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Monday, 26 August 2019

How to read simple and accurate candlesticks

Reading candlesticks is not merely memorizing and getting to know the formations. Many books reference hundreds of candlestick patterns, with each pattern having information and information to find out what will happen next in the Forex market.

In fact, memorizing hundreds of candlestick patterns does not make a significant difference to your trading performance. Call it the Three Black Crows, Concealing Baby Swallow, Unique Three River Bottom and whatever that name is. Too much, makes you dizzy, and not practical.



Actually, you don't need to memorize all the patterns for candlestick analysis. You only need to know the big picture of how to read candlesticks, because each candle is basically able to inform the price structure, the strength of the trend, the dynamics of the Buyer against the Seller, and the projected direction of the price will move later.
Four Basic Elements as a Guide to Reading Candlesticks
Step 1: Candlestick War

Before we begin to explore the important elements for candlestick analysis, we must have the right perspective first. Think of it as a price movement due to a war between Buyers and Sellers. Each candlestick is a battle during wartime, and the four candlestick elements tell who is superior, who is retreating, who is in control, and which party has a greater chance of winning the next battle.

Step 2: Understand the Context (Big Picture) During Candlestick Analysis

It should be underlined, candlesticks cannot be observed in a single pattern, without knowing the price dynamics beforehand. Candlestick analysis must be examined by taking into account past price movements. Therefore, every time we try to read candlesticks or price formations, we must ask the following questions:

Is the latest candlestick smaller or bigger than the previous candle?
Does the change in size mean?
Do changes occur when the trading session is inactive? For example, candlesticks on EUR currency pairs often contract or shrink during the Asian session because trading volume is also small.
The points above are important to hold so that we avoid narrow thinking that limits understanding of the big picture. Armed with that grip, we can now explore 4 important elements for reading candlesticks:

Element 1: Body Size of the Candlestick
Candlestick body size is a good starting point because we can get a lot of information from it.

The length of the candlestick's body indicates the strength of one party.
Elongated body size means showing strengthened momentum.
When the body shrinks, it means the momentum also increases slowly.
In short, the length of the body shows how far the price has moved during the duration of the candle (timeframe per candle).

Element 2: Candlestick Axis (Wick) Length
The length of the candlestick's axis informs the volatility of price movements.

The long axis indicates that the price is moving fast for the duration of the related candlestick, but is experiencing resistance due to resistance.
If the axis increases in length, it means that volatility is increasing. This often happens at the end of a trend, before the price reverses direction, or when the price approaches important Resistance Support.
Element 3: Body and Axis Ratio
From here we can get a big picture in reading candlesticks.

Which is longer, body or candlestick axis?
When a trend with high momentum, you will often find long-bodied candlesticks with smaller axes.
When the market is hit by uncertainty, volatility increases so that the body of the candlestick shrinks, but its axis is longer.
Element 4: Candlestick Body Position
This element is a development from the previous element.

Also Read : Trading with Parabolic SAR and MACD

Did you find a long-axis candlestick with your body at one end? This shows resistance.
Candlesticks with a body position in the middle of the lower and upper axes indicate doubt / uncertainty in the market.
By understanding all the basic elements above, we can read candlesticks without memorizing shapes or names one by one.

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