We all know candlesticks. And we all know how trading with candlesticks is one of our most powerful tools. It’s hard to imagine technical chart analysis without candlesticks. So for that reason alone it clear that understanding candlesticks and knowing how to use this tool, is of the utmost importance to you.
The Basics Of Trading With Candlesticks
The first to use trading with candlesticks were the Japanese. There was a man named Homma, who traded the rice futures in the 1700s, discovered that besides there being a link between supply and demand, the market was also heavily influenced by emotional decisions of the traders. He understood that he could gain a benefit from understanding the emotions of the traders. He saw that there could actually be a difference between the value and price of the rice. This difference between value and price is still relevant in every market today, including forex.
There are two ways to look at price. There’s fundamental analysis and technical analysis. Technical analysis and candlesticks are of the psychological or emotion sort. The technical analysis is seeking to answer the question “how are other traders viewing this and how will that effect the price in the immediate future”.
When they are used in the correct way, candlesticks can give a signal of market direction before most other indicators. They can be created for any time period you want: Monthly, weekly, daily, hourly, per minute and even per an odd number like 52 minutes (if that’s your kind of thing). Regardless of the time frame, candlesticks should not be viewed as a sole entity in your trading approach. Even when candlesticks are viewed in a pattern, be sure to incorporate other signals and indicators into your trading as well. Find an example of how we use Exhaustion Candles for instance, right here : Extensive Training on Exhaustion Candles.
Candlesticks As A Tool
There are heaps of candlestick patterns and it can be daunting to recognise and take advantage of all the different patterns. Ofcourse some patterns are more useful than others and some suit your trading personality much better than others. But when the right patterns are used correctly, they are a great tool to increase the accuracy of your trades. And having the ability to recognise these patterns will provide for plenty of trade situations for trading with candlesticks.
As always when it comes to tools. Treat them as just that, a tool. Never rely on just one tool and gather confirmation from other tools as well. This will decrease the risk of the trade not working and it will improve the accuracy of your forecasts greatly.
Once you understand your set of patterns, you will be reading the story of the price as told by a sequence of candlesticks, like a pro. You will be able to make forecasts with decent accuracy and acting on confirmation once they show up.