Wednesday, 23 October 2019

Candlestick Formation in Price Action

How to read market price movements using candlestick formations has been applied in his home country, Japan, since the 18th century. At that time, candlestick charts were used to predict rice price movements. When the stock market in Japan began operations in 1870, candlesticks were widely used by traders to analyze the ups and downs of certain stocks from time to time.

Famous United States analyst, Charles Dow, in the 1900s participated in using candlesticks in predicting the direction of stock price movements, until this formation became popular throughout the world until now. Basically, candlestick formations provide the same information as regular bar formations. However, candlestick formation charts are clearer and more accurate in describing price movements (Price Action). Visually, the behavior of bid and ask prices is clearer to understand in candlestick formation. In trading charts, the role of traders who want prices to rise (Bull) and prices to fall (Bear) is clearly visible, and who the winner will be seen in the formation is formed.


Candlestick Formations That Often Appear The basis of the Price Action method is the observation and interpretation of price movements through candlestick formations. Because it is already popular, analysts give names or designations for certain formations that often occur, such as Hammer or Doji. The following is a picture of a candlestick formation that often appears on the market and is used in analysis with the Price Action method:



1. Bullish Candle

Describes the movement of price up in a certain time period. In this case, the number of traders who want a price increase is greater than those who expect the price to go down.

2. Bearish Candle

 Describes the movement of prices down during this time period. In this case, the number of traders who want prices to fall is greater than those who expect market prices to rise.

3. Long Lower Shadow

This formation is bullish. The minimum tail length must be the same as the length of the body candle. The longer the tail (Shadow candle), the more valid this candlestick formation will be. That is, the possibility of bullish is greater because traders supporting price increases more than traders supporting price reduction.

4. Long Upper Shadow This f

ormation is bearish. The upper Shadow length must be at least the same as the length of the Body candle. The longer the upper Shadow formed, the more valid the Upper Upper Shadow formation. That is, the possibility for bearish is greater because in this condition, traders who want prices to fall more than the supporters of price reduction.

5. Hammer This candlestick formation indicates a bullish state.

 Hammer is more valid if it occurs in a downtrend, with a tail length of at least 2 times the length of the body candle. Because Hammer does not have a Shadow above, this candlestick formation depicts traders who want more price increases to enter the market in the final closing moments. Also read: Recognizing Bullish Candle Hammer Patterns.

 6. Shooting Star Contrary to Hammer, this candlestick formation is bearish.

Shooting Star is more valid if it occurs in an Uptrend condition, with a Shadow length above at least 2 times the length of its Body candle. In the context of this formation, traders supporting price drops more enter the market in the final closing moments. Also read: Shooting Star Candlestick Patterns, How to Reversal Markers Effective.

7. Harami Is one of the 3 Indecision Candle, so that its nature cannot be ascertained.

Harami is one of the reversal markers consisting of 2 candles. The formation is often thought to be similar to Inside Bar and Mother Bar, because they both consist of a large first candle and are able to cover the second candle. The difference, Harami only calculates the Body, so in this candlestick formation, the second Shadow candle can not be covered by the first candle. Also read: Recognize Harami Candlestick Patterns.

 8. Doji Unlike Harami, Indecision Candle only consists of 1 candlestick format.

Doji are formed when the market is consolidating or hesitating about the direction of the next price movement. Bullish and bearish sentiments appear in a balanced state, so it cannot be ascertained whether prices move up or down after this candle is formed. Traders usually use other confirmers to read Doji signals, either by looking at the candle after the Doji, other technical indicators, or price positions against Support Resistance. Also read: Doji Candlestick Formation.

9. Dragonfly Doji Is a type of Doji that is bullish if it occurs in a downtrend.

Compared to the main Doji pattern, this candlestick formation is even rarer, and could indicate the strength of the seller who failed to pull the price to continue the decline.

10. Gravestone Doji Is a type of Doji that is bearish if it occurs in Uptrend conditions.

This candlestick formation is nfly Doji, thus indicating the failure of buyers to support prices to continue strengthening. This pattern also clearly indicates the direction of prices than the usual Doji which still shows market uncertainty.

 11. Engulfing Is a formation consisting of 2 candles.

In contrast to Harami, the Engulfing pattern reflects the first candle that is 'eaten' completely by the second candle. In addition, the first and second types of candles are always different, and this is what distinguishes between Bullish Engulfing and Bearish Engulfing.

Also Read : Differences in Binary Options and Forex
Also read : Basics of Trading Strategies with Price Action

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