Japanese candlesticks

Japanese_candlesticks Japanese candlesticks are a powerful tool for technical analysis. A large number of traders use them in their trading. They reflect investor psychology. Japanese candlesticks are used to assess market sentiment and show key areas upheld by buyers and sellers.

Japanese candlesticks fall into two main categories: continuation patterns and reversal patterns. Continuation patterns indicate continuation of the current trend while reversal patterns indicate reversal of the trend on the observed time scale.

Rules to follow with Japanese candlesticks

- Always analyse the current trend: a Japanese candlestick pattern means absolutely nothing if it is not related to the current trend. The trend may be bullish, bearish or the market may be in a consolidation phase. All Japanese candlestick patterns are more relevant in some market conditions than in others.

- It is important not to only use Japanese candlesticks: The vast majority of Japanese candlestick patterns have a much lower success rate than basic chart patterns. Basing your buy/sell signals only on Japanese candlesticks generates far too many false signals. Moreover, they do not allow you to set price objectives. Therefore, Japanese candlesticks should only be used in addition to traditional technical analysis, using chart patterns, technical indicators and different trading tools that are available to traders.

- Use candlesticks on strategic areas: It is very important to carry out complementary classical technical analysis that makes it possible to identify key resistance and support levels. Japanese candlestick charts are more relevant if they operate on levels where buyers and sellers forcefully fight each other, which is where there are volumes. These volumes are essential, they reinforce the validity of Japanese candlestick patterns.

- It is better to always wait for confirmation: A Japanese candlestick pattern is only validated if the next candlestick confirms the trend’s continuation or reversal. It is important not to anticipate the pattern’s formation as there is a risk of having a lot of false trading signals.

- Review several time units together: As with a traditional technical analysis, it is also important always to analyse the time unit greater than that of your trade. This gives you a trend chart (which gives you the direction of the signals to be taken into account) and a signal chart (which gives you your buy/sell signals). This is the principle of one-way trading.

Playlist - Japanese candlestick guide : In this playlist, CentralCharts has gathered the best Youtube videos for discovering everything about Japanese candlesticks and how to interpret Japanese candlesticks configurations.

Full Playlist