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Candlestick patterns - their role in trading and examples
Due to the fact that candlestick patterns allow you to quickly assess the current situation on the market, without resorting to additional analytical tools, they began to be used in many trading strategies. Today I decided to briefly tell you about the features of this approach to trading.
Themselves Japanese candlesticks appeared a few centuries ago, but the eponymous type of analysis Western traders found out in the 90-ies of the last century. At that time, after a trip to Japan Steve Nison published his famous book "Beyond Candlesticks: New Japanese Charting Techniques Revealed", so we can say that it is the youngest form of technical analysis.
Despite the fact that traders are always critical of new approaches and prefer to avoid drastic changes in the Outlook, candlestick patterns applauded by many speculators and became ubiquitous.
In particular, their markings can be seen even in the "closed" paid analysts of the largest operators of the FOREX market – JPMorgan Chase and Morgan Stanley.
The fact that this type of analysis has three distinct advantages:
It is available to every trader and investor to the price chart, which is in every modern terminal by default.
Candlestick chart price
Candlestick patterns allow us to "read" the market, that is, over time, the trader begins to understand the motives and actions of other speculators.
The signals of the candlestick analysis unlike many alternative approaches, is almost never late, the only thing required of the trader is to wait for the close of the last bar of the figure.
Structure and classification candlestick patterns
Before presenting examples, let's deal with definitions and basic theory. Under a pattern in technical analysis refers to a signal, after which the price behaves in a certain way, that is, it helps to find a point on the graph where the probability of getting profit is more than 50%.
Accordingly, candlestick patterns are models that have proven effective in the past and consist of one or more price bars.
Any such model consists of the following required elements:
The body of the candle is the distance between the prices of opening and closing.
The shade ranges from High to Low to Open or Close.
The structure of most candlestick patterns
In addition, in some cases it is necessary to consider the intervals from High to Low of the candle, as well as their proportion relative to the above segments.
Depending on the number of bars included in the figure, candlestick patterns can be classified into simple and complex.
Examples of patterns on a candlestick chart
As a rule, classic candlestick analysis uses patterns from the first group, and the Price Action method combines all the possible signals. In order not to create confusion in the second part of this review I will give a few simple examples.
The second important classification characteristic involves the partitioning of the pieces on trend and reversal. It should be noted that the signals countertrend candlestick patterns no less effective than trades in the direction of the main trend.
Another classification is referred to not as often as the previous one, although I believe that it is no less important – we are talking about the breakdown of models on short and long term. Patterns can be practiced as the following candle, and through an indefinite period of time (in this case, they only indicate the initial point of entry and accompany a position the trader himself).
Examples of candlestick patterns
One of the simplest and most interesting pieces is called "Abandoned baby". Usually it appears on the stock market, as its mandatory attribute – significant gaps between the prices of adjacent candles.
The pattern on the chart - the Abandoned child
To candlestick pattern has benefited both the shadow of the Central candle should be placed within one of the ranges of the first and third bars.
This model is often confused with another popular pattern known as a doji.
Compare with Doji
Indeed, the "Abandoned baby" can take the form of a doji, but it is only a special case, since the second figure is not strictly a reversal. More often it is formed in times of uncertainty, when market participants are risk-averse and not open up aggressive positions.
Quite differently interpreted versions of "doji" under the names "grandma" and "tombstone."
Pattern Doji dragonfly
In the first case, a candlestick pattern is formed on the top of the uptrend and indicates the weakness of the buyers (the market closed at the opening price, but in the course of trading, bears made an attempt to push the price below). "Doji-gravestone" is treated completely in the opposite way, as there are weak sellers and buyers, on the contrary, begin to act more decisively.
Thus, these shapes are not counter, but they can be practiced as long as desired, to which I drew attention, when considering their classification.
Experienced traders do not see any problems as to get out of position in several ways (for counterclaim pattern, a fixed take profit or trailing stop). Beginners often use candlestick patterns as part of special strategies, for example, in recent years has gained popularity technique called the "inner bar", which I recommend to see on the pages of a separate review.
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| Category: Forex | Added by: (30.10.2017)
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| Views: 268
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