Different Japanese candlestick patterns help traders identify support and resistance levels that are more effective than other candlesticks. In the next section of this article, we’ll take a closer look at these types, allowing us to understand whether a candle stick forex or pattern indicates a continuation or a change in trend, and the balance or indecision of the market.
In the above chart, we have identified support for the EUR/USD currency at the price of 1,036 (horizontal blue line), and the red arrows show us 3 times when the price tried to break through this barrier and bounce back. Since the wick of the candle intervenes, we can distinguish this support, if we use a line chart based on the closing price, the situation is quite different, it will not even be touched.
With this simple comparison, we can see two charts: the Japanese candlestick chart and the line chart. The first one helps us find support turned into resistance, the second one doesn’t help us draw the same inference.
Thanks to this, we can conclude that our indicator using Japanese candlesticks will be more accurate, we will identify better support and resistance levels, we will be able to place Fibonacci retracements, moving averages in a very efficient manner Will give us exact price contact information.
By using a line chart, we will only consider the closing price and ignore the opening, low and high prices.
Experts tell us the meaning of each Japanese candlestick, in general, a long wick indicates a possible reversal in the market, the strength of the trend is exhausted, and sellers or buyers start winning to turn things around, conversely, a bearish wick indicates a strengthening of the trend. Additionally, we know that larger bodies represent higher volume, which can reassure traders about established trends.
Japanese candles are used to analyze all assets and all possible times in different markets, we can analyze 1-minute candles, which have the same elements as 1-month candles.
Maybe one doesn’t give us much information, but what if we split the sails? A 1-hour candle is made up of 4 15-minute candles, each of which will in turn be made up of 3 5-minute candles, and so on, which is why the wick is important over long periods of time.
In the chart above we see the 1 hour candle, in the red rectangle we see the 8:00 AM candle in my time zone, we notice a long wick up and the price closed lower than it opened Price, can you guess what happened just by analyzing this candle? If you don’t recognize it, no problem, you can practice with a demo account, train your eyesight and analyze the market more effectively. Let’s look at the same fractional candles in 15 minutes.
Here we can already explain what happened, the candle opened at 8:00 am and the price went up, at 8:15 the trend continued, even its wick showed us the hourly maximum, from 8:30 the price started to fall, Finally, the 8:45 candle closed below the 8:00 open, resulting in a bearish 1-hour candle, red, with a very large wick up.
If we go back and look at the 1 hour candles, we can now say that the chart below shows that buyers took control of the market, the price rose, and then sellers regained power with such momentum that the price increase continued down to a new level. Reduce another 5 hours.
Now we will look at a simple example of a successful trade, the candlestick is the support of the EUR/USD currency and the Fibonacci retracement mentioned earlier in this article. We know that this tool is drawn from left to right and minimum and maximum values must be determined so that retracement levels are more effective.
If using the line chart, the Fibonacci levels might not be placed correctly, however, if using the Japanese candlesticks, we see a confluence between the 61.8% level and the previously identified support level, so we place a sell order here, on the next Marked with a yellow circle in the figure. , would be a nearly perfect input: