Four tips for traders who use candles

Many traders consider candlesticks to be their favourite 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
2. Know your signals
3. Relativity is everything
4. Wait for the closure

Japanese Candles and Their Shapes

Japanese candles are a popular type of candle and they are characterized by a specific shape. As a result, these candles are often used in technical analysis and can be used to identify price movements and turning points in the market. The Japanese candle’s body is a narrow rectangle that shows the time span between the opening and closing price. It can be either white or black, depending on the dynamics of the quotes.

Shapes

The shapes of Japanese candles have a special significance. Knowing what the shapes are and their meanings will make the patterns easier to learn. Here are the names of each type and their descriptions. There is a special name for a candle without shadow, known as marubozu. It is a traditional form.

The upper wick is long. This indicates initial optimism and buying pressure. However, it could also mean that sellers have stepped in and the buyers took profits. On the other hand, a short upper wick indicates less indecision and less testing of higher prices. In addition, the upper wick does not extend above the closing price. Japanese candle charts mostly indicate reversals, while Western candle charts tend to signal continuation.

The Doji is another popular Japanese candlestick pattern. This one-sided candle is usually used as a support signal for subsequent candles. Traders can use the Doji as a signal to enter or exit their trade. Its body and tail can be arbitrarily short or long, and it’s also often seen in combination with other Japanese candlestick patterns.

Structure

A Japanese candlestick chart is a series of candles that show the price movement over a specific period of time. The different sizes and shapes of the candles help determine the strength of a price movement on a forex chart. There are three main types of Japanese candlesticks: engulfing, pinbar and body. Each of these candlesticks indicates a different type of price trend.

The typical structure of a Japanese candlestick is shown in Figure 1. The high and low prices are represented by the shadows of the candles. In addition, the candlestick has a rectangular “real body” that makes it larger than a regular bar. It also has a white body, which is created by the close of the candle being higher than the open and a series of bodies that are the same color.

The upper shadow (or wick) of the candle is usually twice the size of its body. This indicates that the last frenzied buyers have entered the stock. Then, profit takers unload their positions and short-sellers push the price down to close near or below the open. In this way, they trap late buyers. Moreover, they can also trigger a panic selling spree.

Meaning

Japanese candles are used to gauge the strength of price movement in the market. The’marubozu’ pattern represents the strength of the movement and shows whether one camp is in control. Dark candles are indicators that the bears are in control, while light candles show the strength of buyers. Depending on the size and configuration of the candle, you can learn about the direction of the market.

The body length and tails of the Japanese candle are related to the relative strength of buyers and sellers. Candles that are shorter in length indicate strong buying pressure while those with a longer tail are a sign of weak buying power and strong pessimism. Short Japanese candles are a good sign for buyers, but they can also be misleading if they are interpreted as an indication of sellers taking profits.

A good way to understand the Japanese candlestick pattern is to learn about its three key elements. First, you need to understand the relationship between the opening and closing price. In other words, if an up candlestick is halfway up the previous one, it means that the market has recovered half of the loss in the previous period. Likewise, an up candlestick with an upper wick shorter than the previous one indicates an uptrend.

Origin

The Japanese have a long tradition of making candles, and one of their most distinctive features is their unique Ikari shape, which is wide at the top and narrow at the bottom. This shape originated from the Japanese word warosoku, which means “candle”. Japanese candles have been in production since the 14th century, and the first documented examples were during the Taisho period. Today, the traditional techniques and ingredients are the same as they were then, and the candles are still made by a small number of craftsmen.

In addition to being a popular choice for home decor, Japanese candles are also popular for their health benefits. They can help you relax, relieve stress, and reduce anxiety. They burn cleaner than paraffin candles, and have less toxicity than their counterparts. Many of them are vegan-friendly and contain no animal by-products.

While candlestick charts are now commonly used by traders, they originated from a Japanese rice trader in the 17th century. This rice trader was able to use candles to predict the price movement of rice. Later, the method gained popularity in Western markets.

Prices

Japanese candles are relatively inexpensive compared to most Western candles. They cost about $1.50 a dozen, which is less than half the price of imported candles. This trend is likely to continue for the next three years. The company, Polyco, accounts for about one-quarter of the market for birthday candles. Unlike most Western candles, the price of Japanese candles is influenced by direct labour costs, which are nearly as large as the cost of raw materials. However, this cost only accounts for around 10% of the price of household candles and church candles.

A Japanese candlestick chart is composed of different rectangles, called candle bodies. These rectangles represent the price movement between the open and closing prices. They also often have a tail, which signals the highest and lowest prices of a certain period.

Meaning of tweezers

The tweezers pattern forms when two candlesticks have matching highs and lows. When this pattern occurs, it signals a valid reversal. The first upward candle should be larger than the second, showing that the momentum has shifted. This pattern is important for traders because it can be used to spot trend reversals.

Traders can identify tweezers using overall trend analysis and other technical indicators. In fact, the tweezers are often seen near key support and resistance levels, which can be used as trade signals. If a tweeze appears near a major support or resistance level, it often indicates that the market is going to help out of that area and move away.

Tweezer patterns are often enhanced with other candlestick patterns. For example, the tweezer pattern can be enhanced by a Bearish Engulfing Pattern (BEP), which involves the formation of two red candles separated by a green candle. This pattern signals a pullback before a broader downward trend. The pattern can also be used in conjunction with a Doji candle.

Price reversal

One of the fastest ways to develop a trading edge is to learn how to read reversal patterns in candlesticks. Candlesticks are charts that show the high, low, and open prices of a market over a specific period of time. These charts were originally developed in Japan.

In trading, reversals are very important because they often indicate a change in trend. A reversal is usually accompanied by a continuation candlestick pattern. This pattern signals the change from an uptrend to a downtrend. Traders look to other technical indicators for confirmation of the reversal.

Traders can make a profit when they recognize a reversal pattern. If they notice that a bearish candle is appearing after an uptrend, they should open a short position. When a bearish candle forms, the upper shadow is twice as long as the body of the previous candle. This pattern is one of the most reliable reversal patterns in trading.

Symbolism

Candles play an important role in religious ceremonies in Japan. During Christian services, candles are symbolic of the Eternal Light, which represents Christ. Candles also play a major role in the Obon festival, when people light candles or lanterns and float them down rivers or lakes to welcome the spirits of their ancestors back into the living world.

Candlesticks can give traders a clear sense of the sentiment in the market over a long period. Shorter periods are less meaningful because price movements within a single day are often driven by random money flows. Candlesticks with longer wicks, on the other hand, usually indicate higher indecision, more back-and-forth battles between buyers and sellers, and a potential reversal in trend.

Candlesticks are also used to analyze the price action of financial assets. They can provide twice the information of standard line charts and allow traders to interpret price data more precisely. The basic structure of a Japanese candlestick consists of a candle body, upper and lower wick, and a wick. When interpreting Japanese candlesticks, one should consider the length of the body and wick.