The Japanese candlestick pattern is a method of technical analysis that has been in existence among the Japanese for a very long time as they used it in trading rice. Later on, in the 19th century, an American named Charles Dow redefined it in a way that it can be used to trade currencies in the forex market, still with the same guiding principles as listed below
- What is happing in the market is actually more important than why it is happening
- Every known information reflects on the price of the commodity
- Traders in the market function based on emotions and expectations
- The market value varies randomly
- The actual price of the commodity may not reflect on the underlying value
DIFFERENT TYPES OF CANDLESTICK PATTERNS
Irrespective of their operation based on the same principles, candlestick patterns are of different types and they function at varying capacities. Anyone that may want to use the candlestick pattern may have to be careful which one to use; and also take into consideration that it is no longer what it used to be. The introduction of the candlestick pattern trading strategy in the forex market gave a lot of people a hedge over the market. Its reliability continued to rise, but at a point, the hedge funds deconstructed it with their algorithm thereby reducing its reliability. It may take some time and experience, but the candlestick pattern can still be used just like before it was deconstructed.
Types of candlestick patterns include
1. Three link strike
2. Two black gapping
3. Three black cows
4. Evening star
5. Abandoned baby
These are among the most common candlestick patterns in the forex market. There are still more of them out there that can be studied and used to make good profits in the market.
WHY CANDLESTICK PATTERNS ARE GOOD FOR FOREX TRADING
Despite fact that hedge funds devalued the original candlestick patterns, it still can be used profitably. Here are some reasons traders should at least try out any of the candlestick patterns
1. They are superior to the traditional bar charts used in trading forex. These charts are not bad per se, but they have little meaning when used alone, and cannot be said to be precisely accurate most of the time.
2. The candlestick pattern can read the market based on the sentiments of the traders. It can show the trader the changes in the market value known as investors’ sentiment.
3. They are really easy to understand no matter how complex the information they represent may be. They are easy to use too; alone and in combination with other trading tools.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.