Fundamental analysis: Candlesticks

The Basic Japanese Candlestick.

Candlestick Patterns
Candlesticks with Bodies Longer than their wicks are called decision candles while candles with longer wicks than the body are called indecision candles.

Evening and Morning Star Patterns can consist of more than three candles.

The third of last candle of the evening stars must close below the 50% mark of the first candle.

Tweezer Tops and Bottoms consist of 2 or more candles with wicks that are at least 60% the length of the total candle. Bodies of the candles can be bullish or bearish.

The ideal tweezer tops/ bottoms have wicks that are similar in length.

Bullish / Bearish engulfing candles are candles that engulf the previous candle or candles.

Bullish engulfing candles engulf the previous bearish candles after a downswing price movement.

Bearish engulfing candles engulf the previous candles after a upswing price move.

Testing Candlestick Formations
On most occasions the market will test candlestick formations.
For bullish candlestick patterns the bears will test the low for selling interest, if there is no selling interest the pattern will hold and prices will rally.
If it’s a bearish candlestick pattern the bulls will test the high for buying interest, if there is no buying interest the pattern will hold and prices will fall.
This is the reason stoploss has to be placed above the highs and the lows of the candlestick patterns.

When trading candlestick
Don’t trade candlestick formations in consolidation.
Trade candlestick formations at the Fibonacci level and at trendline bounce.
When trading candlestick formations ensure that stops are placed a couple of pips above the formation when selling and a couple of pips below when buying
One of the main rules to trading if the risk for the trade is too much do not take the trade.
Candlestick formations allow you to have very little risk on the trade.

Originally posted on my blog at Forexbloz.kbasante.com