Understanding Japanese Candlesticks in Forex Trading

1. What are
“CANDLESTICKS”
And
How To Use Them
By Valentino Heavens

2. The bar at the top or bottom of a candle
can be referred to as a shadow or wick

3. Candlesticks can be used:
• On any time frame, one day, one
hour, 30-minutes etc.

4. Candlesticks can be used:
• On any time frame, one day, one
hour, 30-minutes etc.
• To describe the price action during a
given time frame.

5. There are many
candlestick patterns but
for the most part they can
be grouped into 6 major
patterns

6. Sometimes it is hard to
determine what each
candle stick formation is
trying to tell you

7. The recommendation form all the
candle stick instruction we have seen
is:
Always confirm the candle stick
patterns with other indicators.

8. What is the highest probability direction
of the market.
Each Candle gives us reason to ask…
Is this a continuation
or a reversal pattern?

9. 6 Most common:
Candle Sticks Patterns:

10. 6 Most common:
Candle Sticks Patterns:
1. Doji Candles

11. 6 Most common:
Candle Sticks Patterns:
1. Doji Candles
2. Near Doji Group (tail longer than the body)

12. 6 Most common:
Candle Sticks Patterns:
1. Doji Candles
2. Near Doji Group (tail longer than the body)
3. Engulfing Candles

13. 6 Most common:
Candle Sticks Patterns:
1. Doji Candles
2. Near Doji Group (tail longer than the body)
3. Engulfing Candles
4. Tweezer Candles

14. 6 Most common:
Candle Sticks Patterns:
1. Doji Candles
2. Near Doji Group (tail longer than the body)
3. Engulfing Candles
4. Tweezer Candles
5. Inside Candles

15. 6 Most common:
Candle Sticks Patterns:
1. Doji Candles
2. Near Doji Group (tail longer than the body)
3. Engulfing Candles
4. Tweezer Candles
5. Inside Candles
6. Outside Candles

16. Doji
Doji is a candle without a body just
a tail
It opens and closes near the same
place

17. Near Doji Group
Where the wick is longer than the
body

18. They look the same but are positioned in among
the other candles differently

19. Recognition Criteria:
• The long shadow or wick is about
two or three times the size of the real body.
• Little or no upper shadow or wick.
• The real body is in the upper third of the trading
range.
• The color of the real body is not important.
though a white body is more bullish than a black
body.

20. • The hammer is a bullish reversal pattern that
forms during a downtrend.
• Just because you see a hammer form in a
downtrend doesn't mean you automatically
place a buy order!
• You need to have more bullish confirmation
before it's safe to pull the trigger.
• The hang man is bearish where the hammer is
bullish

21. An example of
confirmation would
be:
to wait for a white
candlestick to close
above the open to the
right side of the hammer.
And or check for the 5
alarm trade

22. The Hammer and
Hang man
should give you heads up that
the market is slowing and my be
setting up for a reversal

23. • Almost always goes in the direction if
opens on opposite side of wick
• Tails usually represent a reversal accept
when the reversal covers the tail.

24. Inverted Hammer or Shovel

25. Inverted Hammer Shovel

26. The inverted hammer occurs when price has been falling
suggests the possibility of a reversal. Its long upper
shadow shows that price was trying to go higher
suggesting a slow down of the current direction with a
reversal potential.
The opposite is true for the shovel
Inverted Hammer Shovel

27. ENGULFING CANDLES

28. We only look at the bodies to determine
Engulfing candles. It is where the body of
the current candle completely swallows the
body of the previous candles
Bullish engulfing usually means reversal to
the up side

29. The bullish engulfing pattern is a two candle
stick pattern that signals a strong up move
may be coming. It happens when a bearish
candle is immediately followed by a larger
bullish candle.

30. We only look at the bodies to determine
Engulfing candles. It is where the body of
the current candle completely swallows the
body of the previous candles
Bearish engulfing usually means reversal to
the down side

31. The bearish engulfing pattern is the opposite
of the bullish pattern. This type of pattern
occurs when bullish candle is immediately
followed by a bearish candle that completely
"engulfs" it. This means that a strong move
down could happen.

32. An engulfing candle is more significant
if it happens near a support level.
It is even more significant if it hits near
another high or low… maybe a double
or triple top or bottom.

33. Tweezer Bottoms and Tops

34. Tweezer Bottoms and Tops
The tweezers are dual candlestick reversal
patterns. This type of candlestick pattern
could usually be spotted after an extended
up trend or downtrend, giving heads up
that a reversal may happen soon.

35. • One of the most often misunderstood pattern

36. • One of the most often misunderstood pattern
• Does not matter if there is a wick or not. It is
the position of the bodies next to each
other

37. • One of the most often misunderstood pattern
• Does not matter if there is a wick or not. It is
the position of the bodies next to each other
• It is a reversal pattern

38. • One of the most often misunderstood pattern
• Does not matter if there is a wick or not. It is
the position of the bodies next to each other
• It is a reversal pattern
• Patterns are a foot print of what has come
before

39. The most effective tweezers have the
following characteristics:
• The first candle is the same as the overall trend. If price
is moving up, then the first candle should be bullish.

40. The most effective tweezers have the
following characteristics:
• The first candle is the same as the overall trend. If price
is moving up, then the first candle should be bullish.
• The second candle is opposite the overall trend. If price
is moving up, then the second candle should be bearish.

41. The most effective tweezers have the
following characteristics:
• The first candle is the same as the overall trend. If price
is moving up, then the first candle should be bullish.
• The second candle is opposite the overall trend. If price
is moving up, then the second candle should be bearish.
• The shadows of the candles should be of equal length.
Tweezer tops should have the same highs, while tweezer
bottoms should have the same lows.

42. Inside Candles
Inside candle usually means you are going
to move against the grain. Inside means it
opens inside the body of the previous
candle

43. • The inside up candlestick formation is a trend-
reversal pattern that is found at the bottom of a
downtrend. It indicates that the downtrend is
possibly over and that a new uptrend has
started.

44. • The inside up candlestick formation is a trend-
reversal pattern that is found at the bottom of a
downtrend. It indicates that the downtrend is
possibly over and that a new uptrend has
started.
• Conversely, the inside down candlestick
formation is found at the top of an uptrend. It
means that the uptrend is possibly over and
that a new downtrend has started.

45. Outside Candles Up Outside Candles Down
Down
• Outside candle is where you open outside the
prior body and that usually means you are going
to continue in that direction up or down

46. Outside Candles Up Outside Candles Down
Down
• Outside candle is where you open outside the
prior body and that usually means you are going
to continue in that direction up or down
• Outside candle trend continuation

47. The outside up candle pattern is formed when the
long bullish candles follow a downtrend, signaling a
reversal has occurred. This type of candlestick
pattern is considered as one of the strongest
reversal patterns, especially when it occurs after an
extended downtrend and a short period of
consolidation.
The inside down candle pattern if just the
opposite of the up candle

48. There are several patterns that
tell you the same thing
for example is the market:
• Continuing
• Reversing
• Undecided

49. 6 Most Common Candlestick patterns:
1. Doji Candles
2. Near Doji Group (tail longer than
the body)
3. Engulfing Candles
4. Tweezer Candles
5. Inside Candles
6. Outside Candles

50. 6 Most Common
Candlestick Patterns:
Indecision Candle, No body
• Doji Candles

51. 6 Most Common
Candlestick Patterns:
Indecision Candle, No body
• Doji Candles
Suggest direction change or at least a slowdown depending
on where it is in the trend.
• Near Doji Group (tail longer than the body)
– Hammer,
– Shovel
– Hang man
– Spinning top
– Pin bar
• Engulfing Candles
• Tweezer Candles
• Inside Candles

52. 6 Most Common
Candlestick Patterns:
Indecision Candle, No body
• Doji Candles
Suggest direction change or at least a slowdown depending
on where it is in the trend.
• Near Doji Group (tail longer than the body)
– Hammer,
– Shovel
– Hang man
– Spinning top
– Pin bar
• Engulfing Candles
• Tweezer Candles
• Inside Candles
Continuation
• Outside Candles

53. Now a little bit on:
Price Action
It is shown by
Candles

54. The difference between Price
action and candles is:
• Price Action adds in support and
resistance levels

55. The difference between Price
action and candles is:
• Price Action adds in support and
resistance levels
• Prior highs and lows and maybe a
couple of moving averages

56. Candle sticks are part of
price action…
• whether you are bouncing or breaking
support and resistance levels
• Candlesticks are the rest of the Price
Action decision making process

57. When you're near support and
resistance levels:
• You look for candlestick pattern to
determine the price action
• Also look for 5 alarm trades after grading
the strength of the trade

58. Price Action is the information
you are getting and the location
at which it is happening:
For example…
Is the information coming near, above, or
below Support and Resistance?

59. It is our opinion that you need
more than Candlesticks, and Price
Action to take advantage of the biggest
part of a trend.
Grading the Trade and having profit
targets in mind will give you a bigger
edge.

60. Additional Suggestions:
• If you are struggling with consistency try a
higher time frame

61. Additional Suggestions:
• If you are struggling with consistency try a
higher time frame
• It is better to go from the larger time
frames to the smaller time frames. You
don’t miss anything which is contrary to
popular belief. From 1hr to 30 min etc.

62. • It is recommended to only make decision
when a candle closes or at the opening of
a new candle rather than in the middle of
the formation

63. • It is recommended to only make decision
when a candle closes or at the opening of
a new candle rather than in the middle of
the formation
I AM GOING TO SHOW YOU A
TECHNIQUE OF HOW TO GET HEADS
UP AS TO WHAT A CANDLE WILL
LOOK LIKE IN THE MIDDLE OF THE
FORMATON.

64. Here is the Key:
Look at a smaller time frame to get heads up
i.e.
Day to 4hr
4hr to 1hr
1hr to 30 min
30 min to 15 min

65. If you can’t determine what a
candle stick pattern is telling you…
–look at other time frames

66. If you can’t determine what a
candle stick pattern is telling you…
–look at other time frames
–Check other indicators for
conformation

67. If you can’t determine what a
candle stick pattern is telling you…
–look at other time frames
–Check other indicators for
conformation
–Check back later when the
chart is easier to read.

68. It is about quality not quantity…
what about both!!!

69. • It is about quality not quantity… what
about both!!!
• With each new candle you are attempting
to answer the question continuation
or reversal

70. You do not have to know
every pattern
to be able to use
Candle Stick patterns

71. The study of Candle Stick
Patterns is:
A long term endeavor

72. Lets look at some
charts for
Candle stick Patterns

73. Now just a little on the
CANDY BAR
SET UP

74. • The Candy Bar is one of the safest
trade you can take

75. • The Candy Bar is one of the safest
trade you can take
• It is usually confirmed by one or
more other indicators

76. • The Candy Bar is one of the safest
trade you can take
• It is usually confirmed by one or
more other indicators
• The trade will be earlier than
most other entry signals in a
continuing trend

77. Lets look at some
charts
For Candy Bar setups