Technical analysis

Japanese candlesticks. The subtleties of the market

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Japanese candlesticks. The language of the market.

In trading there is one topic that need to be mentioned is the Japanese candles, they are used by investors to analyze the market. This tool is a kind of technical indicator which displays the behavior of prices in the graphical interpretation and points to the dynamics of changing market trends over a certain period of time.

Japanese candlestick method is important you can compare the technical analysis, but often, investors cooperate 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 must be taken into account by every investor, even a beginner.

Trade Japanese candlesticks is a fundamental concept that can be a good base for creating your own trading system through which you will trade. From the beginning, trade with Japanese candlesticks can be quite difficult and confusing task, but with time and experience you will learn to easily recognize important patterns and to trade with them.

Japanese candlesticks. History

It is believed that a candle chart first appeared in the 17th century in Japan. It was created by Munehisa Hammou, ordinary rice trader, Homma has used this tool for a more visual interpretation of the lows and highs of the market during the selected time period. In addition, he believed that the candles had to reflect the information associated with opening and closing of a selected asset.

Japanese candlesticks are very popular among traders in different markets, because they reflect all relevant market information in a simple format that is understandable even to beginner investors. Since the 17th century, has developed many additional tools, which clearly reflected the price dynamics and allows to predict tendencies which might develop in the future.

However, none of the tool for its popularity and technical potential is not able to surpass the Japanese candlesticks because they reflect all the information that investors need to predict future price movements. It is worth noting that many investors are confident, supposedly the Japanese candles the graphic analysis is identical to things in themselves they are an integral part of technical analysis. In fact, this theory is wrong, this analysis represents an independent and self-sufficient methodology, there is historical data to prove it. For example, it is known that candles were used in the 17th century, as you know, Charles Dow introduced the concept of technical analysis, three centuries later, therefore, chart analysis, Japanese candlestick appeared even earlier than technical analysis. In any case, the joint use of these techniques will affect your trade with the best hand, since you will be able to evaluate more objectively the current situation, which is why these concepts are often seen as one. Throughout the United States and Europe, the graphs appeared only in the 80s of last century, thanks to the book of Steve Nison, which describes different formations and methods of their application in practice. Over time, interest in the graphics of candlesticks was significantly increased, and this trend continues as more and more investors apply this tool in their trading.

The basics

Trade Japanese candlesticks is a very extensive topic that cannot be fully learned in a few days, will need some time to develop the necessary practical skills that will allow you to trade via this technique. Before we consider important to us patterns, you need to understand the basics and understand how to build Japanese candlesticks.

 

If you open the live schedule for binary options, you will see approximately such picture, which is shown above. You may notice that all the candles have a similar structure, but their shapes and sizes vary considerably. At the heart of any candles on four points, which are interrelated with each other — the price is formed for a certain period of time. The picture shows an hourly chart, respectively, one candle would reflect dynamics occurring in the market within one hour. If you choose, for example, the weekly chart, it will reflect price movement in one selected week. Points which are based Japanese candlesticks :

  • Discovery. Specifies at what price has opened a new candle.
  • Closure. Shows information about the price at which such termination occurred for a selected period of time.
  • At least. This is the minimum value of which reached price for some time.
  • Max. Is the maximum point, which has been the price over time.

 

On the left is a bullish candle, she’s closing price is always higher than the opening point. On the right is a bearish candle where the closing price is below the opening point. There are also so-called neutral candles, have them of the opening and closing match. Bullish candles in standard form, have a transparent body, and the bearish candle is shaded. The body is the distance that the price moves for some time. However, in any modern trading platform the investor can set their own color, which will color your desktop.

Even without taking into account the various patterns of candles can give you a lot of useful information. For example, size, you can judge the market activity, the minimums and maximums reflect the activity of buyers and sellers, and her body shows the end result. All of the candlestick Analysis based on the interpretation of the interaction of buyers and sellers, their activity creates in the market a number of important formations, considering that the investor is able to predict possible situations that will occur in the future.

Analysis

It is quite a popular technique which has been used very effectively by many investors. Candlestick analysis involves the identification on the chart of different combinations that tend, from time to time be formed again. Any setup can consist of one or a group of candlesticks and each of them has its own interpretation and is formed at certain moments. The candle patterns have a huge variety, in the book of Steve Nison you can find more than hundreds of different formations that are used to trade. As practice shows, investors using this technique, choosing to trade a few patterns that are used in practice. There are formations more simple, which can be found in the market very often, there are complex, which are much rarer.

Please note the above figure, it presents the most popular setup, which is used in this analysis is the “shooting star”. This model is well fulfills itself in any market, starting with and ending with Forex binary options. Candlestick analysis in Forex is the most popular technique for the analysis of the market, which helps many investors to earn stable profit in the field of binary options this analysis is also very often used! You have to understand that each Japanese candle formed on the chart reflects the result of the struggle between buyers and sellers.

Accordingly, each formation that appeared on the chart means something and reflects the true mood of the market participants. It is important to consider not only the nature of the Japanese candlesticks and educated her pattern, in addition to this, you need to analyze its size, minimums and maximums to consider location. In addition, each formation you need to look for additional confirmation to be confident in the potential deal. Formation, which was formed on the chart, you can confirm the current price movement or to signal to the investor about a possible reversal. In any case, you need to analyze the market context and take account of the extensive period of time, because one educated Japanese candle, without confirmation, an objective picture doesn’t give you. If to take into account some things to make time for practice, the investor will be able to earn a stable profit in the market using this method.

It is worth to mention another topic that is related to the analysis of formations is Price Action. In fact, this technique is somewhat simplified analysis tool which are the Japanese candlesticks. Differ only the model names and some global changes. Price action appeared relatively recently, but for a short period of time, this methodology has gained a huge number of fans who trade on the exchange.

Application features

Any tool used on the market has its own characteristics that must be considered. Japanese candles are no exception to this rule, there are certain moments, without which trade profitably using patterns will not work. Let’s look at the key features on which to focus your attention:

  • Models give reliable signals only at long intervals of time. Consider candles and patterns formed by them better on the daily time frame is the optimal period of time that enable you to evaluate the market and actively trade. The smaller the timeframe you use, the more false signals will appear.
  • Formation on the weekly and monthly interval have a high percentage of reliability. Given the fact that on a monthly timeframe candle formed a long time, it reflects the market activity on a more global level. But here we must consider the point that the price range is very high and the candle may be formed of several complete trends. Plus, trading signals on such intervals will have to wait a very long time. For long periods of time it is better to use for General assessment of the market, but to focus your attention on them is not necessary.
  • The market context is an important parameter to consider in any case. You need to understand that it is not the pattern itself, the place where he appeared. For example, a reversal formation, which has support on the important level that has great reliability. Each market situation is unique and requires separate consideration and must take into account a number of details just to make sure.
  • Some traders believe that a reversal formation indicates the investor on a trend reversal, but this view is somewhat mistaken. There are two concept of trend and trend. The trend is a global movement of prices, lasting a long time, and the trend can change in one trading session several times. Japanese candlesticks are more indicative of the possible trend change, no need to rely on the fact that with the emergence of reversal patterns must be replaced by the global trend.
  • Pay attention to the gaps. In essence, gap is the gap between koterski, which is very often seen at the opening of the market on Monday. Such areas indicate a significant imbalance between supply and demand, in the future, they can act as important areas where there may be a change in the dynamics of prices.
  • The choice of formations you should come with great responsibility. Japanese candlesticks and educated their setups has a huge variety, but this does not mean that every existing structure you will need to use. You should choose only those models that best understood and comfortable to use in practice. You must develop your system if you try to analyze each formation, you very quickly get confused, which will lead to large losses.
  • Good signals allow only those formations that are clearly visible. You have to understand that the two are the same setup can have different importance. The priority must be the models that immediately catch the eye and visually they are fully formed.

Search strong formations

Not all candlesticks are formed and their formation are for the investor practical importance. For trading we have to choose a strong model on how to find them, we’ll talk further. For starters, take into account the General trend, the emergence of a reversal pattern after a long has higher chances of testing positive. Again, do not expect that the appearance of such a signal would mark a change of trend, but in this case you can catch the correctional movement, which at long intervals can be a large number of points. Remember, we are important, only those formations which have a reliance on a strong level, if you identified a pattern without support, it is better to refrain from trading with the use of such formations.

Technical analysis, Japanese candlestick form are two important concepts if to cooperate these techniques, you will get a powerful tool to extract continuous profits from the market. Additionally, you can use technical analysis indicators if their signals will confirm the combination of level and important formation, that you can safely purchase the option. Thus, you will ensure a high profit potential and low risk in the transaction. Remember, only high-quality and in-depth analysis will give you the opportunity to profit on a consistent basis! In order to learn how to use this methods, you need to spend some time on the development of the information.

Of particular value carries video material about Japanese candlestick charts, videos of this nature can effortlessly find on the net. The main advantage is that you real examples will illuminate the features of this analysis. Go to the teaching with full responsibility, because it is the Foundation on which over time you build your own vision of the market.

 

Advantages and disadvantages

All existing trading techniques have certain disadvantages and advantages. The described methodology is no exception, let’s look at the advantages:

  • This analysis can be applied to all existing markets. This method is practiced by many investors in the stock, futures, commodity and other exchanges. This versatility stems from the fact that the setup reflects the psychology and actions of the participants of the exchange. Typically, investors in these or other situations are relatively the same.
  • Using this analysis, we consider most important – price! We do not consider the dynamics of the market from the point of view of mathematical formulas, and analyze the distribution of supply and demand is the main aspect that affect the pricing process.
  • High performance. In comparison with indicator systems strategy, built on the basis of this method, have a higher level of performance. This is due to the fact that indicators lag significantly behind the price, accordingly, investors using such systems enter the market only when the trend has changed, and most of the price movement not be detected. Traders who use this technique very often come at market tops and bottoms, catching the trend reversal, so they always get the option at a better price! Of course, to learn to catch price reversals you need to spend some time learning, but as a rule, the time spent pays off in the form of a large profit.

In fact, the advantages of this methodology is much more, but for them you need the whole series! Let’s discuss the shortcomings, perhaps it is possible to allocate only one drawback of this technique is its complexity. To consider the price movement is always more difficult than to trade based on the signals emanating from the indicators. However, if the investor is not able to interpret the price movement in the market it will not last long! 

Insights

The value of Japanese candles cannot be overstated! For over three hundred years, they act as reliable partners, enabling many traders to make a qualitative analysis of the market. This topic is very extensive and there is a lot to learn! Fortunately, that lack of information no problems, a video about candlestick charts, articles, courses on the Internet to find a few minutes. Initially, this analysis may seem very simple, but such an opinion, as practice shows, is wrong.

Formation, which are given as example in various sources, are more a rarity than a regular occurrence. Exemplary patterns are formed not so often, especially if the trade is conducted on large time frames. Given this fact, you need to learn to evaluate a huge number of factors, which is fraught with such analysis, and it will take some time! Only a qualitative approach in teaching will allow you to master such a complex area of trading!

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