Japanese Candles

Japanese Candlesticks

 

  1. Introduction to Candles
  2. Candle Formation
  3. Using Candles in Trading

 

Introduction to Candles

 

Japanese Candlesticks have been around for centuries they were originally developed by the Japanese and are used to today on trading charts.

Japanese Candles

The colors represent if the price went up or down during that candle. The candle represents a period of time. It depends on what kind of chart you have open. If it is a five minute chart than the each candle represents the total movement of the price during that candle. I always enter trades after a candle closes because sometimes you can get a price spike during a candle that will not last and if you enter then you can get caught with a losing trade.

The Candle Below is called a Doji that means the price did not change during the candle. It went up and down while the candle was open but at the time the candle closed the price was the same or very little change.

Doji

Sometimes a doji candle can signal a reverse in price if there has been a strong run one way or the other.

Candle Formations

 

Sometimes a doji candle can signal a reverse in price if there has been a strong run one way or the other.

hammer

The hammer is when the price has had strong movement down then it suddenly stops and reverses as shown by the wick. A strategy you can implement is to enter a trade on the next candle after a hammer if the new candle is heading the opposite direction.

Below is a pattern called the shooting star

shooting star

Shooting star is the same as a hammer only to the upside and can be used the same way. Enter a short trade at the opening of the next candle. This pattern can also be called a morning star.

The next pattern is called engulfing candle

engulfing candle

This pattern shows a reversal because the small candle is getting engulfed by the larger one but the key is that the engulfing candle must be going the opposite way.

Using Candles in Trading

 

Try to identify some of these candle formations on your charts and with your demo account make some trades by using them. Then later on in our lesson we will learn to incorporate these patterns into your trading stratgey using support and resistance levels and indicators.

We use Candlesticks to find our buy and sell setups. Watch the video below to find out how to find precise entry and exit points.

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