Japanese Forex candlesticks: features, analysis and patterns

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The Forex market has a special kind of chart that displays prices. These are Japanese candles. A distinctive feature of Japanese candlesticks is that they react much faster to even small changes in the value of assets on the chart on which the trader works.

For Forex, Japanese forexlabor candlesticks were created by a Japanese trader at the end of the 17th century in order to conveniently display the maximum and minimum values of the price level for a certain period of time. At that time, the prediction of the price of rice was topical. Many tried to succeed in this direction and even came up with various schemes, but in the end they agreed that Japanese candlesticks were a more reliable way.

Japanese candlestick

The most optimal way to analyze Forex Japanese candlesticks is the daily timeframe. Japanese candlesticks are divided into bearish and bullish. Candles have a body and shadows. It is accepted that the body of a bearish candlestick is black, while that of a bullish candlestick is white.

Shadowsare indicated by vertical lines. The top one indicates the maximum price, and the bottom one - the minimum one. The closing price is determined by the top of the body of a bullish candle, and the opening price is determined by the bottom. On the top of a bearish candle, you can find the opening price, and on the bottom, you can find the closing price.

Classification of Japanese candlesticks in Forex

Japanese candles come in many different shapes and sizes, and in each case, a particular candle means something specific.

So, for example, if the candle is white, it means that the price is starting to rise. But the difference in price depends on the length of the candle itself. If the body of the candle is dark, the price falls.

If a candle has a long lower price, we can say that the timeframe is dominated by growth or an uptrend. If the upper shadow is long, then the chart is dominated by a downtrend. The shadow can be longer than the body of the candle. The length of the shadow of the candle is judged on the reliability of the signal.

The shape of the candles are divided into several types. The values of Japanese candlesticks on Forex also differ in their shape.

Hammer figure

During a bearish trend, a special candle appears on the charts with a small body and a much larger shadow. This pattern usually appears before a trend reversal. In other words, the hammer is a local minimum.

The color of the body of this figure may be different. The most important thing is not so much the color of the candle, but the length of its body and shadow.

For the hammer figure is typical:

• No upper shadow.
• The body is short, oftensquare.
• Long lower shadow twice the length of the body.
• The appearance of this pattern accompanies a downtrend.

When the selling of a particular currency pair is high, there is oversold, the hammer appears alone.

Its appearance is explained simply: the trend was dragging down for a long time, thanks to the bears, but at some point, the bulls took over and the trend began to grow. As a result, the formation of a small body.

Inverted Hammer

At its core, this Forex candlestick pattern carries the same information as the hammer pattern, the only condition for both of these figures is the presence of an uptrend. Otherwise, such a figure is called "The Hanged Man".

The Hanged Man

This candle looks like a hammer, but it must be preceded by a bullish trend and is usually a high. The hanging man is considered to be the forerunner of a trend change to a downtrend, i.e. bearish.

Don't forget that Forex Japanese candlesticks are not a prophecy. They just allow you to see the future trend of the market on the chart. That is, it is only a signal of probability.

Spinning top

A candlestick with a small body and long shadows is called a Spinning top. Her body color can be either white or dark. Usually this figure indicates the indecisive mood of all traders in the market - both bears and bulls.

The fact that the price from the open to the close has not changed much,a small body testifies, and a long shadow indicates the balance of the forces of bulls and bears. Despite the possibly high volatility of the pair during trading, the price eventually returned to its initial level. When a spinning top appears on a bullish trend, it is an indicator of the bulls being "exhausted". If the pattern appeared during a bearish trend, then there is a high probability that a bullish trend will begin soon.

Doji

Doji is a candlestick with a very small body, so much so that its hue is sometimes impossible to understand. The opening and closing price values are almost the same, but may differ slightly.

Doji on the chart suggests that neither bears nor bulls can win. Dojis are divided into:

• Dragonfly - a candle gives a signal of a trend reversal.
• Grave - the price of closing and opening is equal to its minimum value. This candle at the very bottom indicates a trend reversal, in the case of an uptrend. If it appears at the top - about the trend reversal.
• Long-legged doji is an upside signal of a trend reversal. If the candle is between the local low and high, this is a "Rickshaw" pattern.
• Cross or star - candles with minimal shadows. Usually, the star is part of other, more complex patterns, such as the "star of the doji" or "the abandoned baby".
• Four Price Doji - this candle appears during a real estate price period.

When a doji appears on the chart, you should immediately look at the previous Japanese "Forex" candlesticks. If a doji appeared after a series of such candles that had large white bodies, this is a clear indication of the "fatigue" of buyers.

In order for the price to continue rising, new traders must enter the market, who are aimed at buying. Sellers engage in single combat with buyers, and this leads to an early drop in prices.

When the doji is located after several dark candles, this indicates the "fatigue" of the bears. For the trend to continue, the emergence of new sellers, which are not yet on the market, is required.

Marubozu

A candle with no shadows is called "Marubozu". This candle can be either black or white.

A marubozu candle with a black body indicates the dominance of sellers in the market. Therefore, the price is likely to continue to decline.

The white body of the marubozu candlestick indicates the dominance of bulls in the market, and the price will certainly rise in the future.

Analysis of Japanese candlesticks. Common mistakes

When analyzing Japanese candlesticks on Forex, especially beginners often make standard mistakes:

• The most reliable signals should be looked for on the D1 timeframe (daily chart). They appear less frequently, but on shorter charts, the reliability of signals is significantly lower.
• Many traders refer to Japanese candlesticks as signals to action. In fact, the candles are just talking about possible changes in the market.
• It is impossible to determine market entry points by candlesticks. The fact that theygive such signals - delusion.
• "Reversal" candles only warn about a possible change in the direction of the trend, but do not indicate it.

The level of significance of signals increases in the following situations:

• When a candle appears near a strong signal.
• The signal is stronger, the stronger and longer the trend.

Efficiency of Japanese candlesticks

Numerous analyzes and test trading show that Japanese candlestick signals are justified only in 30% of cases, so it is not recommended to fully rely on this tool.

Japanese candlesticks should be used solely as an auxiliary, considering it only together with other tools used by the trader.

The special indicator of the absorption of Japanese candlesticks on Forex Candlestick has proven itself well. It works on any timeframe, with any currencies and is good at detecting bearish and bullish candlestick engulfings.

On the Internet you can find many resources offering their services to provide traders with supposedly reliable and accurate trading signals. Such offers should be treated with extreme caution and in no case should you trade large amounts, relying only on such signals.

In nature, there is not a single type of analysis, and even more so a candlestick analysis of the Forex market, which would give a guarantee of which direction and duringwhat time period the price of this or that trading instrument will move. Trading in the market is conducted by traders at their own risk, and success depends only on them.