Understand Price Behavior of Japanese candlesticks

Understand Price Behavior of Japanese candlesticks

Japanese candle class

Reading and understanding candlestick patterns helps traders understand the psychology of traders, which is a way to help traders understand price behavior
Japanese candlesticks  are used to describe price action, or exchange rate fluctuations as well as describe traders’ psychology, so reading and understanding each candlestick will help traders analyze the market.

I. Structure of a candle

The first candlestick chart was created by Mr. Munehisa Homa – a Japanese trader – used to record rice price fluctuations. Due to its ability to support analysis, charts have been introduced to more parts of the world and are used by people as a popular financial analysis tool.
Normally, each candle is composed of two parts: the candle body and the candle shadow.
Candle body:  Shows the opening and closing prices in a certain time.
Candlestick shadow: Shows the highest and lowest price in a certain time.

II. CANDLE MIXING METHOD

Candle pooling, also known as candle pooling, is the most basic way to analyze market control at a certain time.

PRINCIPLES OF CANDLE COMPOUNDING

To combine 2,3,4 or more candles into one candle
Get the opening price of the first candle and the closing price of the last candle
Get the lowest price and highest price in those groups of candles
Example / Combine 2 candles:
Combine 3 candles:
Combine 4 candles:

III. Basic candlestick patterns are often used to analyze the market

1.Standard Candle – Standard candle
2. Marubozu candles
Characteristics of Marubozu candles include:
Includes 1 candle
There is no candle shadow or if there is, the candle shadow is very short
The candle body is very long
Meaning: Marubozu candlestick shows very strong buying/selling force, and often appears when the market is strongly increasing or decreasing in price, this shows that the buying/selling volume is superior to the other side.
3. Spinning Tops Candles – Spinning candles or spinning top candles
The Spinning Tops candle has a shape quite similar to a spinning top
Characteristic:
Having a short candle body indicates little difference between the opening and closing prices
The candle body is located vertically in the middle of the candle
The upper and lower candle shadows have equal length, and are much longer than the candle body
Meaning: Spinning Tops candlestick shows that buyers try to push the price up, sellers try to push the price down but fail. This shows that both the buying and selling sides are not superior, showing the hesitation of investors, it is difficult to predict whether future prices will go up or down. Price can continue the previous trend or reverse the trend.
4. Hammer Candle – Hammer candle
Characteristic :
The candle body is always at the top according to the length of the candle, the candle color is not important
The length of the lower candle shadow is at least 2 times the length of the candle body
There should be no or if there is a very small upper shadow
Meaning :
Hammer candlesticks often appear in a downtrend, signaling an extremely strong reversal signal, meaning that investors are looking for a good price breakout to enter the market and form buying pressure that overrides selling pressure. -> Price may recover or reverse to increase
5. Hanging Man
The Hanging Man candle appears to warn of a reversal in the near future
Meaning: After a period of price increase, the Hanging Man candlestick appears, showing that the force of taking profits and selling down has appeared. It is not certain that the price has reversed but requires some other signals such as a break trend, or a few more candles. Another candlestick to increase the probability of winning when entering an order.
6. Inverted Hammer Candlestick – Inverted hammer candlestick
The Inverted Hammer candlestick is similar to the Hammer candlestick pattern in that it appears in a downtrend and can be a reversal or rally pattern.
Characteristic :
The Inverted Hammer candle has a small candle body, the candle body can be up or down and has a long candle shadow above with a small or short candle shadow below.
Meaning: The Inverted Hammer candlestick also predicts a sign of a bullish reversal in a previous downtrend. : After a down cycle, the Inverted Hammer candlestick appears, proving that the buying force is greater than the selling force, but it is not certain that the price has reversed the trend. You need to observe other signs to make a buying decision such as trendline, resistance – support.
7. Shooting Star candle
Shooting Star candlestick means a shooting star, implying a warning of falling.
Characteristic:
The body of the candle is always located at the bottom along the length of the candle, the color of the candle is not important
There is no lower candle shadow
The length of the upper candle shadow is at least 2 times the length of the candle body
Meaning: Shooting Star candles often appear in an uptrend, warning of an extremely strong reversal, the buyers start to be much weaker than the sellers.
8. Engulfing model
8.1 Bearish Engulfing pattern – Bearish engulfing candle
The pattern often appears when the market is bullish or correcting upward in a downtrend
Characteristic:
The pattern consists of 2 candles
The first candle is a bullish candle, the second candle is a bearish candle that covers the entire white candle body
Meaning: The next market warning is a downtrend
8.2 Bullish Engulfing Pattern – Bullish Engulfing Candle
The Bullish Engulfing pattern is a reversal pattern from a bearish market to a bullish market
Meaning: The next market warning is an uptrend
9. Doji pattern
The Doji candlestick pattern is a pattern where the opening and closing prices are approximately the same
Meaning: price moves up and down but in the end the closing price is equal to the opening price, -> Doji candlestick shows hesitation or struggle between buyers and sellers, showing that the market is hesitant and may reverse But other signs are needed to clearly determine whether the trend is reversing or not.
10. Morning Star model – Morning Star model
Meaning: The Morning Star pattern appears in a downtrend, which is a warning sign of reversal from down to up
Several variant Morning Star models
practical examples:
11. Evening Star model – Evening star model
Meaning: The Evening Star pattern appears in an uptrend, and is a warning sign of reversal from up to down.
practical examples:
11. Dark Cloud Cover model – Dark cloud cover model
Characteristics of identifying the Dark Cloud Cover candlestick pattern
This is a cluster of candles with the following 2 characteristics:
– The first candle: is a strong bullish candle of large size.
– Second candle: The opening price is higher than the closing price of candle 1. Then decrease and close below the midpoint of the first candle.
Meaning of the Dark Cloud Cover model:
The Dark Cloud Cover pattern appears during an uptrend, and is a warning sign of price reversal. However, other reversal signs are still needed to confirm the trend such as trendlines or other candles.
The Dark Cloud Cover pattern is quite similar to the Bearish Engulfing pattern, however the closing and opening prices are different; The Dark Cloud Cover pattern has the black candle’s closing price located inside the white candle body while the Bearish Engulfing pattern has the black candle’s closing price located outside the white candle body. Combining the Dark Cloud Cover model is always a white candlestick with a long upper shadow, while combining the Bearish Engulfing model is always a black candlestick with a long upper shadow
12. Piercing model – Piercing model
Like the Dark Cloud Cover pattern, however, the Piercing Pattern appears in a downtrend and warns of a trend reversal to an uptrend.
Identification characteristics of Piercing Model
Contrast with the Dark Cloud Cover model
Meaning of Piercing Model:
Like the Dark Cloud Cover model, however, the Piercing Model appears in a downtrend and warns of a trend reversal to an uptrend. However, other reversal signs are still needed to confirm the trend such as trendlines or candles. other.
Differences between Piercing and Bearish Engulfing patterns
All Japanese candlestick patterns Your Income often appear and are always used in Gold and Forex analysis.

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