Let's learn about Marbuzu candle, Doji candle, Master candle, and more types of Japanese candles that you should recognize on the chart.
What are Marbuzu High Momentum Candles?
High momentum candles, which usually open at either support or resistance, are called Marubozu candles. A Marubozu candle is a momentum candle with either a small tail or no tail or shadow at all. This type of Japanese candlestick pattern is very powerful and means a lot in terms of price action. Marubozu represents selling at resistance or buying at support. Marubozu means “bald head” or “shaved head” in Japanese.
This is because this candle does not have at least one shadow, or the shadow is very small. In modern market trading, Marubozu can also have very small wicks on both sides, and may still be called by the same name. This is why the term momentum candles are used. A blue Marubozu candle appearing in an uptrend may indicate a trend continuation, while in a downtrend, a blue Marubozu can indicate a potential bullish reversal pattern.
Here are some examples of bullish Marbuzu candlestick patterns:
Source: Demo Account - MetaTrader 5 Supreme Edition - DAX30 - H1 Chart - Data Range: October 30, 2019 - November 5, 2019. Made on January 13, 2020 - Note that past performance is not a reliable indicator of future results.
Conversely, a red marbuzu in a downtrend may indicate a continuation, while in an uptrend, a red marbuzu can indicate a potential bearish reversal pattern.
Here are some examples of bearish Marbuzu candlestick patterns:
Source: Demo Account - MetaTrader 5 Supreme Edition - DAX30 - H1 Chart - Data Range: September 30, 2019 - October 4, 2019. Made on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
What is a Doji candle?
A candle whose closing price is the same as where it opened, or very close to where it opened, is called a Doji candle.
Memorizing the names and descriptions of Japanese candlestick patterns is not a prerequisite for successful trading. However, it is useful for every price action trader. By looking at the types of Japanese candlesticks, you can see the momentum, trend, buyers and sellers at the moment, and also the overall market bias.
Source: Demo Account - MetaTrader 4 Ultimate - DAX30 Chart - H1 Chart - Data Range: January 7, 2020 - January 13, 2020. Done on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
Master Candle Concept
The Master Candle, or Master Candle, is a concept that most traders are familiar with in price action. A Master Candle is defined as a candle ranging in size from 30 to 150 pips that engulfs or contains the four candles that follow it, meaning that these Japanese candles are within the range of the Master Candle. In order for a breakout strategy to be valid, Master Candle breakouts can be traded if the fifth, sixth or seventh candle breaks through the range of the Master Candle.
Master Candle (Ascending)
Source: Demo Account - MetaTrader 5 Supreme Edition - USDJPY - D1 Chart - Data Range: March 7, 2018 - May 14, 2018. Made on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
bearish master candle
Source: Demo Account - MetaTrader 5 Supreme Edition - USDJPY - D1 Chart - Data Range: July 14, 2015 - September 18, 2015. Made on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
This concept goes perfectly with the Admiral Pivot, for taking profits and placing stop loss orders. It is a great candlestick formation, you should check it regularly.
How to Validate Japanese Candlestick Patterns
There are 3 steps to follow:
Wait for the last candle to close to confirm the pattern.
Confirming Japanese Candlestick Patterns with Support and Resistance Levels
Incorporating Japanese Candlestick Patterns into Your Trading Strategy
Now that you know how to recognize different types and patterns of Japanese candlesticks, you should learn to validate or invalidate these formations when they appear.
Japanese candlestick formation is a signal that translates the psychology of investors at a certain time in the market. Like any signal, it is not enough on its own and requires confirmation before justifying opening a deal.
Let's see what all the steps are.
Validate the candlestick pattern with the close of the last candle.
The first essential step in confirming the formation of a new Japanese candlestick pattern is the close of the last candle.
Japanese candlesticks graphically translate the psychology of investors for a certain time period. As long as the candle is not closed, you will not have these elements: you can only guess.
If you realize that a certain pattern is forming and the current candle is not closed, you should wait for that candle to close for the signal to be valid. In fact, you may have a last-minute fluctuation that completely changes the appearance of the candle and cancels out the pattern you thought you knew.
Confirming Japanese Candlestick Patterns with Support and Resistance
Japanese candlesticks and their technical formations are a powerful tool for predicting price development. However, it may be appropriate to combine them with psychological price levels in the market to confirm candlestick pattern signals.
You can use support and resistance levels to confirm, for example, a trend reversal or moments of indecision. Pivot points are also psychological price levels that can be particularly useful for confirming candlestick patterns, especially for day traders.
Add Japanese Candlestick Patterns to Your Trading Strategy
Japanese candlestick formations in trading convey important information about the psychology of investors in the market. This information is useful for confirming the signals of your trading strategy.
No technical indicator is sufficient in itself to work. To reduce false signals, you should collect different types of information. For example, you can integrate into your trading strategy: Japanese candlesticks (for a psychological approach) and Bollinger Bands (to take into account volatility).
Japanese Candlestick Pattern Trading Strategies
As the name suggests, these trading strategies are based on candlestick patterns, and are suitable for all types of traders – intraday, swing, and even scalpers who want to profit on short-term movements.
Let's take a look at an illustrative example:
Indicators: EMA (Exponential Moving Average) 30,60,100 Set on Close.
Entry signal: Candlestick pattern
Time frame: 4H (four hours)
First, we need to set up the EMA indicator to match the overall trend. We also need to install three EMA indicators on the chart. As shown in the example in the chart below, the EMA 20 is blue, the EMA 60 is red, and the EMA 100 is green. You must place the EMA indicators correctly to show the overall trend. When the blue EMA is below the red and green EMA, the trend is bearish. When the blue is above the red and green, the trend is bullish. That simple!
Uptrend
Source: Demo Account - MetaTrader 4 Ultimate - EUR/USD - H4 Chart - Data Range: November 19, 2019 - January 7, 2020. Made on January 14, 2020 - Please note that past performance is not a reliable indicator of future results.
Downtrend
Source: Demo Account - MetaTrader 5 Supreme Edition - EURUSD - H4 Chart - Data Range: June 24, 2019 - August 8, 2019. Created on January 14, 2020 - Please note that past performance is not a reliable indicator of future results
Please note that the EMA indicators need to be aligned correctly in order to show a trend. If the EMA indicators are intertwined, it means that we do not actually have a trend.
Entry is made when the price pulls back towards the EMA indicators. When we see a blockage, the next thing we see is a bullish or bearish candle, depending on the general trend. Entry is made on any of the above mentioned candles.
hammer
The meteor
The Hanged Man
hole line
bullish/bearish engulfing
Dark Cloud
The stop loss in this example is placed 10 pips above the entry candle. For targets, we recommend using the Admiral Pivot set on the “Weekly Timeframe”.
Example of a sale transaction
bearish deal
Source: GBP/JPY H4 Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Example of a purchase transaction
bullish deal
Source: GBP/JPY H4 Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Tip: It is always best to wait for the pullback to at least touch the blue EMA before deciding to enter. Candlestick trading can be very profitable if you implement risk management into your trading strategies, and manage the risks involved effectively. Always practice on a demo trading account first before moving to a live trading account. By doing this, you allow yourself to make mistakes and learn in a risk-free trading environment, before taking your strategies into the live markets.
Summary of the most important types and models of Japanese candles in detail
As you have seen throughout this article, Japanese candlestick charts and patterns can really make trading in markets like Forex easier. Knowing how to interpret Japanese candlesticks is a very convenient way to analyze the markets, and you should have no problem applying it on a daily basis.
Traders who learn to identify candlestick patterns can have a clear view of the volatility, direction and strength of the Forex market trend. In fact, candlesticks are almost self-sufficient, if interpreted in the right way.
The goal here is very simple, to find out who dominates the price development, between buyers and sellers, at a given moment. Whoever knows how to interpret Japanese candlestick patterns will have the information before others!
Candlestick trading can be very beneficial if you manage your risks properly. Practice on a demo account before trading on a real account! And let us know what you think about this article on technical analysis and Japanese candlesticks in the medium and long term starting from scratch.
We hope this article was useful to you and helped you understand the main Japanese candlestick patterns and how to read them on charts.
#BinanceTurns7 #MarketDownturn #elaouzi #TopCoinsJune2024 #FavoriteToken
