Strategies for Reading Candlesticks Easily Forex Binary Trading and Stocks

Learn Forex Binary Trading and Stocks by Analyzing Candlesticks + Mathematical Formulas

To learn to read candlesticks for trading forex or binary or stocks, it is easier to learn from the basis. To analyze the movement of when a reversal occurs, we can make a moment to take a trading position, we must know the most favorable pattern.

I will discuss how to read candlesticks easily and fun to learn step by step. Without waiting for longer, let's learn to trade using candlesticks.




Candlestick history
Candlestick is a technical analysis method originating from Japan. The origin of candlesticks was the opening of the rice commodity market in Osaka in the 17th century.

Then in the early 18th century, a coupon system to purchase rice that will be sent in the future will be used so that the commodity market in Osaka becomes the first futures market in the world.

People who develop candlesticks like the one we are currently using are Munehisa Homma. In 1750 he began to take control of his family business and one of them was agricultural land that produced rice. Therefore he started trading on the local exchange at Sakata.

Munehisa Homma managed to become a successful trader in his time and had recorded 100 win streaks in trading. That success was because he made notes about the psychology of traders trading on the rice market.

He also records data on rice prices and weather conditions. From all of that he made 160 trading rules and principles known as Sakata Method and this method became the candlestick we know today.

After centuries known only to traders in Japan, candlesticks began to be known by many people when Steve Nison published the first article about candlesticks in Futures magazine in 1989.

Previously in 1987 Steve Nison studied candlesticks in Japan and then wrote a book about candlesticks after three years until finally the candlestick became an important part of the current technical analysis.


By studying the pattern of candlestick patterns that appear we can analyze whether the market movement of an asset will rise or DOWN.

Keep in mind that candlesticks that move up or down are distinguished by color, namely:

  • Candlesticks that move up / up trend are often called Bullish which is often depicted with a White / Green candlestick
  • Candlesticks that move down / down trend are often called Bearish which is often depicted with a Black / Red color candlestick






The gap in the candlestick has a different meaning than the gap in the bar chart. In the bar chart, the gap occurs when between high and low one session and the other session does not overlap. While in candlestick gap occurs when there is no overlap between open and close one session and another session (only body
only).

This is because the emphasis of the candlestick on the body of the candle. Therefore in the candlestick pattern, most if called the gap, what happens is the body gap. Likewise the gap is filled if the next session body fills the gap.



But there are some candlestick patterns where the gap here includes shadow. If it's called a shadow gap, the gap can be filled by the next session's shadow or body.

 Candlestick advantages and disadvantages

 Candlestick advantages:

1. Candlesticks have a body that emphasizes the relationship between open and close so that it can warn traders about changes in psychology of market participants that can cause changes in trends even if only in the short term.
2. The color of the candlestick that shows the session is bullish or bearish and the shadow makes traders easier and faster in seeing and analyzing trends.
3. Candlesticks are good in giving a change in direction of price movements. Candlesticks identify changes in market sentiment and provide a faster signal from other technical analysis tools.

4. Candlesticks can be used together with other technical analysis tools because both use open, high, low and close data.

Candlestick deficiencies:

1. Candlesticks only signal in the short term.
2. The signal from the candlestick does not provide a target price and how long the duration of the signal.
3. The success percentage of candlestick patterns is only 50% on average so that it gives less certainty


CANDLESTICK FORM AND ITS MEANS:

These are the kinds of characteristics of candle shapes and their meanings along with pictures and examples of design patterns

1. Candlestick Marubozu

Marubozu is a candlestick that has no shadow, if there is a very short one, at a glance like nothing. Marubozu there are two bullish marubozu and bearish marubozu.
Marubozu indicates that there is a strong trend in a certain period of time.
  • If bullish marubozu appears, it means the uptrend is strong
  • if a bearish marubozu appears it means the downtrend is strong
2. Candlestick Long Body and Small Body

The long body candlestick is called the length seen from the body. This is because candlesticks emphasize the relationship between open and close.

Candle is called long, there is no definite size, but it depends on the previous candles, which is usually between 5 to 10 previous candles.

Long body candle indicates: the momentum of the buyer (bullish candlestick) or seller (bearish candlestick).
A long candlestick that has no shadow or has a small shadow is called Marubozu. No or small shadow shows one of the parties is very dominant in the session.

The meaning of Long Candlestick depends on where the appearance is. Long Candlestick which appears in the direction of the trend (bullish candlestick on the uptrend and bearish candlestick in the downtrend) confirms the continuation of the trend.

But the Long Candlestick that appears in the opposite direction with the trend (bullish candlestick on the downtrend and bearish candlestick on the uptrend) gives a signal that the reversal
might happen.

The small body candle indicates the small momentum of the strength of the buyer (bullish) or from the seller (bearish).

3. Short Candlestick


Short candlesticks occur when the open and close are located almost the same so that the candle has a short body and also has a short shadow or no shadow at all.

Candle is called short depending on the previous candles, which is usually between 5 to 10 previous candles.
  • A short candlestick that does not have an upper shadow is called Shaven Head.
  • Short candlesticks that do not have a lower shadow are called Shaven Bottom.
  • Short Candlesticks that have upper and lower shadow are called Spinning Top.
 Short candlesticks indicate the agreement between the buyer and seller that the current price makes sense, especially when the market is sideways / consolidated.

Short candlesticks that appear when the market conditions are in trend, especially with a larger volume than before and occur after the emergence of Long Candlestick, can be a sign that the trend can end due to a fierce fight between buyers and sellers so that open and close is not too far away.

When in a trend, the color of the Short Candlestick is insignificant. Short Candlesticks that appear once are not too significant.

However, short candlesticks that appear repeatedly in a trendy market indicate a decline in momentum which can make a reversal or the market moves sideways.


4. Candlestick Spinning Tops

Spinning Tops candlestick adalah candle yang memiliki shadow panjang di atas dan di bawah. Panjang masing-masing shadow ini lebih panjang dari panjang body candle tersebut.

Candlestick ini menunjukkan baik buyer atau seller tidak memiliki cukup kekuatan untuk menggerakan pasar di luar opening dan closing price.

Saat candle seperti ini muncul di pasar yang sedang trend seringkali memberikan tanda bahwa trend akan berakhir.

5.Candlestick Doji




Doji shows market participants' confusion towards which price will move so that the price finally closes the same as the opening price.

Shadow on the doji also shows the effort of one party (buyers in upper shadow and seller in lower shadow) to move the market but ultimately fail. Failure of one party (buyer or seller) or both influence our analysis of the trend.

When a doji appears in a downtrend and has a lower shadow that shows the seller long
trying to make prices fall even further but fail so that the possibility of a downtrend will end.

Likewise when the doji with a long upper shadow appears when the uptrend shows the buyer
trying to bring prices up but eventually fail so that the possibility of an uptrend will end.

6. Candlestick Hammer and Hanging man



The Hammer and Hanging man / Long Lower Shadow are candles that only have a long shadow below. The lower shadow length is at least twice the body length of the candle.

When the Hanging man candlestick shows the seller is trying to bring prices down further but failed.
When Hanging Man appears during a downtrend, it can signal that the trend is likely to end because of weakening momentum.

When this Hammer candlestick appears in the uptrend, it can confirm that the uptrend will continue because it shows that the buyer is still strong.

7. Candlestick Inverted Hammer and Shooting star




Inverted Hammer and Shooting star are candles that only have a long shadow
above. The length of the upper shadow is at least twice the length of the body of the candle

The Inverted Hammer candlestick shows buyers are trying to bring prices up higher but fail. If it appears during an uptrend, it can signal that the trend is likely to end because of weakening momentum.

When the Candlestick Shooting star appears in the downtrend, it can confirm the downtrend will continue because it shows the seller is still strong.

Before starting to discuss candlestick patterns that can be used as a reference for taking positions, there are several terms, namely:
  • Bullish: Direction of uptrend
  • Bearih: Direction of trend movement Down
  • Reversal; Trend reversal
  • Gap: (already explained above)
  • The most profitable candlestick pattern

CANDLESTICK REVERSAL PATERN LEVEL 1

Candlestick Reversal Pattern Level 1 is the most reliable candlestick pattern and rarely requires confirmation



Description:

1. Bullish candles with long bodies appear on the uptrend.
2. The next candle is a short candle body (can be either bullish or bearish candle), there is a gap up between the body candle and the body candle does not overlap.
3. The third candle is a bearish candle with a long body and stronger if there is a gap down.
Psychology:

When the market is experiencing an uptrend, a gap up adds to the belief that the uptrend will continue. Buyers are able to control during the initial session but they are unable to maintain so that the session ends with a short candle body.

The next session even the market moves in opposite directions and back down to the body candle
first so that the seller starts to control.

Note:

An increase in volume in the third candle can further confirm the occurrence of a reversal.
If there is a gap down between the body of the second and third candles, then the more likely it is bearish.

2. MORNING STAR

Description:

1. Bearish candles with long bodies appear during a downtrend.
2. The next candle is a short candle body (can be either bullish or bearish candle), there is a gap down between the body candle and the body candle does not overlap.
3. The third candle is a bullish candle with a long body

Psychology:

When the market is experiencing a downtrend, a gap down adds to the belief that the downtrend will continue. The Selller is able to control the start but they are unable to maintain so that the session ends with a short candle body.

The next session even the market moves in opposite directions and instead rises to the body of the first candle.

Note:

  • An increase in volume in the third candle can further confirm the occurrence of a reversal.
  • If there is a gap up between the body of the second and third candles, the more likely the bullish.

3.BEARISH ABANDONED BABY

Description:

1. Bullish candles with long bodies appear during an uptrend.
2. The next candle is a doji and there is a gap up.
3. The third candle is a bearish candle with a long body and a gap down occurs.

Psychology:

When the market is experiencing an uptrend, a gap up adds to the belief that the downtrend will continue. But apparently there is nothing dominant between buyers and sellers so that doji form.

The next session instead the market moves in opposite directions and even down to the body of the first candle.

Note:

An increase in volume in the third candle can further confirm the occurrence of a reversal


4.BULLISH ABANDONED BABY

Description:

1. Bearish candles with long bodies appear during a downtrend.
2. The next candle is a doji and there is a gap down.
3. The third candle is a bullish candle with a long body and a gap up occurs.

Psychology:

When the market is experiencing a downtrend, a gap down adds to the belief that the downtrend will continue. But apparently there is nothing dominant between buyers and sellers so that doji form.

The next session even the market moves in opposite directions and instead rises to the body of the first candle.

Note:
An increase in volume in the third candle can further confirm the occurrence of a reversal.

5.BEARISH TRI STAR

Description:

1. When in an uptrend, there is a gap up but the price closes the same or almost the same so that a doji is formed.
2. The second candle is also doji and there is a gap up again.
3. The third candle remains in the form of a doji but this time there is a gap down.

Psychology:

Doji shows doubts among market participants. When the market is in an uptrend and the first doji appears, market players begin to pay attention to whether the uptrend will end.

The emergence of the second doji shows the market is starting to lose direction.
The third doji signals that the uptrend has ended.
This pattern shows too much doubt among market participants.

Note:
· This pattern rarely appears but if it appears it has a high probability.
· This pattern is usually followed by a decrease in volume.

6.BULLISH TRI STAR



Description:

1. When in a downtrend, there is a gap down but the doji finally forms
2. The second candle is also doji and again there is a gap down
3. The third candle remains in the form of a doji but this time there is a gap up

Psychology:
Doji shows doubts among market participants. When the market is in a downtrend and the first doji appears, market participants begin to pay attention to whether the downtrend will end.

The emergence of the second doji shows the market is starting to lose direction.
The third doji gives a sign that the downtrend has ended.
This pattern shows too much doubt among market participants.

Note:
· This pattern rarely appears but if it appears it has a high probability.
· This pattern is usually followed by a decrease in volume.

7.BEARISH ENGULFING

Description:

1. Bullish candle appears during an uptrend.
2. The next candle is a bearish candle with a long body exceeding the previous candle.

Psychology:

When the market is experiencing an uptrend, the next session opens with a gap up indicating that market participants are still assuming conditions will remain bullish.

However, the price turned around and closed lower than the previous closing session.
This indicates a change in sentiment from bullish to bearish

Note:

· The second candle only needs to exceed the body of the first candle. But if it also exceeds the first shadow candle, the stronger the signal reversal.
· The longer the second candle, the stronger the change in sentiment that occurs.
· Usually followed by an increase in volume

8.BULLISH ENGULFING

Description:

1. Bearish candle appears during a downtrend.
2. The next candle is a bullish candle with a long body exceeding the previous candle.
Psychology:

When the market is experiencing a downtrend, the next session opens with a gap down which indicates that market participants still assume conditions will remain bearish.

However, prices turned around and closed higher than the previous closing session. This indicates a change in sentiment from bearish to bullish.

Note:

· The second candle only needs to exceed the body of the first candle. But if it also exceeds the first shadow candle, the stronger the signal reversal.
· The longer the second candle, the stronger the change in sentiment that occurs.
· Usually followed by an increase in volume

9. DARK CLOUD COVER

Description:

1. Bullish candles with long bodies appear during an uptrend.
2. The next candle is a bearish candle with a long body opened above the first high candle and closes below half of the first candle body.

Psychology:

When the market is experiencing an uptrend, the next session opens with a gap up indicating that market participants are still assuming conditions will remain bullish.

But apparently the price reversed and closed below half of the first candle. This indicates a lack of support to continue the uptrend.

Note:

· The lower the price closes below half the body of the first candle, the greater the likelihood of a reversal.

10.PIERCING LINE

Description:

1. Bearish candles with long bodies appear during a downtrend.
2. The next candle is in the form of a bullish candle with a long body opened below the first low candle and closed above half the body of the first candle.

Psychology:

When the market is experiencing a downtrend, the next session opens with a gap down which indicates that market participants still assume conditions will remain bearish.

But apparently the price reversed and closed above the first half of the candle. This indicates a lack of support to continue the downtrend.

Note:
· The higher the price closes above half the body of the first candle, the greater the likelihood of a reversal.

11.BEARISH KICKER

Description:

1. Bullish candles with long bodies appear during an uptrend.
2. The next session will occur a gap down with the opening price near the previous session's opening price.
Psychology:

When the market is experiencing an uptrend, the next session opens with a gap down near the opening session price. This shows a sudden change from market participants.

If previously the market was still bullish, in the next session the market immediately reversed direction.
Note:

· The body of both candles is the same or almost the same.
· The longer the body on the candle, the stronger the signal reversal occurs.
· Usually followed by an increase in volume.

12.BULLISH KICKER

Description:

1. Bearish candles with long bodies appear during a downtrend.
2. The next session was a gap up with the opening price near the opening session price of the previous session.

Psychology:

When the market is experiencing a downtrend, the next session opens with a gap up near the previous opening opening price. This shows a sudden change from market participants.

If previously the market was still bearish, in the next session the market was straightforward
reversed.

Note:

· The body of both candles is the same or almost the same.
· The longer the body on the candle, the stronger the signal reversal occurs usually followed by an increase in volume.

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