Candlestick analysis in the Forex market

Candlestick analysis is one of the most effective methods of technical analysis. Japanese candles were invented in Japan in the 18th century by a resident of the city of Sakato, Monehisa Homma. The invention of Japanese candles made it possible to predict their future movement quite accurately on the basis of past prices.

The candlestick analysis (Forex) is mainly used to analyze the price movement in the daily time interval, taking into account the correlation of prices: opening and closing a particular trading day, closing the previous trading day and opening a subsequent one.

The difference between the opening price and the closing price is represented in the form of a rectangle, which is called the body of a candle. If the candle closing price is lower than the price of its opening, the body of the candle is painted black (a bearish candle), and in the case when the candle closing price is higher than the price of its opening, into a white (bullish candle).

As a rule, underneath and / or above the body of a candle, thin lines appear on the price movement chart, which are called "shadows". The upper one displays the maximum price reached during the time interval, the lower one, respectively, the minimum price. These shadows, similar to the wick, formed the basis for the name "Japanese candles".

The body of the candle actually indicates a quantitative change in the candle during its formation: the long body of the candle is a significant change, the short one is less significant.

Analysis of shadows also has its own characteristics. If the body of the candle is shorter than its lower shadow, then even if the candle is bullish (white), clearly on the market at a given time, the advantage over bears. If the candle's body is equal or shorter than the upper shadow, then even if the candle is a bear (black), the market leaders are bulls.

Candlestick analysis helps the trader correctly analyze the market, compare the data and develop a clear effective strategy.

All candle combinations are divided into three types: individual candles, paired combinations and combinations of three or several candles. The latter are much more reliable signals to the transaction than a single candle. This is due to the fact that the last candles either confirm the meaning of the first, or are refuted.

Candlestick analysis of the market is nothing more than an analysis of the combinations of successive Japanese candles. Its main principle is to find certain standard models (continuation or reversal of the trend) that have a fairly accurate interpretation.

The candle reacts faster to a price change than any indicator, so if you use candle analysis along with other methods, it will make trading much more efficient.

The algorithm for determining the meaning of candle combinations, which appears on the graph on the right side, is approximately the following:
- determine the meaning of the last of the candles;
- establish a connection with the previous one;
- if necessary, determine the meaning of the last three candles.

Of particular interest are candlestick analysis of the market's reversal.

The probability of maintaining an existing trend is usually higher than the probability of its change, so when you receive any reversal signal candle configuration you need to get its confirmation.

If the reversal signal was preceded by a long time and strong trend, then the probability of approaching the turn is quite high, and the longer the trend and the stronger it is, the closer the moment of trend change.

The appearance of a reversal signal near sufficiently strong old levels of resistance or support increases the probability of its operation.

The correct forecast is also supported by the trading volume data: if the growth of volumes is marked by the closing of the last candle of the existing model, this will be a confirmation of the preliminary forecast.