Forex Online Secrets

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The Japanese Candlestick is a very intuitive and informative means of representing price action of FX rates. At first it might seem difficult to move from line or bar chart to candles, but if you give them a fair evaluation, you will find that they are clearly the most superior method of charting price data.

The candle itself represents a period of time. For example, a daily candle chart will show you the open, high, low and close of that day’s trading range. The top of the candle represents the highest price of the period or the maximum power of the buyers. The bottom of the candle represents the lowest price of the period or the maximum power of the sellers that day. However, every time frame can be used from monthly down to 1 minute. This fact makes them very useful for pattern traders and identifying valid levels of support and resistance.

Candles:

• Illustrate the price range for any given period
• Create patterns making the inclination of the market clearer

The creators of the method consider highs and lows relatively insignificant professing these levels represent the height of panic trading. Rather, they focus on the relationship between opening and closing prices or as they call it the real body of the candle. Often, these candlestick patterns may include several candles in a specific sequence.

The advantages of the candlestick charting:

• Allow traders to visualize the substantial pricing of that period allowing you to focus on certain aspects of the period’s price action.
• Help traders pinpoint key levels of S/R

The most important thing to know when considering the meaning of a candlestick formation is that it can be interpreted differently depending on where it appears and what type price action preceded it. In some instances a candle may indicate the complete opposite of what the exact same formation indicated previously in that same day. Clearly it is important to know how to differentiate.

Below is the most common candle you will encounter trading FX.

The Doji Cross (Doji)

The Japanese word translated in Latin based languages means “a sudden danger”. A perfect Doji has the same closing price as the opening. However, like any other chart formation, there is some flexibility involved. One to five ticks difference between the open and close is acceptable, depending on the time frame and range. On shorter time frames 1-5 ticks and on larger time frames as much as 5 or even 10 on a very large time scale. Just keep in mind that the larger the scale the larger the difference is acceptable.

The Doji is one of the more dynamic formations in that it can appear in many places on your chart but mean something different entirely depending on that location. For example, when found after a large move it indicates a reversal may be looming. Conversely, when one appears after a period of consolidation, or sideways trading, it demonstrates that a large forceful move may be coming soon.

Doji Candlesticks in review…

1. Doji has the same closing price as the opening
2. Demonstrate that a large forceful move may be coming soon
3. When found after a large move it indicates a reversal may be looming