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Contents ▾

Japanese Candlestick Charts Explained
Best Brokers For Candlestick Charts:
Candlestick Patterns
Doji
Strategy Basics
Interpreting Tails
The Hammer
The Gravestone
Tails, Wicks And Shadows
Doji Strategy for Binary Options
Breakout Strategy – Setup A Robot
Doji Patterns – Conclusions
Chart Patterns Explained
Candlestick Assay – Examples
Moving Averages
Volume
Reading Charts – Endmost Guide

Candlestick charts are maybe the most popular trading chart. With a wealth of information hidden within each candle, the patterns course the basis for many a merchandise or trading strategy.

Here we explain the candlestick and each chemical element of the candle itself. Then we explain mutual candlestick patterns like the doji, hammer and gravestone. Beyond that, we explore some of the strategy, and nautical chart analysis with short tutorials. Reading candlestick charts provides a solid foundation for technical assay and winning binary options strategy.

Japanese Candlestick Charts Explained

Japanese Candlesticks are one of the most widely used chart types. The charts prove a lot of information, and do so in a highly visual way, making it easy for traders to see potential trading signals or trends and perform assay with greater speed. So let the states explicate what Japanese Candlesticks are, how the "candles" are created and bones candlestick interpretation.

It's a fact that many novice traders, new to the trading manufacture, focus on candlesticks because they are easy to understand and give a feeling of real trading to someone. But information technology's also a fact that nobody made money just using candlestick patterns. Many new traders are excited considering they have some good results in the beginning past candlestick patterns without spending much time reading most trading, but in the long run they fail and they come back to learn more.

Candlestick patterns are a good tool, but only for confirmation. Of course every trader should know how to read the candles. I believe this is "Lesson #one" for the new traders. If you lot know how to read the candles properly, you can utilise them for confirmation in your trades – only first yous must know the nuts

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Candlestick Patterns

Japanese Candlesticks are a type of chart which shows the loftier, depression, open and close of an avails toll, likewise as apace showing whether the nugget finished college or lower over a specific period, by creating an like shooting fish in a barrel to read, simple, interpretation of the market. Candlesticks can be used for all fourth dimension frames – from a 1 infinitesimal chart right up to weekly and yearly charts, and take a long and rich history dating back to the feudal rice markets of aboriginal Samurai dominated Nippon. When information is presented in such a way, it makes it relatively easy – compared to other forms of charts – to perform analysis and spot merchandise signals.

To understand how this works, we'll need to look at how each bar is constructed. Equally indicated, each candle provides information on the open, shut, high and low of an assets cost. Each reflects the fourth dimension period you have selected for your chart. For example, if a 5 minute nautical chart was used each candle shows the open, close, high and low price data for a 5 minute period. When five minutes has elapsed a new 5 minute candle starts.

The aforementioned process occurs whether you use a 1 minute chart or a weekly chart.The open and shut are marked by the "fat" part of the candlestick. This is chosen the existent body, and represents the departure betwixt the open and shut. If the close is higher than the open, the candle will be green or white; if the close is lower than open the bar will be red or blackness just other colors tin can often be found on unlike charts.

The open or close are not necessarily the high or depression price points of the menses though. The high and low prices for the period are marked past a "wick" or "upper shadow" and "lower shadow." The high point of the upper shadow gives the highest price the asset went during that period, and the low point of the lower shadow gives the lowest price the asset went during that period.

Doji

If there are no upper or lower shadow it ways the open up and close were also the high and low for that period which in itself is a kind of signal of marketplace force and direction. Occasionally you will also see bars that are nearly all upper and/or lower shadow, with very little real torso. These are called dojis and have special meaning, a market in residuum, and often give potent signals.

Strategy Basics

Due to the highly visual construction of candlesticks there are many signals and patterns which traders utilize for analysis and to establish trades. Some patterns volition be classed equally 'advanced strategies', but in that location are general principles that those new to Japanese Candlestick charts should sympathize. Here are a few, I'll get into more detail on some of these ideas further along in this discussion.

A long real body indicates stronger pressure than a modest real body. For case, a long green body represents stronger buying pressure than a small greenish trunk. A long carmine trunk represents stronger selling pressure than a modest red body.
Shadows tin can be used to determine what group of traders–buyers or sellers–was strongest at the close of a candle. While not e'er, it is quite possible that the strongest grouping at the shut of the prior bar will be strongest heading into the side by side bar.
A long lower shadow with very little upper shadow indicates sellers tried to push the cost down, but ultimately the buyers succeeded in pushing the price support and were potent at the close.
A long upper shadow with very little lower shadow indicates buyers tried to push the cost upwardly, but ultimately the sellers succeeded in pushing the price back downward and were strong at the close.

Interpreting Tails

What many traders neglect to pay attending to is the tails or wicks of a candle. They mark the highs and lows in toll which occurred over the price menstruation, and prove where the price closed in relation to the high and low. During an average day of trading upper and lower shadows are commonly formed, and they don't really mean that much. But on some days, as when the price is trading near support or resistance levels, or along a trend line, or during a news event, a strong shadow may form and create a trading betoken of real importance.

If there is i affair that everyone should call up about the candle wicks, shadows and tails is that they are fantastic indications of support, resistance and potential turning points in the marketplace. To illustrate this bespeak lets expect at two very specific candle signals that incorporate long upper or lower shadows.

The Hammer

The hammer is a candle that has a long lower tail and a small-scale body almost the top of the candle. Information technology shows that during that period (whether 1 minute, 5 minute or daily candlesticks) that price opened and cruel quite a altitude, but rallied back to shut near (in a higher place or below) the open. This is sign that buyers stepped into a weak market place and are "hammering out a bottom."

Long lower tails are seen all over the place, and aren't significant on their ain. But they are significant when a long lower tail–hammer–is seen near support. Information technology indicates the sellers tried to push the price through support just failed, and now the buyers are likely to have price college over again. The matter to remember hither is that a hammer could point a new expanse of back up every bit well.

Figure 1 shows an example of a hammer candle on the USDJPY Daily Chart.

Three candles, all with long tails occurred in the same price expanse and had very similar price lows. That three long tailed candles all respected the same area showed there was strong support at 100.800. When the hammer occurred (third candle in the serial with the scarlet area below information technology) it showed that price was probable to continue college, since sellers had tried to push the price lower, merely couldn't.

The Gravestone

The gravestone (or 'tombstone') is a candle that has a long upper tail and a small-scale body near the bottom of the candle, opposite of the hammer. It shows that during the period (whether 1 minute, v minute or daily candlesticks) that cost opened and so rallied quite a distance, but and so roughshod to close most (above or below) the open up. This is sign that sellers stepped into a hot market and created a graveyard for the buyers.

Long upper tails are seen all over the place, and are not significant on their own. But they are significant when a long upper tail–gravestone–is seen near resistance, unless of class a new resistance level is being set. It indicates the buyers tried to push the price through resistance but failed, and now the sellers are likely to take toll lower once again.

Effigy 2 shows an example of a gravestone candle on the EURUSD hourly chart.

The price tested this resistance area multiple times, finally it broke to a higher place information technology, merely within the same bar (one hour) the price complanate back. This indicated the buyers didn't take command and that the breakout would likely fail. The toll did keep lower from in that location.

Tails, Wicks And Shadows

Look for them on candles, they are important. Multiple long tails in ane area, like in figure 1, show there is a support or resistance in that location. If a hammer or gravestone candle occurs near support or resistance, expect a reversal since the support/resistance has held. A hammer opens and closes near the summit of the candle, and has a long lower tail. A gravestone opens and closes near the bottom of the candle, and has a long upper tail. By themselves they can requite shady signals so beware, when used with other assay like support/resistance, stochastic, MACD, trend line etc are a very powerful tool of the modern trader. The side by side thing to await out for is the doji, a candle that combines traits of the hammer and gravestone into one powerful signal.

Doji Strategy for Binary Options

Dojis are amid the about powerful candlestick signals, if you are not using them you should be. Candlesticks are by far the all-time method of charting for binary options and of the many signals derived from candlestick charting dojis are among the most popular and easy to spot.

There are several types of dojis to be aware of simply they all share a few common traits. First, they are candles with niggling to no visible torso, that is, the open and closing toll of that sessions trading are equal or very, very close together. Dojis also tend to have pronounced shadows, either upper or lower or both. These traits combine to requite deep insight into the marketplace and can show times of residuum besides as extremes. In terms of signals they are pretty accurate at pinpointing market reversals, provided yous read them correctly.

Like all signals, doji candles can appear at whatsoever fourth dimension for just about any reason. All they really signify is a residuum of today'due south traders; if buyers and sellers are in balance during a session price action volition remain stable. It takes other factors to give the doji true importance such as book, size and position relative to technical cost levels. Truly of import dojis are rarer than most candle signals but also more reliable to trade on. Here are some things to consider.

First, how large is the doji. If it is relatively small-scale, as in information technology has brusque upper and lower shadows, it may be naught more than a spinning top way candle and representative of a globe-trotting marketplace and one without direction. If however the doji shadows embrace a range larger than normal the forcefulness of the signal increases, and increases relative to the size of the doji. Candles with extremely large shadows are called long legged dojis and are the strongest of all doji signals.

Second is where the doji appears; does it appear at a back up or resistance line or is it floating in a no man's state between two support/resistance targets. If it is not near a support/resistance line the signal is much weaker than if information technology is confirming a back up or resistance. In fact, if the shadow, either upper or lower, crosses ane of these lines and then closes in a higher place/below information technology the signal is quite potent indeed.

I of this type appearing at back up may be a meteor, pin bar or hanging man betoken; one occurring at support may be a tombstone or a hammer signal. Look at the case below. There are numerous candles that fit the bones definition of a doji simply only one stands out as a valid signal. This doji is long legged, appears at back up and closes above that back up level.

Some other confirming indication that a doji is a strong signal and not a imitation one is volume. The college the book the better equally information technology is an indication of market delivery. In respect to the above instance information technology ways that cost has corrected to an farthermost, and at that extreme buyers stepped in. It as well ways that nearly term sellers have disappeared, or all those who wanted to sell are now out of the marketplace, leaving the road clear for bullish price activeness.

Doji'due south tin can be trend following or point reversals so that must be considered as well. A doji confirming back up during a clear uptrend is a trend following signal while one occurring at a peak during the same trend may betoken a correction. The same is true for down trends. Failing to account for trend, or range bound weather condition, can be the difference between a profitable entry or not.

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The below demo video, explains how to configure a robot using the builder feature at IQ Option. The video explain how to specifically setup a strategy based on candlesticks, and doji patterns inside them;

Doji Patterns – Conclusions

While doji'southward can be fantastic signals for binary options they should exist considered a signal to wait for entry, and non as an entry itself. In the example in a higher place a call option is clearly the correct matter to do simply if purchased at the close of the doji, it could hands have resulted in a loss. The doji shows support like sonar shows the lesser of the ocean but that does not mean a reversal volition happen immediately. The best thing to do is to expect for at least the next candle and target an entry close to support. This same is true for resistance as well.

Doji's are besides fine to utilize in whatever time frame but remember the rules. When changing time frames add this; the doji's size and assay is relative to other doji'due south and candles in that fourth dimension frame. A long legged doji doesn't mean the same affair if they appear frequently on the charts unless it is significantly larger the average long legged doji.

Death will be your final concern. If entry is taken very close to the targeted support/resistance level a one or two bar expiry is almost probable all you will need only information technology may be prudent to extend that out to 5 bars just to make certain.

Nautical chart Patterns Explained

Take yous ever heard the saying, "can't see the forest for the trees"? This is a very apt saying that but means getting caught up in the small things and not seeing the bigger picture. This can happen all to oft when trading and is especially mutual among newer traders. This tin happen in a number of ways such equally too many indicators, paying too much attention to minor 24-hour interval to day fluctuations or in the case of today's discussion, paying to much attention to your Japanese Candlesticks. Candlesticks, and candlestick charting, are one of the top methods of analyzing financial charts but similar all indicators can provide only every bit many bad or false signals as it does expert ones. For that reason alone information technology is a good idea to filter any candle signal with another indicator or assay.

I'chiliad going to assume that you already know something about candles because you are this deep into the commodity already. I similar them because they offering so much more insight into price action. Switching from a line chart to an O-H-50-C chart to a candlestick nautical chart is like bringing the market place into focus. The candles leap off the chart and scream things similar Doji, Harami and other basic toll patterns that can change the class of the market. The matter is, these patterns tin happen everyday. Which ones are the ones you want to employ for your signals? That is the question on the mind of any 1 who has tried and failed to trade with this technique.

Candlestick Analysis – Examples

Wait at the chart beneath; a new candle forms every day. Some mean solar day a bullish candle, some days a bearish one, some times two or more days combine to form a larger pattern. Not all of them result in the "expected" movement. Look at the chart below. I accept marked 8 candle patterns widely used by traders that failed to perform equally expected.

Why is this y'all may ask yourself? It all comes down to where the signals occur relative to by price action. When I start to add other indicators to the charts information technology may get clearer. The first and foremost reason is that the candle patterns I take marked do not take whatsoever other technical or primal factors into account. I know that every bit binary traders we do non use much cardinal analysis but whatsoever trader worth his common salt has at least a minor grip on the underlying market place conditions. After that some elementary additions to the chart can help to requite some perspective and allow you lot to see the wood, and not merely the copse.

Time frame is one important gene when analyzing candlesticks. The very commencement thing I similar to do is to literally accept a step dorsum from my standard chart for a ameliorate view of the market. I employ charts of daily prices with 6 months or ane yr of data. To get the broadest view I tin can I use a chart with 5 or 10 years of information. The 5 yr chart is where I draw support, resistance and trend lines that will take the most importance in my after analysis. Having an idea of where price action, and the candlesticks, are in relation to the long term trend and areas of support/resistance is crucial to estimation. A candle signal occurring at or near a long term line is of far more than value than one that is near a shorter term line. You can use weekly bars or daily, it doesn't matter, but sometimes a really stiff candle point will appear on the weekly charts too.

Moving Averages

Moving averages are another skillful fashion to help weed out bad candlestick signals. In that location are many types of moving averages just I like to use the exponential moving average because it tracks prices more closely than the simple moving boilerplate. I use the 30 bar and 150 bar moving averages but you can use any duration that works for you. The point is to utilise the EMA'due south to help confirm or deny potential candle signals. In theory, each moving average represents a group of traders; the 30 day EMA brusque term traders and the 150 solar day EMA longer term traders. A candlestick signal that fires along the moving averages is a sign that that grouping of traders is behind the move. A betoken forth the 30 bar EMA would not be every bit potent as a signal along the 150 bar EMA while a signal that fired while the two EMA'south were tracking aslope each other would be the strongest of all.

Volume

Volume is a third factor that I like to have into consideration when analyzing candle charts. Volume is one of the well-nigh of import drivers of an assets price. The more people that want to buy an asset the college and quicker prices volition movement up. The more than people that want to sell an asset the lower and quicker prices volition driblet. This tin can likewise be applied to candlesticks, the more book during a given candle indicate the more of import of a signal it will be. Further, if volume rises on the second or third 24-hour interval of a point that is additional sign that the signal is a skilful one.

Take a await at the nautical chart beneath. I take redrawn support, resistance, trend lines and moving averages. And then I looked for candle signals along those lines and correlated volume spike to them. Using the additional analysis techniques the 8 losses on the chart higher up could have been avoided and instead been turned into these dozen or and then winning trades. The volume does not fasten on every signal only in that location are a few significant spikes to come across.

Reading Charts – Closing Guide

In that location are many candlestick patterns for you lot to explore if y'all enjoy this type of "visual" trading style, I've barely scratched the surface. Candlestick patterns are useful for both brusk and long-term trades as these patterns occur on one infinitesimal charts right upward to weekly charts (or longer). Looking at a chart yous'll see lots of patterns, the fundamental is to understand which ones are actually signals and which ones are merely random market movements. Be selective, and only trade when there are confirming factors and indicators. Use other technical analysis methods to validate all patterns. For example, a bullish engulfing design that occurs at a support level is more than probable to work out than if a bullish engulfing pattern occurs on its own