How to read japanese candlestick chart It is an important skill every trader must have when participating in trading at a reputable forex broker. Reading candlestick charts aims to find a reasonable buy and sell point, increasing the order win rate. For experienced traders, reading candlestick charts is quite easy, but for new traders it is a very difficult task. However, skills and how to read candlestick charts can be learned and practiced over time. So, through this article, we will guide you how to read Japanese candlestick chart for beginners in more detail.
Instructions for reading Japanese candles
In order to be able to read the Japanese candlestick chart in the most simple and effective way, you need to follow the following 3 steps:
- Identify market trends.
- Determine whether the trend strength is strong or weak.
- Find entry, stop loss and take profit.
See also: What is Japanese candlestick? Basic Forex candlestick patterns
Above are 3 basic steps to be able to read Japanese candlestick chart for a new trader. To get into the details of how to do the steps, as well as the notes you need to pay attention to when reading the Japanese candlestick chart, let's take a look at the specific steps below with Kiemtien.com:
Step 1: Identify the trend on the Japanese candlestick chart
Using Dow Theory to Identify Trends
According to Dow theory, the market will have three main trends: the primary trend is the primary trend, the secondary trend is the secondary trend, and the trend is sideways. When analyzing charts, traders only need to consider Level 1 and Level 2 trends. As a sideways trend is also considered a secondary trend, during this time the wisest choice is to stay out of the market and watch the market. market to enter trend 1 before trading. A Level 1 trend is not necessarily an uptrend, but it can also be a downtrend. If the level 1 trend is up, the price will create the following highs higher than the previous high, the next higher than the previous high.
The GBP/JPY chart below is consistently making higher highs and higher lows. Prices have increased continuously for 3 years.
View more: What is the Dow Theory? Principles of technical analysis
In contrast to an uptrend, a level 1 downtrend will create the following troughs lower than the previous low and the lowest low lower than the previous low. The GBP/JPY chart below shows a 3-year downtrend.
Through Dow theory, you can fully identify the trend, from which you can decide to enter a trade when the market is in a level 1 trend, so you can get the best efficiency.
Use Trendline to identify the trend
Using the trendline to identify the trend requires a lot of experience as well as a trader's mindset. However, one thing is for sure, the price does not move in a straight line, but always follows the waves and it is these waves that will create the structure of the market.
The simplest way to draw a trendline is to connect 2 tops or 2 bottoms together. In an uptrend, the trendline is the line that connects the bottoms. Traders need at least 2 funds to draw a trendline, but to be more precise, at least 3 funds are needed to identify a trend.
In a downtrend, the trendline is the line that connects the tops. Traders need at least 2 peaks to draw a trendline, but at least 3 points to identify a trend.
Use parallel pricing channels to identify trends
The nature of the price channel is drawn by trend lines. The price channel will be created from 2 parallel lines. In an uptrend, the price channel will point up. To create an ascending channel, you will draw a line parallel to the uptrend line so they can pass through most points. Likewise, a downtrend will create a descending channel. You draw a line parallel to the downtrend line so that they go through most of the peaks.
See also: What is Trendline? Instructions on how to draw the most accurate trendline
Use the EMA to determine the trend
The EMA is a moving average therefore it is a resistance to price movement. The way the EMA is determined is that if the price is below the EMA it is a downtrend, vice versa if the price is above the EMA it is an uptrend. The EMA is usually highly accurate on the D1, H4 and H1 timeframes.
View more: What is the EMA? How to use EMA on Forex effectively.
Step 2: Determine the strength of the trend
Using Elliott Wave
Elliott wave has a strong correlation with Dow theory, if you already understand Dow theory, you can easily count Elliott waves. In Elliott waves there will be 3 main or bull waves, ie waves 1, 3 and 5, as well as 2 corrective waves, waves 2 and 4. In these waves, wave 3 is usually the longest, this is the period. pay attention to a currency pair, a product or a certain commodity, they believe it has real potential, so they keep buying. Because the price will rise sharply and possibly close the high of the end of wave 1.
See also: What is an Elliott wave? Learn about the 5 levels of the Elliott wave
How to read a Japanese candlestick pattern using a reversal candle
Typically, Japanese candlestick chart will be divided into 3 main types including: continuation trend chart, trend reversal chart and sideways trend chart. If you have identified a trend, you can trust each chart on different time frames, applying reversal candlestick patterns to your analysis, identifying entry and exit points is also a very possible way. , is applied by many traders today.
In fact, it is also the most recognizable way to look for trend reversals. So if you don't have much knowledge and experience about forex trading, we recommend that you learn about these reversal candlestick patterns first. It is really effective, you just need to match the reversal candles with the EMA line or the trendline line that you can confidently trade, find the entry point and exit the order at the right time.
Use pricing model
There are two types of price patterns: trend continuation patterns and trend reversal patterns. The first is a trend continuation pattern. When there is an uptrend or downtrend, when these continuation patterns appear, it shows that the strength of the previous trend is still present and the price is in the accumulation phase, there is a high probability that the price will continue the previous trend. . .
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Trend reversal pattern. These patterns appear at the end of a trend, it shows that the strength of the trend is weakening, there is a high possibility that the trend will reverse.
Using indicators: MACD, RSI, Stoch…
One of the highlights of MACD and RSI indicators is that they are used to measure momentum, which helps to identify divergence and convergence levels. When the price made a divergence, it means that the price hits higher highs (HH), but technical indicators make lower highs (LH). That means prices aren't hitting new highs, or buyers no longer want to buy to raise prices. Thus, a divergence appears as a sign that the price may reverse to the downside.
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Convergence is the price making lower lows but the indicator showing higher lows. At this point, sellers are no longer interested and want to sell to lower the price even further.
Step 3: Find entry points, find stop loss and take profit points
After completing the 2 steps of chart analysis, identifying the trend, determining the strength of the trend, the next job is to find the entry point as well as the stop loss and take profit. The entry point must follow the trend, if the trend is up you are only looking for buy orders and if the trend is down you are looking for only sell orders.
In fact, finding entry points is very difficult, even for professional traders. However, we can find the entry point that is most likely to win.
If you trade in reversal candlestick patterns, to increase the probability of winning you should enter orders in the support and resistance areas combined with reversal candlestick patterns. Stop loss you should place after support or resistance, take profit you will place at the nearest support or resistance line.
You analyze by indicator, you should combine them as long as they are not of the same type. Alternatively, you can use the indicator on close timeframes, when the indicator gives the same result, we continue to trade. Take profit and stop loss will generally depend on the timeframe you are trading, if the timeframe is large, you should set long take profit and stop loss, if the timeframe is small, you should set a short take profit and stop loss point. . Note that the take profit is always less than the stop loss.
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Notes when reading Japanese candlestick charts on Forex
Don't trade when the pattern hasn't formed yet
Do not rush to enter an order when a candlestick pattern has not been completed. This is a very common mistake for traders with Japanese candlesticks. They are ready to place orders when they see the pattern, they are not interested in its completion. As a result, when the market makes a double turn, that pattern becomes a completely different pattern.
So do not trade when the candlestick pattern is not completely closed. Because 1s can also be a big problem.
Let's combine Japanese candlesticks on Forex with indicators
Japanese candlesticks are a great tool for finding entry points when paired with technical indicators. When you do trend trading, you can also combine with indicators: Moving Average or Bollinger Band to find signals.
If you follow the reversal trading school, combine Japanese candlesticks with RSI (Relative Strength Index) or Stochastic. To help you find signals with better accuracy.
See also: What is an indicator? Types of Technical Indicators Commonly Found in Forex
Use order entry and exit strategy slowly (Scaling In and Scaling Out)
Scaling In is a strategy for partial entry, splitting a large order into many small orders. On the contrary, Scaling Out is a strategy for partial exits. This is also a pair of strategies that are used by many reputable forex brokers (especially long term traders). Because efficiency helps them have better entry and exit points.
Note: These tactics can also backfire when not used carefully (eg, the market turns when orders are not filled). Therefore, traders should carefully consider having an entry/exit plan.
Conclusion
Through this article we guide how to read japanese candlestick chart like you. I hope that by the time you finish reading the article, you will have the knowledge and start practicing your skills in reading and sorting Japanese candles in the forex market competently. This is a skill that every trader needs to be able to earn in the forex market. Check out the free forex signals we provide. I wish you success in investing in this market! If you find this topic interesting, you can see the next article to update more knowledge about candlestick patterns.
View more: The strongest reversal candlestick patterns in Forex you need to know