What is the Japanese Candlestick pattern in Forex trading?
Japanese Candlestick pattern
The Japanese Candlestick pattern is a term most commonly referred to as the charting technique. The technique consists of drawing lines on the charts representing price movement during a given time frame. The candlestick line resembles a candle, where the top of the body is the opening price and the bottom is the closing price. Hence, it is a method used for the technical analysis of Forex.
As of the moment, this is not yet a standard form of charting. As a result, most brokers do not have the option on their platform to draw candlestick charts. However, some offer such features to traders through third-party software, which can draw a candlestick chart. This is where most traders begin understanding the concept of Japanese Candlestick patterns.
It is important to know that this form of charting does not require any paid software or services, as one can easily draw these on a free charting platform such as TradingView.com. There are also tons of free Japanese Candlestick pattern recognition and identification guides available online, which makes understanding the idea behind candlestick charts much easier.
The Japanese Candlestick charts are useful in identifying potential areas of support and resistance and flagging current trends. The patterns featured on these charts allow traders to easily identify whether a trend is strong or weak or whether a pullback is likely or not. Given these factors, traders can easily determine entry and exit points on potential trades using this method.
For any new Forex trader, identifying the Japanese Candlestick patterns is very important to trade with confidence. Below are some of the commonly found patterns used mainly by traders on their day trading on Forex.
Bullish/Bearish Engulfing Pattern Bullish Abandoned Baby Bearish Harami Cross Bearish Rising/Falling Three Methods Three Black Crows Hammer Piercing Line Morning Star Evening Star Doji
Star-shaped patterns are most commonly found on candlestick charts, indicating that there is a potential trend reversal.
The bullish engulfing pattern consists of two candlesticks (two trading sessions), where the first is small and black, while the second is large and white, with the latter engulfing the former. The implication of this pattern implies that there is an increase in buying pressure, potentially indicating a trend continuation.
The second bullish pattern is called the bullish abandoned baby, which consists of three candlesticks. The third trading day resembles the first one, where it also forms another black candlestick with a small real body.
This pattern indicates a reversal from bearish to bullish pressure, which could form a trend continuation. However, this should not be traded alone, and it is best paired with another confirmation or charting indicator for confirmation purposes.