legged doji at the top represents a trend reversal signal. In situations where such a candle is located between a local maximum and minimum, it is called a “rickshaw”.
• The dragonfly signals a trend reversal.
• Grave - the opening and closing price levels are equal to the minimum price value. Such a sign at the top is evidence of a trend reversal, at the bottom of the trend is a turn signal in case of a bullish trend in the next session.
• Four Price Doji – formed as a result of lack of price movement.
• A star or cross is a candle with shadows of minimum length. Most often, the star is part of complex patterns, such as in the "abandoned baby" and "doji star".

If dojis appear on the chart, you must pay attention to the candles that appeared earlier. If the Doji was formed after a whole series of candles with large white bodies, then this is evidence that buyers have weakened. For the price to continue to rise, new buyers are required. During this period, sellers are going to fight back buyers, which will lead to a decrease in the price level in the future.

If a doji forms after several candles with black bodies, this indicates that the bears have weakened. To maintain a downward trend, it is necessary for new sellers to appear, which are not currently available.

Marubozu

Marubozu is a candle without shadows. It can be of two types: white and black.

A marubozu with a black body is evidence that the market is dominated by sellers, which drives the price down further. A white body is a sign that bulls dominate the market, which contributes to a further increase in value.

These were Forex Japanese candles for a novice trader, now I bring to your attention a table with combinations of candles that are harbingers of a trend reversal from downward to upward.

Mistakes when analyzing Japanese candlesticks

When analyzing Japanese candlesticks, the following mistakes are often made:

• Many speculators perceive the appearance of a candle as a trading signal. Although in “Japanese Forex Candlesticks” the book talks about how candles do not represent trading signals, but only indicate possible changes on the chart. Moreover, it is impossible to determine entry points from candles.
• Candles, which are called “reversal” candles, are more correctly called “change patterns”: they only warn about possible changes, but do not indicate the exact direction.
• The most reliable signals occur on the D1 timeframe. At shorter intervals, signal reliability decreases.
• In some literature you can find evidence that reversal patterns in a bearish trend are more reliable than in a bullish one. This statement is reliable only for the stock and commodity markets; this does not apply to Forex.

Signal amplification

The signal strength level increases in the following cases:

• The longer and stronger the trend, the more accurate the signal.
• A candle only matters when there is a strong signal.

Statistics on the effectiveness of Japanese candlesticks

In order to perform the analysis, D1 graphs were collected over a very long period. Candlestick combinations were recognized by a computer program. The success of a trading signal was determined in this way: whether the signal was justified after 1-7 trading sessions. As a result, statisticians came to the conclusion that candlestick signals are reliable in 30% of cases. It is for this reason that you should not rely on them alone; they are best used in conjunction with other tools.

I hope you now know how to trade Japanese candlesticks on Forex, I wish you all good luck and see you again!

Forex provides many opportunities and approaches to make successful transactions and increase trading profitability. What strategy to use and what approach to choose depends on the trader, but what he cannot do without is graphs that reflect the relationship between supply and demand for a particular currency.

This information can be presented in various ways:

• line graphs;
• using histograms;
• through smooth lines.

However, only one of the methods has features that the others do not have - charts using Japanese candlesticks. The once exotic and unusual Japanese candlesticks began to be used everywhere, since they clearly and intelligibly show the state of the market and the changes that have occurred over a certain period of time. Candlestick analysis allows you to predict market behavior with a high degree of probability and close many transactions with a profit.

What is a Japanese candle?

A currency pair chart using Japanese candlesticks looks like this:

You can select the presentation of charts using Japanese candlesticks on the Forex trading platform Metatrader 4 by clicking on the corresponding button.

A Japanese candle is a rectangle, similar to a regular candle, with “wicks” at both ends. Each candlestick is painted in a specific color, showing which trend prevailed over the selected period of time.

The size of the candle shows the amount of change in the price of the currency pair, and the “wicks” indicate the maximum. values ​​of changes that occurred in a given time interval.

It was the simultaneous display of these parameters that became the reason for the popularity of using charts with Japanese candlesticks. Line charts and charts using bars do not have such information content.

The Japanese candlestick is characterized by 5 parameters:

• Opening price – Open;
• Closing price – Close;
• Lowest price during formation Low;
• Highest price during formation(candle life time) – High;
• Candle color– shows the prevailing trends in price changes for the time frame.

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 indicates price fluctuations:

• large shadow – a period of time when sales/purchases prevailed and were then compensated by an increase in purchases/sales;
• small shadow - the price fluctuated within minimal limits and one of the trends prevailed - growth or decline

Basic combinations of Japanese candlesticks

How to find her?

• small body;
• one of the shadows is several times larger than the body;
• the opposite shadow is small or absent;
• formed on a downward trend;
• a large spread of price maximum and minimum relative to other candles.

The hammer is characterized as a figure that shows that a given instrument is “oversold” and foreshadows an imminent trend change.

The Inverted Hammer candle has the same characteristics.

2. Candle "The Hanged Man"

The main difference between a candle "Hanged" from "Hammer" is the previous trend. In this case it is ascending. The signs of a technical analysis pattern are similar to the Hammer.

3. Shooting Star

This candle is identified by its long upper shadow and small body size. Signals about a possible price drop.

Candle characteristics:

• Before the formation of the candle there was a clear increase, at least several candles;
• Short body;
• Large top shadow;
• Absence of the lower shadow, or its small size;

How does this combination and Inverted Hammer compare?

These candles are similar, but have different meanings, and the important factor is type of candle – is it bearish or bullish.

4. Doji candles

A characteristic feature of these candles is a small body, indicating that since the start of the time frame the price has fluctuated slightly or sellers/buyers were able to compensate for the attack of buyers/sellers.

About strategies using Japanese candlesticks

Strategies based on chart analysis using Japanese candlesticks are easy to understand and apply: on the charts you find specific candlestick combinations that are used as signals of upcoming market behavior - whether the existing trend will continue or a reversal will occur in the near future. In this case, you do not need to make additional complex constructions and calculations.

Since there are many candlestick combinations, you can use a candlestick to find them Candles Indicator. It shows on charts the occurrence of certain combinations, but the decision to enter or exit the market is made by you.

When using Japanese candlestick strategies, keep the following points in mind:

• signal reliability – when a candlestick combination appears, look for confirmation, for example, on a trend indicator;
• signal is limited in time – limit transactions to 4 – 5 hours;
• using a large number of candlestick combinations when building a strategy;
• use of contrasting colors in the terminal for candles of different trends.

Rules for entering the market

Having discovered a certain combination, wait for a new candle to form, which will confirm the change in trend, and then enter the market. In addition, other methods of technical analysis serve as confirmation of the strength of the combination. For example, if a specific candlestick combination has formed, and the trend has changed, and a breakdown of the Forex price channel (resistance or support lines) has occurred, then these events reinforce each other, giving a reliable signal to enter the market.

Strategies based on Japanese candlestick analysis

1. Strategy “50% of the previous candle”

The strategy uses an hourly timeframe and instruments with high volatility of Forex currency pairs, for example, GBP\JPY. The strategy operates in conjunction with Stochastic with standard settings and the RSI indicator with a period of 7 and standard levels.

The first step is to find the price breakout point using the stochastic and RSI indicator:

• For an uptrend - overbought zones (from 75% for stochastic and more than 70% for RSI);
• For a downward trend – oversold zones.

The second step is to analyze the candles in search of the “Absorption” combination - the new candle is half or more larger than the previous one.

!If these conditions match, we open a deal.

You don’t have to set stop losses and profits, but close the deal when signals about a trend change appear. When setting a stop, focus on local highs/lows.

2. Strategy with a combination of “Morning Star” and “Evening Star”

These candlestick combinations occur when trends end. Note that the combinations may not be three-candlesticks. It is possible that between candles with a large body, there will be several candles with small bodies. Therefore, you should wait until the full combination is formed.

Trading Rules:

• entering the market at the level of the 1st candle after the formation of a combination;
• stop loss below the minimum of the formed “morning star” or the maximum of the “evening star”;
• Fix your profit yourself or at the take profit level “nearest maximum – 10\nearest minimum + 10 points”.

Conclusion

Knowledge of combinations of Japanese candlesticks significantly expands a trader’s ability to find reliable entry points into the market and conclude profitable transactions. At the same time, there is no need to study all the combinations; it is enough to include some of them in your own trading strategy in order to increase the reliability of the signals provided by other trading instruments.