Candles chart analysis

The most convenient chart option for any asset on Forex is Japanese candlesticks. The informativeness and clarity of the data on the state of the market presented by them have long earned popularity among all traders. It is the analysis of Japanese candlesticks that makes it possible to make forecasts for further price movement.

This technical analysis tool helps the trader to see and understand the mood and psychology of the market.

What are Japanese candles?

Translation results

The technical analysis of candles helps any trader to correctly read the charts of assets, to correctly determine the levels of support and resistance. They combine the form of a price line with a kind of interval chart. The chart perfectly reflects the fluctuations in the quotes of all assets for a certain time period. For a more complete understanding of the tool, you should take a closer look at its components: a body that is a rectangle; shadow – a line extending from the body. These two components look like a candle. Each of them displays the price change over a certain time interval. Candlestick chart analysis is great for making market predictions. Moreover, in this case, they can do just fine without computer indicators. You can also anticipate the reaction of bidders to certain events.

Рис. 1

Результаты перевода

A significant advantage of such a chart is that a candle is the equivalent of several indicators: opening and closing times, information about the prevalence of sellers or buyers in the market. Each candlestick element corresponds to the timeframe on which it is displayed. On the M1 time interval, one candlestick displays the price change in one minute, on 5M – in 5 minutes, on 15M – in 15 minutes, etc. In addition, candlestick elements display on the screen of the trading terminal various graphical figures used by traders to open (close) buy or sell orders. Therefore, a candlestick chart greatly simplifies a comprehensive study of any market. By identifying a particular pattern in time, a trader has the opportunity to prepare a trading plan and, acting in accordance with its points, enter trades, making a profit.

Information from Japanese candles on the chart

How to read Japanese candlesticks on a chart? This question is invariably asked by novice traders.

The information presented by candles on all time frames is similar:

  • opening quote for a period of time (Open);
  • closing quote for the same period of time (Close);
  • price minimum for the period (Low);
  • the maximum price for the period (High).

Рис. 2

It can be seen from the figure that the open and close quotes are the frame of the candlestick element. It is usually called the body. The fine threads that run up and down from the body are a shadow, sometimes called a wick.

It is customary to distinguish between bullish (rising) and bearish (falling) candlestick options. In the first case, its formation occurs from the bottom up. The opening price is used as the lower border, and the closing price is the upper border. Typically, on the MT4 terminal chart, such candles are colorless or green. A bearish candle is the exact opposite of a bullish one. Formed from top to bottom, colored red or black. The opening price is its upper border, the closing price is its lower one.

In some cases, the body of the Japanese candlestick is absent. This happens when the opening price is equal to the closing price. Sometimes the candle element lacks wicks. All parameters here: opening quotes, closing quotes, minimum and maximum are equal to each other.

Reading Japanese candlest

Japanese candles, how to read them correctly? The study of such charts is reduced to identifying graphic patterns in the form of combinations of candles elements. There are quite a few similar models, represented by several elements, and each of them has a specific name: “hammer“, “hanged man“, “shooting star“, “doji“, “tombstone“, “harami” and others.

Рис. 3

Any of these patterns signals the moments of entering the market. There are trend continuation patterns and trend reversal patterns. The latter represent the overwhelming majority.

When analyzing Japanese candlesticks in trading, you should take into account important features:

  • all research is best done on the daily timeframe. At shorter time intervals, the reliability of signals from candlestick patterns decreases. The smaller the timeframe, the lower the reliability;
  • forecasting long-term trends is carried out on monthly and weekly time intervals;
  • after reversal patterns appear, the trend does not always change. Sometimes there is a trend correction or flat. Therefore, the reversal pattern is more likely to predict a change in the current market situation.

This is explained by the balance of buyers and sellers. The more orders open in one direction, the higher the probability of a reversal. Market makers closely monitor the market and, with a certain number of trading participants, “bring down” the price, forcing it to reverse, make a correction or go flat.

  • Gap patterns are more reliable.
  • Any combination of candles must be confirmed. For example, if a bullish pattern has formed in the market, then the subsequent candlestick should show the market aspiration.

Displaying market psychology in candles

How to Analyze Japanese Candlesticks? The answer to this question helps to understand the psychology of the market, in other words, the intentions of the majority of buyers and sellers. Even beginners, with some effort, will be able to learn how to analyze candlestick elements to predict further trend movement.

One of the most important parameters of a candlestick is its body size. Its length indicates the pressure on the market by bulls or bears. If the body of a large size (relative to neighboring candles) is white (green), it means that bullish sentiment prevails, and buyers have prevailed over sellers. The big dark (red) body displays the confident victory of the sellers. Its insignificant size indicates an approximate equality of the forces of sellers and buyers. This means that a rollback (correction) of the main trend, or a further flat movement, is quite probable. In such cases, the trend “freezes” for a while before the next jerk up or down.

Рис. 4

Когда бычья свеча, сформировавшаяся после длительного нисходящего тренда, появляется на экране торгового терминала, есть все основания предполагать, что зарождается восходящая тенденция. А закрытие бычьей свечи выше линии сопротивления свидетельствует о том, что рынок укрепился на новом ценовом рубеже. Но такое утверждение будет иметь место только по завершении формирования свечного элемента. Для более детального просмотра этого процесса следует переключиться на меньший таймфрейм.

Хвост (фитиль, часто именуемый пин-баром), отходящий от тела отражает настроения участников торгов, а точнее — его перемену в процессе формирования самой свечки. Пин-бар довольно часто является предвестником смены господствующей тенденции или ее продолжением после соответствующего ценового отката. Длинные фитили, как правило, образуются вблизи сильного протестированного, но не пробитого уровня.

Рис. 5

When the struggle between buyers and sellers reaches its maximum, doji with long pin bars appear on the screen. This testifies to the indecision of market participants – there is no result against the background of active trading.

Candle mood

This concept was proposed by Lance Begs, a renowned Forex trader and specialist in the Price Action algorithm.

The sentiment depends on the position of the closing price relative to the previous candlestick element. It is customary to distinguish between several types of mood:

  • bullish. The closing price is above the last high;
  • bearish. Closing the period below the previous low;
    neutral. The last candlestick close in the range of the previous candlestick.

In turn, each of the types can be high, low and medium. This is the intensity of the mood. It is determined depending on the place of the candlestick range where it was closed.

Рис. 6

Exploring a candlestick chart

Японские свечи, технический анализ которых — вне всякой конкуренции другим графическим исследованиям рынка, могут дать трейдеру множество полезной информации о грядущих рыночных переменах.

Первостепенное значение имеют свечные тела, второстепенное — их тени. Фитили считаются рыночным шумом, хотя в любом трейдинге следует учитывать и его.

Подобные исследования графиков учитывают определенные фундаментальные принципы:

  • длинные тела, имеющие короткие фитили, являются фундаментом строительства новой тенденции. Это ярко выраженное превосходство покупателей над продавцами или, наоборот, продавцов над покупателями. Как правило, самые длинные свечные тела располагаются в начале тренда и в его завершении. Если ордер был открыт по тренду, то появление длиннотелых элементов — сигнал на закрытие сделки;

Рис. 7

  • Candles with short bodies and long wicks often form when a trend is reversed. The best signal for this is an element with one shadow exceedingly longer than the other shadow and body.
  • This is how the fight between bulls and bears is displayed, in the process of which at first some won, but in the end the championship went to others
    small bodies and wicks appear when sideways trends appear. At this moment, you can open orders with small stop losses (Stop Loss).

Conclusions

The use of Japanese candlesticks is characterized by both positive aspects and certain difficulties. The reliability of these elements, in contrast to computer indicators, makes it possible to investigate the price itself, and not mathematical calculations. Candles are versatile. They are applicable to charts of assets of all markets – foreign exchange, commodity, stock, etc.

However, novice traders have some difficulty in mastering them. You should make some effort and take time to thoroughly understand the candlestick analysis. But the results of labor, definitely, will not be wasted and will help to earn good money.

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