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Japanese candles are a very common technical analysis tool. Using them can allow you to learn something new (which is always important in trading) and to improve your results. Read the full article to reach a deeper understanding of the candle patterns.
Four tips for traders who use candles
Many traders consider the candlesticks to be their favorite technical analysis tool. Regardless of the asset, the candles give life to the chart in order to make the war between bulls and bears even more exciting to follow. However, although these tools offer a clearer view of the market and offer valid signals, they are not always easy to read. A bearish-looking candle can appear on a bullish market at any time, which is why the key to success is knowing why this happens.
1. Know your candles
The first step towards success is to know your candles. Of course you will need to recognize a downward candle from an upside down, or a doji from a spinning top, but there is more. You will also need to have as much information as possible about the candles that are formed in the market you are working on at all times. Each market is different, as is every chart, so each candle is different.
A long candle on one market can be medium in another, while a doji candle can have a very important meaning on a chart, but it can be of secondary importance on another. If you are working with EUR / USD or SPY you should know the difference between a long and a medium candle, and between a strong and an insignificant candle. A medium candle is formed on an average day, the strong candle is formed during periods of high volume and high volatility, which marks the most significant market movements.
2. Know your signals
This is an aspect related to the knowledge of candles. A signal is simply a signal until it becomes strong and involves an action on your part. The first thing to know is what makes it a good signal, and then understand that it is reliable when the candles are wider than normal, have longer shadows or the combination of both. If you look at the chart below, you can identify a couple of candle signals that are technically precise, but they are insignificant, since they are formed by the average, that is, by the daily market action.
3. Relativity is everything
A candle signal can be formed at any price level on the chart. A very strong signal will generally form at or near the support or resistance target. The support and resistance targets are price levels at which buyers or sellers will enter the market, a high volume session or high volatility at one of these levels means that many have agreed on the same analysis. The question is: which signal is formed? Is it an upward or downward signal, a continuation or reversal signal? A bullish candle that breaks through the resistance is a sign of an upward trend, but it may not lead to a continuation if it forms in a downward trend. Always remember that relativity is everything.
4. Wait for the closure
One of the most important things in using candles is to wait for the closure. Remember that what you see can not be considered a signal until the moment the candle has closed. The doji long legged shooting stars initially appear as long and strong candles on the upside, but do not close in the same way. Waiting for closure often means waiting until closing the next day. When prices are level or close to support or resistance, a long and strong candle is formed, which may appear as a continuation signal, however, if the next candle appears smaller and enters the body of the former (known as Harami) ), a reversal will become more likely. That said, always wait for the candle to close before intervening.
This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that these movements or levels may re-appear in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.
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Source: IQOption blog 2018-12-04 14:11:18