The Japanese candlestick chart.
Get to know the main chart patterns.
You probably think that financial analysis is complicated
but it actually comes down to two simple things:
reading charts and reading news.
There are many types of charts
but Japanese candlestick or simply candlestick are the most popular ones.
其中日本蜡烛图 简称蜡烛图 最受欢迎
Such a chart consists of red and green candlesticks
or candles lined one after another
Each candle gives you detailed information
about the price movement within a specified time interval.
In fact, Japanese candlesticks are the best way
to visualize the ups and downs of a price
You can spot potential opportunities to buy or sale
Let’s take a more detailed look.
Every candle consists of a body and one or two “tails”
called shadows sticking out of it.
The body indicates the range
between the open and close prices for a specific time frame,
and the shadows represent the highest and lowest price levels
reached for the set interval.
Japanese candlestick charts are easy to read.
A red candle shows that the price is going down,
and a green one represents an increasing price.
If you are looking at a 10-minute chart,
each candle represents a 10-minute time interval.
We see a green candle when the open price is lower than the close price.
If the price closes lower than it opened, then the candle is red.
As simple as that!
What kind of signals does a candlestick chart provide?
It is no surprise that candlestick charts are so popular.
They are excellent for spotting market turning points.
By looking at the patterns that candles create,
you can often guess if a certain market is about to continue in its current direction,
or reverse it.
Patterns that show that the market could change direction are called reversal patterns.
They could be bearish:
ones that indicate the change from an uptrend to a downtrend
and should be perceived as a signal to SELL
or bullish – these show that a price that has been decreasing
is likely to start going up and we should BUY.
Let’s see the most popular candlestick patterns which encourage you to BUY.
The bullish engulfing consists of a red candle,
followed by a bigger green one,
which fully engulfs the red candle.
The pattern is an indication for a market turning point.
In simple words,
it is likely that the market may start going up and you can BUY.
The indication is even stronger
if the green candlestick engulfs two or three red candles.
The name of this candle is pretty much self-explanatory.
You will recognize the hammer by its short body,
lower shadow that is about two or three times the length of the body,
and a shorter upper shadow or no shadow at all.
The hammer is usually a clear indication of a declining price
reversing its direction and starting to go up
so you can start BUYing!
But just to be safe,
you could always wait for additional confirmation.
Such confirmation is a green candle
closing above the open of the hammer for example.
Morning doji star
This pattern appears when there is a slight market movement
and consists of three candles:
a red one,
followed by a doji,
followed by a green candle
closing beyond the middle of the first candle.
If the green candle is longer than the red one,
the signal is even more reliable.
Spotting the morning doji star is a signal to BUY.
Some chart patterns that mean you can SELL.
This pattern is the opposite of Bullish engulfing.
A green candle is completely engulfed by a following red candle.
When you spot it, you can SELL
as the sellers on the market have possibly managed to overpower the buyers
and the price direction could reverse.
Dark cloud cover
The dark cloud cover appears before the price drops down.
A long green candle is followed by a red one
that opens at a new high
and closes below the middle of the green candle.
Keep in mind that when trading currencies
a second candle opening at new high is rare
so the red candle usually opens at the close level of the green one.
Once you see this pattern you can go ahead and SELL
or you can wait for another, smaller red candle to form
and confirm the dark cloud cover.
The shooting star is a red candlestick with a small body,
long upper shadow and a short lower one.
When it appears at the end of an uptrend,
it shows you that you can SELL
since the price, which has been rising up to that point,
may start falling instead.
Reading Japanese candlestick charts is not rocket science.
Just make sure to observe your charts carefully,
and you will soon learn to spot patterns as they form.
For more free trading tutorials check out www.trading212.com.